<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, 1997.

[ ]  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, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $24,652.

As of March 25, 1998, the number of shares outstanding of the registrant's
common stock was 3,293,733.

Documents Incorporated By Reference

None.



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                                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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     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. It is anticipated that Proper Appraisal Specialists,
Inc., a New York Corporation, will be dissolved by proclamation during 1998. 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. The company opened a satellite office in September,
1996 in Oswego, New York which was moved to a new location in Oswego as of
October 9, 1997, and closed its Lockport satellite office in February, 1997.

     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, Binghamton, Albany and Oswego, 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



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                                       -6-

Services and Products  (cont)

the issuance of title insurance as agent for certain national underwriting
companies. Other services and products include abstract storage and
settlement/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.

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).




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                                       -7-


     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.

     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 amount to approximately $25,000 annually.

     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 1997, escrow closing services generated approximately $75,000 as compared
to $31,000 and $90,000 in 1996 and 1995, 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.





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                                       -8-

     Due to the increasing number of residential bank foreclosures, the Company
has seen a significant increase in revenues from the sale of foreclosure related
title search products during 1997. The Company's ability to provide these
services on a statewide basis has enhanced its market penetration in the
foreclosure area. During 1997, the Company generated approximately $725,000 in
revenues from foreclosure related products, representing 19% of total revenues.

     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 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 1997 increased by 2.2% to $3,789,864 as
compared to $3,706,778 in 1996. Revenue from title insurance increased slightly
during 1997 to $1,318,443, representing 35% of total




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                                       -9-

revenues, compared to 35% and 42% in 1996 and 1995, respectively. Revenues from
abstract and escrow related services also increased slightly to $2,471,421 as
compared to $2,403,808 and $2,212,068 in 1996 and 1995 respectively.

     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.

     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




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                                      -10-

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.

     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 future quarters. As a result, the
buyer would not be required to make any principal payments for the contingent
portion of the note. No portion of the contingent note receivable was recorded
as income through December 31, 1997.


     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



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Appraisals   (cont)

payroll and other overhead expenses associated with running its appraisal
operation.

     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. Since the signing of this agreement, 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. However, since the Company's
marketing efforts have de-emphasized appraisal products in favor of more
profitable product lines, associated appraisal orders and revenues have
decreased significantly. As a result, the company is currently only receiving
the guaranteed payment of $1,250 per quarter payable under the agreement with
Rynne, Murphy and Associates.

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 two employees
under the direction of the Company's Director of Sales and Marketing. Assistance
and technical support is provided by all of the Company's branch office
managers. Other 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.




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                                      -12-

Significant Customers

     During 1997, there were no customers accounting for more than 10% of the
Company's gross revenues.

Industry Considerations and Seasonality

     The company's business is related to the general real estate market and the
fluctuations which occur therein, namely prevailing interest rates. Real estate
activity continued to be sluggish during 1995, when recorded deeds and 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. This was 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. Real
estate activity in New York State during 1997 was comparable to 1996 levels.
Recorded deeds and mortgages grew slightly by 2.2%. Company revenues increased
comparably by slightly more than 1% to $3,789,864. 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, 1996 and 1997 (see Note 5 of the Accompanying
Consolidated Financial Statements as of December 31, 1997 and 1996).


At December 31, 1997 the Company's total indebtedness to its bank decreased to
$164,167 as compared to $276,250 and $401,213 at December 31, 1996 and December
31, 1995 respectively.


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                                      -13-


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 70 persons at
December 31, 1997, as compared to 66 in 1996 and 1995 respectively. 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.



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                                      -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.



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                                      -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 party. Rent and
common charges were approximately $72,000 in 1997, 1996 and 1995, respectively.
During 1995, unpaid rent of $18,100 was forgiven by the related parties. The
Company owed approximately $15,000, $18,100 and $20,000 for unpaid rent at
December 31, 1997, 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),
Binghamton (760 square feet), Utica (1,611 square feet) and Oswego (350 square
feet).

     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          58         President, Treasurer and Director

     Bernard J. Iacovangelo        50         Vice President, Secretary and
                                              Director

     William S. Gagliano           48         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 1995, 1996

and 1997 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

1995                               BID                              ASKED
----                               ---                              -----
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

1997
----
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 1995, 1996 or 1997.

     On March 25, 1998, the Company had 1,205 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 the Results of Operations".


