U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2002
                         Commission File Number 33-54566
                              _____________________

                            EXCHANGE BANCSHARES, INC.
                 (Name of small business issuer in its charter)

          Ohio                             34-1721453
          ----                             ----------
     (State  or  other  Jurisdiction       (IRS  Employer
     of  incorporation  or  organization)   Identification  Number)

                 237 Main Street, Box 177, Luckey, Ohio 43443
             (Address of principal executive offices) (Zip code)

                    Issuer's telephone number  (419) 833-3401
                              ____________________

         Securities registered under Section 12(b) of the Exchange Act:
                                 not applicable
         Securities registered under Section 12(g) of the Exchange Act:
                         Common Shares ($5.00 Par Value)
                       Preferred Shares ($25.00 Par Value)

     Check  whether  the  issuer  (1)  filed all reports required to be filed by
Section  13  or 15(d) of the Exchange Act during the past 12 months (or for such
shorter  period  that the registrant was required to file such reports), and (2)
has  been  subject  to  such  filing  requirements  for  the  past  90  days.
                                 YES _X_ NO ___

     Check  if  there  is no disclosure of delinquent filers in response to Item
405  of  Regulation  S-B  contained  in  this  form,  and  no disclosure will be
contained,  to  the  best  of  registrant's  knowledge,  in  definitive proxy or
information  statements  incorporated  by reference in Part III of this Form 10-
KSB  or  any  amendment  to  this  Form  10-KSB.  [  X  ]

      State issuer's revenues for the most recent fiscal year.  $7,803,000

     State the aggregate market value of the voting and non-voting common equity
held  by  non-affiliates  computed by reference to the price at which the common
equity  was  sold, or the average bid and asked prices of such common equity, as
of  a  specified  date  within  the  past 60 days: As of March 19, 2002, 586,644
common  shares of the Registrant were outstanding. The aggregate market value of
the  voting  stock  held by non-affiliates was $9,319,903 based upon the trading
price  of  $18.60  per  share.

     DOCUMENTS  INCORPORATED  BY  REFERENCE

     The  following  sections  of  the  definitive  Proxy Statement for the 2003
Annual  Meeting of Shareholders of Exchange Bancshares, Inc. are incorporated by
reference  into  Part  III  of  this  Form  10-KSB:

     1.   Information  Regarding  Nominees  and  Continuing  Directors
     2.   Summary  Compensation  Table
     3.   Indebtedness  of  and  Transactions  with  Officers  and  Directors

     Transitional  Small  Business  Disclosure  Format     YES  ___  NO  _X_

<PAGE>
                            EXCHANGE BANCSHARES, INC.
                      FOR THE YEAR ENDED DECEMBER 31, 2002
                                TABLE OF CONTENTS

                                                      Page
PART  I.

     Item  1.     Description  of  Business            3-4
     Item  2.     Description  of  Property              5
     Item  3.     Legal  Proceedings                     5
     Item  4.     Submission of Matters to a
                  Vote of Security Holders.              5
PART  II.

     Item  5.     Market  for  Common  Equity  and
                  Related Stockholder Matters            6
     Item  6.     Management's  Discussion  and
                  Analysis or Plan of Operation       7-20
     Item  7.     Financial  Statements              21-40
     Item  8.     Changes  In  and  Disagreements
                  With  Accountants  on Accounting
                  and  Financial  Disclosure            41
PART  III.

     Item 9.     Directors and Executive Officers
                 of the Registrant                      41
     Item  10.   Executive  Compensation                41
     Item  11.   Security  Ownership  of  Certain
                 Beneficial  Owners  and Management
                 and  Related  Stockholder  Matters     41
     Item  12.   Certain  Relationships  and Related
                 Transactions                           41
     Item  13.   Exhibits  and  Reports  on
                 Form  8-K.                             41
     Item  14.   Controls  and  Procedures              42

Signatures                                              43

<PAGE>
                                     PART I
ITEM  1.  DESCRIPTION  OF  BUSINESS.

BUSINESS

     Exchange  Bancshares,  Inc.  (the  "Bancorp")  was  organized  as  an  Ohio
corporation  and  incorporated  by  directors  of The Exchange Bank (the "Bank")
under Ohio law on October 13, 1992 at the direction of the Board of Directors of
the  Bank for the purpose of becoming a bank holding company by acquiring all of
the  outstanding  shares of Bank ("Common Stock"). The Bancorp acquired the Bank
effective  January  1,  1994.  The Bancorp has authorized 750,000 common shares,
par  value  $5.00  per  share  of  which  586,644  are  currently  outstanding.

     The  Bancorp also has authorized 750 preferred shares, par value $25.00 per
share  without  designating  the  terms  of  the preferred shares.  No preferred
shares  are  currently  outstanding  or  presently  intended  to  be  issued.