                      (In Thouands, Except Per Share Data)

<TABLE>
<CAPTION>
                                      1997     1996      1995       1994       1993
                                    -------   -------   -------   -------    -------
<S>                                 <C>       <C>       <C>       <C>        <C>
STATEMENT OF OPERATIONS DATA:
  Revenue                           $ 3,790   $ 3,707   $ 3,822   $ 4,780    $ 5,828
  Income (loss) before taxes            189        89        99      (581)        66
  Net income (loss)                     202        86        97      (469)        56
  Net income (loss) per share (1)   $   .06   $   .03   $   .03   $  (.14)   $   .02

BALANCE SHEET DATA:
  Total assets                      $ 1,455   $ 1,225   $ 1,240   $ 1,315    $ 1,804
  Long-term obligations                 171       357       202       564        507
  Stockholders' investment              319       116        56       (42)       427
</TABLE>



<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 1997, the operations of the Company generated cash of $197,437. This
cash flow, along with cash reserves of $36,612, was sufficient to fund
investments in assets of $10,906 and a net debt reduction of $130,520. The cash
flow from operations of $174,519 funded investments in assets of $58,474 and a
net debt reduction of $142,224 in 1996. During the calendar year 1995, an
operating cash flow of $210,839 funded an investment in assets and a
corresponding decrease in debt financing of $38,881 and $138,099, respectively.

     Cash Flow From Operations. The cash provided by operations was greater in
1997, being $197,437 versus $174,519 in 1996. This change was primarily due to a
greater net profit of $188,138 for 1997 as compared to that of $85,718 in the
previous year. The positive impact arose primarily from non-cash depreciation
and amortization expense, as well as an increase in other accrued expenses of
$43,826. The cash provided by operations in 1996 of $174,519 was lower than the
1995 amount of $210,839. This was attributable to a smaller amount of net income
and a reduced bad debt provision in 1996.

     Cash Flow from Investing Activities. The Company made capital expenditures
of $35,407, $16,346, and $39,325 in 1997, 1996 and 1995 respectively, primarily
related to computer system upgrades, furniture and fixture purchases and vehicle
purchases at various Company locations. Whereas, the company made investments in
its title plant in 1996 of $52,622 to support its ongoing business. No such
commitment was made during 1997 or 1995 based on management's operating
philosophy.

     As of December 31, 1997, the Company had no material purchase commitments
pending. In the past, the company has acquired other businesses for cash, notes
and common stock.

     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, 1997, 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, 1997.
These ratios are adjusted on a quarterly or semi-annual basis during 1997 and
thereafter until the indebtedness is fully paid. 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, 1997, the Company was not in compliance with all of the
financial covenants. Subsequent to year end, the Company obtained a waiver from
the bank for these covenants as of December 31, 1997.


     Future maturities of the debt described above are as follows:

         1998 .........................           $102,559
         1999 .........................             84,155
         2000 .........................              7,196
         2001 .........................                291
                                                  --------
                                                  $194,201
                                                  ========


     The Company may borrow up to $100,000 under the terms of an unsecured
line-of-credit. 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. At December 31, 1997 and 1996, there
was $100,000 and $0, respectively, outstanding under the terms of this
line-of-credit.

     During 1997, the Company had a second line-of-credit for $50,000 with
another bank. The $37,000 outstanding principal balance was restructured during
November, 1997 into a term note payable with monthly principal payments of
$1,542 through October, 1999, plus interest at the bank's prime rate plus 1.25%
(Note 5, Notes Payable). There was $50,000 outstanding under the terms of the
line-of-credit agreement at December 31, 1996.

     The company repaid $43,020, $149,456, and $150,599 under its long-term debt
agreements in 1997, 1996 and 1995, respectively. At December 31, 1996,
additional borrowing activity in the amount of $10,232 was incurred. At December
31, 1997, the Company owed $97,000 to a principal stockholder/director. For the
years ended 1996 and 1995, this indebtedness amounted to $234,500 and $227,500,
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, 1997, 1996 and 1995, expressed as a percentage of total revenues.

                                            Percentage of Total Revenues
                                              Years Ended December 31
                                          -------------------------------
                                            1997        1996        1995
                                          -------     -------     -------
     Title insurance premiums               34.79%      35.15%      42.13%
     Abstract/appraisal fees                65.21       64.85       57.87
                                          -------     -------     -------
     Total revenues                        100.00      100.00      100.00
     Direct costs of revenue               (21.48)     (20.80)     (20.90)
                                          -------     -------     -------
     Gross profit                           78.52       79.20       79.10

     Operating expenses:
              Personnel costs              (48.31)     (50.09)     (51.18)
              Other operating expenses     (23.82)     (25.10)     (22.18)
                                          -------     -------     -------
     Operating income/(loss)                  639        4.01        5.54
     Other expenses                         (1.41)      (1.64)      (2.94)
     Income tax expense                        --        (.06)       (.05)

     Extraordinary items                      .37          --          --
                                          -------     -------     -------
     Net income/ (loss)                      5.35%       2.31%       2.55%
                                          =======     =======     =======




<PAGE>


                                      -22-

     (b) Operating Revenues

     Combined revenues of the Company increased 2.24% from $3,706,778 for the
year ended December 31, 1996 to $3,789,864 for the year ended December 31, 1997.
The Company experienced a decrease in total revenues of $115,437 or 3.02% from
1995 to 1996.

     The revenue decrease in 1995 was 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 1996 as
the housing market began to rebound in the areas where the Company does
business. A slight upturn in the industry led to a minor increase in total
revenues in 1997. The Company expects total revenues to increase during 1998 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 increased by 1.19%
during 1997 to $1,318,443 versus $1,302,970 in 1996. This minimal increase in
title insurance revenue for 1997 combined with a larger increase in abstract and
appraisal services were the determining factors for the increase in total
revenues for the year. These revenues from abstract and appraisal services
amounted to $2,471,421 in 1997 as compared to $2,403,808 in 1996. This
difference represents an increase of $67,613 or 2.81%. A similar increase
occurred when the same revenues increased by $191,740 or 8.67% from $2,212,068
in 1995. The Company experienced a decrease in title insurance revenue during
2.996 of 19.08% from $1,610,147 realized in 1995. As stated earlier, the decline
in this segment of the Company's revenues during the years ended 1995 and 1996
resulted from more intense competition within the industry in addition to a
lower volume of home equity (second mortgages) loans. In 1998, the Company is
anticipating a greater increase in the demand for real estate services than was
demonstrated in 1997.

     (c) Direct Costs of Revenue

     Direct costs of revenue consist of commissions paid to underwriters of
title insurance and subcontractor costs paid to other title companies and/or
independent contractors. As a result of an increase in the volume of 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 increased slightly by 5.60% from
$770,834 in 1996 to $814,035 in 1997. From 1995 to 1996, these same costs
decreased to a limited degree by $28,063 or 3.51% from $798,897 in 1995.


<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,
title insurance policies and maintaining the Company's title plant. Total
operating expenses decreased from $2,811,810 for the year ended December 31,
1995 to $2,786,219 for the same period in 1996. Operating expenses further
declined in 1997 to $2,733,595. These decreases were primarily attributable to
declining payroll costs associated with a reduction in staffing requirements and
a changing geographical mix of business along with continued concentrated
cost-cutting elements.

     In 1996, gross payroll and benefits amounted to $1,856,772 as compared to
$1,956,156 in 1995. Office supplies, especially postage, increased from $97,612
to $119,249 during the same period. However, the Company experienced sizeable
decreases in operating expenses in 1996 and 1997. These decreases are directly
attributable to a cost containment and downsizing program that was previously
implemented as a result of a lower than anticipated sales volume initiated in
1994. The significant variances in expenses for 1997 are shown in the table
below.


     Expense Item                                   1997              1996
     ------------                                   ---               ----

     Depreciation & Amortization                   59,854            79,995
     Office supplies & postage                    142,713           119,249
     Interest Expense                              45,456            60,661


     As with any service company, the major item of expense associated with the
Company's operations is gross payroll and employee benefits. As a percentage of
revenues, personnel costs and fringe benefits represented 48% in 1997, 50% in
1996, and 51% in 1995. As a result of a continuing stabilization of company
revenues following more traditional trends during 1996 and 1995, 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 increased
slightly from 66 in both 1995 and 1996 to 70 in 1997.



<PAGE>

                                      -24-


     Based on a stable sales order volume and reduced operating expenses, income
from operations for 1997 was $242,234 versus $149,725 in 1996. Net income was
$202,238 for the 1997 calendar year whereas a corresponding net income in the
amount of $85,718 was realized for 1996. In 1995, the Company experienced a
similar amount of income from operations and net income to the extent of
$211,508 and $97,384, respectively. 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 and 1997, 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.

<TABLE>
<CAPTION>
                                                                                      Shares of
                          Position with the                                          Common Stock             Percent
                          company or Princi-                 Director                Beneficially               of
Name            Age        pal Occupation                     Since                      Owned                 Class
----            ---        --------------                     -----                      -----                 -----
<S>              <C>      <C>                                  <C>                  <C>                        <C>
Frank B.         58       President and                        1987                   1,366,339(3)             40.92%
Iacovangelo               Treasurer (1)

Bernard J.       50       Vice President                       1987                   1,376,339(4)             41.22%
Iacovangelo               Secretary (1)

William S.       48       Executive Vice                       1992                     140,758(5)              4.22%
Gagliano                  President and
                          Director (1)

Anthony M.       57       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)
</TABLE>


(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 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.


                                         Annual Compensation (1)
                                         -----------------------
         Name and
      Principal Position                      Yearly Salary
      ------------------                     -------------
     Frank B. Iacovangelo                  1997     --      -0-
     President, Chief                      1996             -0-
     Executive Officer                     1995     --      -0-
     and Treasurer

----------
(1)  Mr. Iacovangelo receives no other compensation or benefits from the
     Company. He neither received nor exercised any options during 1997 and he
     held no options at December 31, 1997.