     Exchange  Bancshares,  Inc.  is a bank holding company registered under the
Bank  Holding  Company  Act  of  1956  engaged in the business of commercial and
retail  banking  through  its  subsidiary, The Exchange Bank, which accounts for
substantially  all  of  its revenues, operating income, and assets.  The Bancorp
may  in  the  future  acquire  or  form additional subsidiaries, including other
banks,  to  the  extent  permitted  by  law.

     The  Bancorp  is  subject  to  regulation  by the Board of Governors of the
Federal Reserve System, which limits the activities in which the Bancorp and the
Bank  may  engage.  The  Bank  is  supervised  by the State of Ohio, Division of
Financial  Institutions.  The Bank is a member of the Federal Reserve System and
is  subject to its supervision. The Bank is also a member of the Federal Deposit
Insurance  Corporation  (the  "FDIC").  As such, the Bank is subject to periodic
examination  by  the Division of Financial Institutions of the State of Ohio and
the  Federal  Reserve  Board.  The Bancorp and the Bank must file with the U. S.
Securities  and Exchange Commission, the Federal Reserve Board and Ohio Division
of  Financial  Institutions  the prescribed periodic reports containing full and
accurate  statements  of  its  affairs.

     The  Bank conducts a general banking business embracing the usual functions
of a commercial, retail and savings bank, including: time, savings, money market
and  demand deposit accounts; commercial, industrial, agricultural, real estate,
consumer installment and credit card lending; safe deposit box rental, automated
teller  machines, and other services tailored to individual customers.  The Bank
makes  and  services  secured  and  unsecured  loans  to  individuals, firms and
corporations.  The  Bank  continuously  searches  for new products and services,
which  are  made  available  to  their  customers  in order that they may remain
competitive  in  the  market  place.

FORWARD-LOOKING  STATEMENTS

     When  used  in this Form 10-KSB, the words or phrases "will likely result,"
"are  expected to," "will continue," "is anticipated," "estimated," "projected,"
or  similar  expressions  are  intended to identify "forward-looking statements"
within  the  meaning  of  the  Private Securities Litigation Reform Act of 1995.
Such  statements  are  subject  to  certain  risks  and uncertainties, including
changes in economic conditions in the Bank's market area, changes in policies by
regulatory  agencies,  fluctuations  in  interest rates, demand for loans in the
Bank's  market  area  and competition, that could cause actual results to differ
materially  from  historical  earnings  and  those  presently  anticipated  or
projected.  Factors  listed  above  could  affect  the  Bancorp's  financial
performance  and  could cause the Bancorp's actual results for future periods to
differ  materially from any statements expressed with respect to future periods.
See  Exhibit  99.4  hereto  "Safe Harbor Under the Private Securities Litigation
Reform  Act  of  1995,"  which  is  incorporated  herein  by  reference.

     In  addition  to the historical information contained herein, the following
discussion  contains  forward-looking  statements  that  involve  risks  and
uncertainties.  Economic  circumstances,  the  operations  of  the Bank, and the
Bancorp's  actual results could differ significantly from those discussed in the
forward-looking  statements.  Some of the factors that could cause or contribute
to  such  differences  are  discussed  herein,  but  also include changes in the
economy  and  changes  in interest rates in the nation and the Bancorp's primary
market  area.

     Without  limiting  the  generality  of  the  foregoing,  some  of  the
forward-looking  statements  included  herein  are  the  statements  under  the
following  headings  and  regarding  the  following  matters:

1.     Financial  Condition.  Management's  statements  regarding the amount and
       adequacy  of  the  allowance  for  loan  losses  at  December  31,  2002.

2.     Comparison  of  Results of Operations for the Fiscal Years Ended December
       31,  2002  and  2001  -"Provision for Loan     Losses".  Management's
       statements regarding  the  adequacy  of the allowance for loan losses at
       December 31, 2002.

3.     Liquidity  and Capital Resources.  Management's belief that liquidity and
       capital reserves are sufficient to meet its     outstanding short- and
       long-term needs.

     The  Bancorp does not undertake, and specifically disclaims any obligation,
to  publicly  revise  any  forward-looking  statements  to  reflect  events  or
circumstances  after the date of such statements or to reflect the occurrence of
anticipated  or  unanticipated  events.

FISCAL  AND  MONETARY  POLICIES

     The  earnings  of the Bank are affected by domestic economic conditions and
the  monetary  and  fiscal  policies  of  the  United  States government and its
agencies.  The  Federal  Reserve Board, through its monetary policies, regulates
the money supply, credit conditions and interest rates in order to influence the
general economic conditions. This is accomplished primarily by their open market
operations  through  the acquisition and disposition of United States Government
securities,  varying the discount rate (rate charged on member bank borrowings),
targeting  Federal Funds rates, and adjusting the reserve requirements of member
and  nonmember  bank deposits.  As a result the Federal Reserve Board's monetary
policies  have  had  a  significant  effect  on the interest income and interest
expense of commercial banks and are expected to continue to do so in the future.