     Remuneration of Directors

     During 1997, 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 $76,120 respectively during 1997.

Item 12. Security Ownership of Certain Beneficial owners and Management

     On December 31, 1997, 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, 1997 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 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, in 1997, 1996, and 1995. respectively.
During 1997, total unpaid rent of $18,100 was forgiven by the related party. The
company owed approximately $15,000, 18,100 and $20,000 at December 31, 1997,
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 1997, 1996 and 1995, 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, 1999. At December 31, 1997, 1996
and 1995, this indebtedness amounted to $97,000, $234,500, and $227,500,
respectively. In 1997, the Company paid Mr. Iacovangelo $18,149 in interest.

     In 1997, 1996 and 1995, approximately 8%, 4% and 4%, respectively, of the
Company's revenue was derived from the law firm of Gallo and Iacovangelo, a
related party. At December 31, 1997, 1996, and 1995, the Company was owed
$79,125, $44,878, and $36,742 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 March 12, 1998

          -    Consolidated Balance Sheets - December 31, 1997 and 1996

          -    Consolidated Statements of Income for the Years Ended December
               31, 1997, 1996 and 1995

          -    Consolidated Statements of Changes in Stockholders' Investment
               for the Years Ended December 31, 1997, 1996 and 1995

          -    Consolidated Statements of Cash Flows for the Years Ended
               December 31, 1997, 1996 and 1995

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

     (2)  Financial Statement Sohedules

          -    Auditors' Report Dated March 12, 1998

          -    Schedule IV - Indebtedness to Related Parties for the Years Ended
               December 31, 1997, 1956 and 1995

          -    Schedule VIII - Valuation and Qualifying Accounts for the Years
               Ended December 31, 1997, 1996 and 1995

          -    Schedule IX - Short-Term Borrowings for the Years Ended December
               31, 1997, 1996 and 1995



<PAGE>


                                      -31-

(3)  Exhibits

     (a)

           10.1     Waiver of Covenant(s) Letter from Marine Midland Bank dated
                    March 27, 1998.

            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, 1997.

     (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 30, 1998                 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.




By:  /s/ Frank B. Iacovangelo                                     March 30, 1998
--------------------------------------
Frank B. Iacovangelo
President, Treasurer and Director
(Chief Executive Officer and
Chief Financial Officer


/s/ William S. Gagliano                                           March 30, 1998
--------------------------------------
William S. Gagliano
Executive Vice President, Chief
Accounting Officer and Director

/s/ Bernard J. Iacovangelo                                        March 30, 1998
--------------------------------------
Bernard J. Iacovangelo
Vice President, Secretary and
Director

/s/ Anthony M. Iacovangelo                                        March 30, 1998
--------------------------------------
Anthony M. Iacovangelo
Director

<PAGE>




                       FOUR CORNERS FINANCIAL CORPORATION

                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                        AS OF DECEMBER 31, 1997 AND 1996

                                  TOGETHER WITH

                          INDEPENDENT AUDITORS' REPORT


                            BONADIO & CO., LLP [LOGO]


                                CERTIFIED PUBLIC
                                ACCOUNTANTS & MORE


<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----

Independent Auditors' Report


Consolidated Balance Sheets at December 31, 1997 and 1996                     1


Consolidated Statements of Income for the years
 ended December 31, 1997, 1996 and 1995                                       2


Consolidated Statements of Changes in Stockholders' Investment
 for the years ended December 31, 1997, 1996 and 1995                         3


Consolidated Statements of Cash Flows for the years ended
 December 31, 1997, 1996 and 1995                                             4


Notes to Consolidated Financial Statements                              5 to 12


<PAGE>


                            BONADIO & CO., LLP [LOGO]
--------------------------------------------------------------------------------
                                                             One Cambridge Place
                                                          1850 Winton Road South
                                                        Rochester, NY 14618-3993


                          INDEPENDENT AUDITORS' REPORT



To the Stockholders of
     Four Corners Financial Corporation and Subsidiary:


We have audited the accompanying consolidated balance sheets of Four Corners
Financial Corporation and Subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' investment,
and cash flows for each of the three years in the period ended December 31,
1997. 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 Subsidiary as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.

                                   /s/ BONADIO & CO LLP


March 12, 1998
Rochester, New York


<PAGE>

                FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996

                                                        1997            1996
                                                        ----            ----

                                     ASSETS

CURRENT ASSETS:
     Cash                                            $   92,623      $   36,612
     Cash - escrow deposits                             240,465          74,540
     Accounts receivable, net of allowances for
      doubtful accounts of $90,000 and $84,000 in
      1997 and 1996, respectively                       573,623         510,762
     Prepaid expenses                                     7,819           5,914
     Current portion of note receivable                   3,750           7,500
                                                     ----------      ----------

        Total current assets                            918,280         635,328
                                                     ----------      ----------

PROPERTY AND EQUIPMENT, net                             110,240         142,523
                                                     ----------      ----------

OTHER ASSETS:
     Cash value of officer life insurance                    --          18,618
     Security deposits                                    6,627           8,760
                                                     ----------      ----------

                                                          6,627          27,378
                                                     ----------      ----------

TITLE PLANT                                             419,905         419,905
                                                     ----------      ----------

                                                     $1,455,052      $1,225,134
                                                     ==========      ==========

                    LIABILITIES AND STOCKHOLDERS' INVESTMENT

CURRENT LIABILITIES:
     Line-of-credit                                  $  100,000      $   50,000
     Current portions of notes payable                  102,559          97,050
     Current portion of subordinated debt due to
      officer/principal stockholders                     18,000          18,000
     Accounts payable                                   373,843         425,697
     Accounts payable - related parties                  19,907          21,400
     Escrow deposits                                    240,465          74,540
     Accrued income taxes                                 3,296           1,500
     Other accrued expenses                             107,779          63,953
                                                     ----------      ----------

        Total current liabilities                       965,849         752,140
                                                     ----------      ----------

LONG-TERM LIABILITIES, net of current portion:
     Notes payable                                       91,642         140,171
     Subordinated debt due to officer/principal
      stockholder                                        79,000         216,500
                                                     ----------      ----------

        Total long-term liabilities                     170,642         356,671
                                                     ----------      ----------

        Total liabilities                             1,136,491       1,108,811
                                                     ----------      ----------

STOCKHOLDERS' INVESTMENT:
     Common stock, $.04 par value, 15,000,000
      shares authorized, 3,293,733, issued and
      outstanding in 1997 and 1996                      133,752         133,752
     Additional paid-in capital                         835,402         835,402
     Accumulated deficit                               (619,968)       (822,206)
                                                     ----------      ----------
                                                        349,186         146,948

     Less: Treasury stock; at cost 55,000 shares in
      1997 and 1996                                     (30,625)        (30,625)
                                                     ----------      ----------

        Total stockholders' investment                  318,561         116,323
                                                     ----------      ----------

                                                     $1,455,052      $1,225,134
                                                     ==========      ==========


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


                                       -1-


<PAGE>


                FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                          1997           1996           1995
                                          ----           ----           ----

REVENUE:
   Title insurance premiums           $ 1,318,443    $ 1,302,970    $ 1,610,147
   Abstract and appraisal services      2,471,421      2,403,808      2,212,068
                                      -----------    -----------    -----------
                                        3,789,864      3,706,778      3,822,215
                                      -----------    -----------    -----------

DIRECT COSTS OF REVENUE
   Title insurance premiums              (310,614)      (370,506)      (508,784)
   Abstract and appraisal services       (503,421)      (400,328)      (290,113)
                                      -----------    -----------    -----------
                                         (814,035)      (770,834)      (798,897)
                                      -----------    -----------    -----------

      Gross profit                      2,975,829      2,935,944      3,023,318

OPERATING EXPENSES                     (2,733,595)    (2,786,219)    (2,811,810)
                                      -----------    -----------    -----------

   Income from operations                 242,234        149,725        211,508
                                      -----------    -----------    -----------

OPERATING EXPENSES:
   Interest                               (45,560)       (60,661)       (72,028)
   Loss on disposal of property            (7,836)          --          (40,596)
                                      -----------    -----------    -----------
                                          (53,396)       (60,661)      (112,624)
                                      -----------    -----------    -----------

      Income before income taxes
       and extraordinary item             188,838         89,064         98,884

PROVISION FOR INCOME TAXES                   (700)        (3,346)        (1,500)
                                      -----------    -----------    -----------

INCOME BEFORE EXTRAORDINARY ITEM          188,138         85,718         97,384

EXTRAORDINARY ITEM - GAIN ON
 EXTINGUISHMENT OF DEBT, net of
 income tax of $4,000                      14,100           --             --
                                      -----------    -----------    -----------

NET INCOME                            $   202,238    $    85,718    $    97,384
                                      ===========    ===========    ===========


NET INCOME PER SHARE:
   Income before extraordinary item   $       .05    $       .03    $       .03
   Extraordinary item                         .01           --             --
                                      -----------    -----------    -----------

   Net income per share               $       .06    $       .03    $       .03
                                      ===========    ===========    ===========


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


                                       -2-


<PAGE>


                FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                 Additional                                             Total
                                      ---Common Stock---          Paid-in        Accumulated         Treasury       Stockholders'
                                    Shares          Amount        Capital          Deficit             Stock         Investment
                                    ------          ------        -------          -------             -----         ----------
<S>                                 <C>             <C>          <C>             <C>                 <C>             <C>
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