EMPLOYEES

     As  of  December 31, 2002, the Bank had 47 full and 19 part-time employees.
Personnel  costs  incurred  by  the  Bancorp  are  reimbursed  to  the  Bank.

COMPETITION

     The Bank has five banking offices located in Wood and Lucas Counties, Ohio.
The primary market of the Bank is Northwest Ohio, which includes Wood, Lucas and
contiguous  counties  in Ohio and Michigan.  The Bank competes with several area
banks  and  savings  and  loan  associations, as well as, various credit unions,
finance companies, large retail stores, credit corporations and both Federal and
local  governments  for  sources  of funds.  The Bank is the second largest bank
headquartered  in  Wood  County,  Ohio.

     The  competitive  factors  within  the  financial  services industry can be
classified  into  two  categories,  competitive  rates and competitive services.
With  interest  rates  being at a forty year low, competition for deposits, i.e.
sources  of  funds,  and  quality loans, i.e. uses of funds, has become extreme.
From  a service standpoint, financial institutions compete against each other in
types of services such as service costs, banking hours and similar features. The
Bank  is  generally  competitive  with  competing  financial institutions in its
primary  service  area  with  respect to interest rates paid on time and savings
deposits, charges on deposit accounts and interest rates charged on loans.  With
respect  to  services,  the Bank offers extended banking hours and operates five
ATM's  (automated  teller  machines).

     Pursuant  to  state  regulations, the Bank is limited to the amount that it
may  lend  to  a  single  borrower.  As  of December 31, 2002 and 2001 the legal
lending limits were approximately $1,443,000 and $1,650,000 respectively.  As of
December  31,  2002  and  2001,  no  loans  were  over  the legal lending limit.

AVAILABILITY  OF  FINANCIAL  INFORMATION

     Bancorp  files  unaudited quarterly financial reports under Form 10-QSB and
annual  financial  reports  under  Form  10-KSB with the Securities and Exchange
Commission  (the  "SEC").  Copies  of these reports are available by writing to:

     Joseph  R.  Hirzel,  Secretary
     Exchange  Bancshares,  Inc.
     237  Main  Street,  P.O.  Box  177
     Luckey,  OH  43443-0177

Financial  reports and other materials filed by Bancorp with the SEC may also be
read  and  copied  at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington,  D.C.  20549.  Information  on the operation of the Public Reference
Room  may  be  obtained  from  the  SEC by calling 1-800-SEC-0330.  The SEC also
maintains  an  internet  site  (www.sec.gov)  that  contains  reports, proxy and
                                -----------
information  statements,  and  other information regarding registrants that file
reports  electronically,  as  Bancorp  does.

ITEM  2.  DESCRIPTION  OF  PROPERTY.

     The  Bank's  principal  office  is located at 235 Main Street, Luckey, Ohio
43443. The Bank's four branches are located at 311 North Main Street, Walbridge,
Ohio  43465,  940  Clarion  Avenue, Holland, Ohio 43528, 610 East South Boundary
Street,  Perrysburg,  Ohio  43551, and 6401 Monroe Street, Sylvania, Ohio 43560.
The  Bank  owns  all  of  the above properties.  The Bancorp operates out of the
Bank's  main  office  although  it  has a separate mailing address.  The Bancorp
reimburses  the  Bank  for  the  fair  value  of  the  space  occupied.


ITEM  3.  LEGAL  PROCEEDINGS.

     In June 1998, The Exchange Bank merged with Towne Bank in Perrysburg, Ohio.
As  a  result  of  this  merger,  The  Exchange  Bank  succeeded  to  all of the
outstanding  rights  and  obligations  of  Towne Bank.  One of these obligations
arose  out of an Agreement dated     April 4, 1996, between Towne Bancorp, Inc.,
Towne  Bank  and Norman J. Rood, a former director and officer of Towne Bancorp,
Inc.  and  Towne  Bank  (the  "Agreement").  One  of  the terms of the Agreement
provided  that Towne Bancorp, Inc. and Towne Bank would defend and indemnify Mr.
Rood  if he was ever involved in a lawsuit resulting from actions taken while he
served  as an officer or director of the Bancorp or Bank.  In 1998, Mr. Rood was
named  in  two  class  action lawsuits brought by certain of the shareholders of
Towne  Bancorp,  Inc., styled (1) Joseph Gomez and Read Backus, et al. vs. Towne
Bancorp,  Inc. et al. - United States District Court, Northern District of Ohio,
Western  Division,  Case No. 3:98CV7436, and (2) Anne Stahl Crowley, Trustee, et
al.  vs.  Huntington  Trust  Co.  N.A.,  et  al. - United States District Court,
Northern  District  of  Ohio,  Western Division, Case No. 3:98CV7575, which were
subsequently consolidated into one class action lawsuit under the style Gomez et
al.  vs.  Towne  Bancorp  (the  "Lawsuit").    In  February  1999,  Mr. Rood was
dismissed  from  the  Lawsuit  and on June 24, 2002 the Lawsuit was settled.  On
June  24,  2002, Judge James G. Carr signed a Final Judgment and Order outlining
the  settlement  of  the Lawsuit and a dismissal of all claims.  In this regard,
Mr.  Rood  was  fully  dismissed  from  all  claims and cannot be subject to any
further  claims under the Lawsuit, so The Exchange Bank has no further liability
to  Mr.  Rood  pursuant  to  the  Lawsuit.