   Net Income                            --              --           --             202,238              --           202,238

BALANCE - December 31, 1997         3,293,733       $ 133,752    $ 835,402       $  (619,968)        $  30,625       $ 318,561
                                    =========       =========    =========       ===========         =========       =========
</TABLE>


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


                                       -3-


<PAGE>

               FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>
                                                                                               1997          1996            1995
                                                                                            ---------      ---------      ---------
<S>                                                                                         <C>            <C>            <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Net income before extraordinary item                                                      $ 188,138      $  85,718      $  97,384
  Adjustments to reconcile net income before extraordinary item
    to net cash flow from operating activities:
      Extraordinary item - gain on extinguishment of debt                                      14,100             --             --
      Provision for bad debts                                                                   6,000             --         75,675
      Loss on disposal of property                                                              7,836             --         40,596
      Depreciation and amortization                                                            59,854         79,995        110,302
      Changes in:
        Accounts receivable                                                                   (68,861)       (45,581)       (61,677)
        Prepaid expenses                                                                       (1,905)         7,402         (4,226)
        Income tax receivable                                                                      --             --          6,725
        Accounts payable and accounts payable - related parties                               (53,347)        33,918        (42,687)
        Other accrued income taxes                                                             43,826         13,067        (12,753)
        Accrued income taxes                                                                    1,796             --          1,500
                                                                                            ---------      ---------      ---------
          Net cash flow from operating activities                                             197,437        174,519        210,839
                                                                                            ---------      ---------      ---------
CASH FLOW FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                                         (35,407)       (16,346)       (39,325)
  Payments received on note receivable                                                          3,750          5,000             --
  Change in security deposits                                                                   2,133          6,496         (2,010)
  Change in cash value of officer life insurance                                               18,618         (1,002)         2,454
  Investment in title plant                                                                        --        (52,622)            --
                                                                                            ---------      ---------      ---------
          Net cash flow from investing activities:                                            (10,906)       (58,474)       (38,881)
                                                                                            ---------      ---------      ---------
CASH FLOW FROM FINANCING ACTIVITIES:
  Change in line-of-credit                                                                     50,000         15,000        (15,000)
  Borrowings on notes payable                                                                      --         10,232             --
  Repayment of notes payable                                                                  (43,020)      (149,456)      (150,599)
  Increase (decrease) in subordinated debt due to officer/principal stockholder              (137,500)         7,000         27,500
  Purchase of treasury stock                                                                       --        (25,000)            --
                                                                                            ---------      ---------      ---------
          Net cash flow from financing activities                                            (130,520)      (142,224)      (138,099)
                                                                                            ---------      ---------      ---------
NET INCREASE (DECREASE) IN CASH                                                                56,011        (26,179)        33,859
CASH - beginning of year                                                                       36,612         62,791         28,932
                                                                                            ---------      ---------      ---------
CASH - end of year                                                                          $  92,623      $  36,612      $  62,791
                                                                                            =========      =========      =========
</TABLE>



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


                                      -4-


<PAGE>


               FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996


(1)  The Company

     Four Corners Financial Corporation (FCFC) and its Subsidiary, Four Corners
     Abstract Corporation (FCAC) 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
     or real property.

     Unless otherwise indicated, the term "Company" refers to Four Corners
     Financial Corporation and its subsidiary. 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
     FCAC. 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, the Company 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 sheet.

     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

     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.


                                      -5-


<PAGE>


(2)  Summary of Significant Accounting Policies (Continued)

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
income.

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

Net Income Per Share -

The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share ("EPS"), which is effective for both interim and annual

periods ending after December 15, 1997. SFAS No. 128 requires dual presentation
of basic EPS and diluted EPS. Basic EPS is computed as net income divided by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects dilution that could occur from common shares issuable through stock
options. Reported EPS in prior periods have been restated to conform to the
provisions of SFAS 128.


                                             12/31/97     12/31/96     12/31/95
                                             --------     --------     --------
Net income applicable to common stock       $  202,238   $   85,718   $   97,384
                                            ==========   ==========   ==========
Weighted average number of common
 shares outstanding                         $3,293,733   $3,331,223   $3,343,733
                                            ==========   ==========   ==========
Income per share - Basic                           .06          .03          .03
                                            ==========   ==========   ==========
Income per share - Diluted                  $      N/A   $      N/A   $      N/A
                                            ==========   ==========   ==========

The exercise of outstanding stock options were not included in the calculations
of diluted EPS, as their effect would be antidilutive.


                                      -6-


<PAGE>


(2)  Summary of Significant Accounting Policies (Continued)

     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.

     Reclassifications -

     Certain reclassifications have been made to the 1996 and 1995 statements to
     conform to the current year presentation.

(3)  Property and Equipment

     Property and equipment consisted of the following at December 31:

                                                     1997               1996
                                                  -----------       -----------
         Furniture and equipment                  $   900,979       $   899,925
         Vehicles                                      87,685            97,627

         Leasehold improvements                        49,564            49,564
                                                  -----------       -----------
                                                    1,038,228         1,047,116

         Less: Accumulated depreciation and
               amortization                          (927,988)         (904,593)
                                                  -----------       -----------
                                                  $   110,240       $   142,523
                                                  ===========       ===========

     Depreciation and amortization expense for 1997, 1996 and 1995 was $59,854,
     $79,995 and $110,302, respectively.

(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.


                                      -7-


<PAGE>



(4)  Income Taxes (Continued)

     The provision for income taxes consisted of the following for the years
     ended December 31:

                                        1997             1996            1995
                                        ----             ----            ----
         Federal:
              Current                 $    --          $    --          $    --
              Deferred                     --               --               --

         State:
              Current                    (700)          (3,346)          (1,500)
              Deferred                     --               --               --
                                      -------          -------          -------
                                      $  (700)         $(3,346)         $(1,500)
                                      =======          =======          =======


     Income tax expense for 1997, 1996 and 1995 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:


                                               1997          1996         1995
                                               ----          ----         ----
         Expected tax expense                $ 72,400     $ 30,300     $ 33,000
         Effect of graduated Federal rates     (6,100)      (3,400)      (3,100)
         State income taxes, net of Federal
           income tax benefit                  11,200        5,300        1,000
         Change of valuation allowance,
           related to loss carryforwards      (76,100)     (27,800)     (25,900)
         Extraordinary item                    (4,000)          --           --
         Other, net                             3,300       (1,054)      (3,500)
                                             --------     --------     --------
                                             $    700     $  3,346     $  1,500
                                             ========     ========     ========

     Taxes paid in 1997, 1996 and 1995 were $1,404, $3,346 and $1,102,
     respectively.


                                      -8-

<PAGE>


(5)  Financing Arragements

     Notes payable -

     Notes payable consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                                          1997           1996
                                                                          ----           ----
<S>                                                                    <C>             <C>
     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.                                                 $ 134,167       $226,250

     Term note payable to a bank with monthly principal
     payments of $1,542 through October, 1999, plus interest at
     the bank's prime rate plus 1%. This note is also
     guaranteed by the officers/stockholders of the Company
     and is collateralized by substantially all of the Company's
     assets.                                                              30,000             --

     Various notes payable with aggregate monthly installments
     of $1,116, including interest at rates ranging from 9.5% to
     10.5%. These notes mature through October, 2000 and are
     collateralized by the related equipment.                             30,034         10,971
                                                                       ---------       --------
                                                                         194,201        237,221


     Less: Current portion                                              (102,559)       (97,050)
                                                                       ---------       --------
                                                                       $  91,642       $140,171
                                                                       =========       ========
</TABLE>

     The note payable to the bank requires the Company to meet certain financial
     convenants at December 31, 1997 as follows:

     o    Working capital of at least $20,000
     o    Current ratio of at least 1.1 to 1,
     o    Minimum tangible net worth of at least $400,000
     o    Total liabilities to tangible net worth of not more than 1.9 to 1,
     o    Net income before taxes of $110,000, and
     o    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, 1997 and 1996, the Company was not in compliance with all
     of the financial covenants. Subsequent to year end, the Company obtained a
     waiver from the bank for these covenants as of December 31, 1997 and 1996.


                                      -9-

<PAGE>


(5)  Financing Arrangements (Continued)

     Future maturities of long-term debt are as follows at December 31, 1997:

          1998 ...................................................   $102,559
          1999 ...................................................     84,155
          2000 ...................................................      7,196
          2001 ...................................................        291
                                                                     --------
                                                                     $194,201
                                                                     ========

     Lines-of-credit -

     The Company may borrow up to $100,000 under the terms of an unsecured
     line-of-credit. 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. At December
     31, 1997, there was $100,000 outstanding under the terms of this
     line-of-credit.

     During 1997, the Company had a second line-of-credit for $50,000 with
     another bank. The $37,000 outstanding principal balance was restructured

     during November, 1997 into a term note payable. There was $50,000
     outstanding under the terms of the line-of-credit agreement at December 31,
     1996.

     Interest -

     Interest paid in 1997, 1996 and 1995 on all notes payable, obligations
     under capital leases and lines-of-credit was $45,561, $58,394 and $76,337,
     respectively.

(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.

     The Company did not have any outstanding options under the 1992 plan as of
     December 31,1997 and 1996.


                                      -10-

<PAGE>


(7)  Related Party Transactions

     Subordinated Debt Due to Officer/Principal Stockholder -

     During 1997, 1996 and 1995 one of the Company's officers/principal
     stockholders made advances to the Company. These advances were $97,000,
     $234,500 and $227,500, at December 31, 1997, 1996 and 1995, 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 repayments in future years is scheduled for
     $18,000 per year.

     Note Payable to Officers/Principal Stockholder -

     At December 31, 1997 and 1996, the Company owed approximately $4,907 and
     $3,300, respectively, to a law firm in which the Company's principal
     stockholder is a partner for legal fees. These amounts were included in the
     accounts payable to related parties balance at December 31, 1997 and 1996
     in the accompanying balance sheet.

     Office Lease Commitment -

     The Company leases its Rochester facility through June 2000 from a company
     controlled by FCAC's principal stockholder at an annual rental of $72,000.
     Rent and common area charges were approximately $72,000 in 1997, 1996 and
     1995, respectively. The Company owed approximately $15,000 and $18,100 for
     unpaid rent at December 31, 1997 and 1996, respectively.

     During 1997, total unpaid rent of $18,100 was forgiven by another related
     party. This amount has been reflected as an extraordinary item, net of
     income taxes of $4,000 in the accompanying 1997 statement of income.

     Revenue and Accounts Receivable -

     In each of the 1997, 1996, and 1995, approximately 8%, 4% and 4%,
     respectively, of revenue was derived from a related party. At December 31,
     1997, 1996 and 1995, the Company was owed $79,125, and $44,878 and $36,742,
     respectively, related to this revenue.

(8)  Lease Commitments

     The Company leases other office facilities under operating lease agreements
     expiring through December, 2002.

     Minimum future lease payments under non-cancelable lease agreements with
     unrelated parties are as follows at December 31, 1997:

           1998 .........................................       $103,101
           1999 .........................................         42,771
           2000 .........................................         28,046
           2001 .........................................         28,046
           2002 .........................................         28,046
                                                                --------
                                                                $230,010
                                                                ========

     Rent expenses related to these operating leases was approximately $126,101,
     $121,000 and $124,000, for the years ended December 31, 1997, 1996 and
     1995, respectively.


                                      -11-

<PAGE>


(9)  Sales of Appraisal Operations

     During 1996, 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 $1,250 quarterly payment on the
     non-contingent note receivable is not dependent on the purchaser's
     operating results. The quarterly payments of $1,250 due April 1, July 1,
     and October 1, 1997 were received by the Company. The Company recorded the
     $12,500 non-contingent note as receivable as income in 1996.

(9)  Sales of Appraisal Operations (Continued)

     In exchange for the customer lists and goodwill and covenant not-to-compete
     the Company received a $112,500 contingent note receivable payable in
     quarterly installments, plus interest at 9%, beginning May 1, 1996. Payment
     on the contingent note receivable is required only by the amount the 19% of
     the purchaser's quarterly gross margin on sales to the Company's former
     customers exceeds $1,250. No portion of the contingent note receivable was
     recorded as income through December, 1997. The Company does not intend on
     recording or collecting any of the outstanding interest and/or principal
     balance on the contingent note receivable as current sales levels to the
     Company's former customers are not sufficient to achieve the desired
     operating results.

(10) Fair Value Financial Instruments

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


                                      -12-

<PAGE>


----------------------------- Bonadio & Co., LLP ------------------------------
                                                             One Cambridge Place
                                                          1850 Winton Road South
                                                        Rochester, NY 14618-3993



INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENTS SCHEDULES


To the Stockholders of
   Four Corners Financial Corporation and Subsidiary:


Our report on our audit of the basic financial statements of Four Corners
Financial Corporation and Subsidiary as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, appears else
where 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.



                                            /s/  BONADIO & CO., LLP


March 12, 1998
Rochester, New York



<PAGE>


               FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
                 SCHEDULE IV -- INDEBTEDNESS TO RELATED PARTIES
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995





                               Balance at
                                Beginning                            Balance at
                                 of Year   Additions(1) Repayments  End of Year
                                 -------   ------------ ----------  -----------

YEAR ENDED DECEMBER 31, 1997:
  Note payable --
   officer/principal
   stockholders                  $234,500    $   --      $137,500    $ 97,000
                                 ========    ========    ========    ========

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
                                 ========    ========    ========    ========


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




<PAGE>


               FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
               SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<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, 1997:
  Allowance for doubtful accounts                        $  84,000       $ 112,329       $    --         $(106,329)       $  90,000
                                                         =========       =========       =========       =========        =========

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
                                                         =========       =========       =========       =========        =========
</TABLE>



<PAGE>


               FOUR CORNERS FINANCIAL CORPORATION AND SUBSIDIARY
                      SCHEDULE IX -- SHORT-TERM BORROWINGS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<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, 1997:
  Borrowings under lines-of-credit                     $100,000              9.5%     $145,500         $115,028             8.67%
                                                       ========         ========      ========         ========         ========

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%
                                                       ========         ========      ========         ========         ========
</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.