     In the opinion of management of the Bancorp, there are no legal proceedings
pending  to  which  the  Bancorp is a party or to which its property is subject,
which,  if determined adversely to the Bancorp, would be material in relation to
the  Bancorp's  undivided  profits  or  financial  condition,  nor are there any
proceedings  pending  other  than  ordinary  routine  litigation incident to the
business  of  the  Bancorp.  In addition, no material proceedings are pending or
are  known  to  be  threatened or contemplated against the Bancorp by government
authorities  or  others.

ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS.

     Not  Applicable.


<PAGE>
                                     PART II

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

     At  December  31,  2002,  the Bancorp had approximately 803 shareholders of
record.   Sweney Cartwright & Co. and McDonald & Company, broker-dealers, make a
limited  over-the-counter  market  in  shares  of  the  Bancorp Common Stock. In
addition,  there have been a limited number of private transactions known to the
management  of  the  Bancorp.    There  are  no  plans to list the shares of the
Bancorp  Common  Stock on any stock exchange. Through 2002,  Sweney Cartwright &
Co  and  McDonald & Company purchased and sold shares of stock of the Bancorp at
prices  ranging from $18.00 to $20.00 per share.   The offer to purchase shares,
in  some  instances,  was conditional upon their ability to sell the shares at a
predetermined  price.

   In 2002 the Bancorp declared cash dividends of $.20 per share payable on June
15,  2002  to shareholders of record on June 1, 2002 and a cash dividend of $.05
payable on December 30, 2002 to shareholders of record on December 23, 2002.  In
2001  the  Bancorp declared cash dividends of $.20 per share payable on June 15,
2001  to  shareholders of record on June 1, 2001 and a cash dividend of $.30 per
share  payable  on  December  15,  2001 to shareholders of record on December 1,
2001.  In  2000 the Bancorp declared cash dividends of $.19 per share payable on
June  15,  2000 to shareholders of record on June 1, 2000 and a cash dividend of
$.30  per  share  payable  on  December  15,  2000  to shareholders of record on
December  1,  2000.  The  Bancorp also declared a five percent stock dividend to
shareholders  of  record  on  June  2,  2000  payable  on  June  15,  2000.

<TABLE>
<CAPTION>



                    March 31, 2002      June 30, 2002     September 30, 2002   December 31, 2002
                   ----------------  -------------------  -------------------  ------------------
<S>                <C>               <C>                  <C>                  <C>
High. . . . . . .  $         19.00   $             19.60  $             20.00  $            20.00
Low . . . . . . .  $         18.00   $             18.15  $             19.00  $            19.00
Dividend Declared  $          0.00   $              0.20  $              0.00  $             0.05


                        March 31, 2001.  June 30, 2001     September 30, 2001   December 31, 2001
                    -----------------  ----------------  -------------------  -------------------
High. . . . . . .  $         22.75   $             20.00  $             19.00  $            19.50
Low . . . . . . .  $         18.25   $             17.00  $             17.00  $            17.00
Dividend Declared  $          0.00   $              0.20  $              0.00  $             0.30

                        March 31, 2000.  June 30, 2000     September 30, 2000   December 31, 2000
                    -----------------  ----------------  -------------------  -------------------
High. . . . . . .  $         24.76   $             25.00  $             26.00  $            24.25
Low . . . . . . .  $         23.57   $             22.63  $             26.00  $            19.50
Dividend Declared  $          0.00   $              0.19  $              0.00  $             0.30
Stock Dividend. .                                     5%
</TABLE>

     Dividends  by  the  Bancorp  necessarily  depend  upon  earnings, financial
condition, appropriate legal restrictions and other factors relevant at the time
the  Board  of  Directors  of the Bancorp considers dividend policy.  Under Ohio
Revised  Code,  the  Bancorp  is  prohibited from paying dividends if either the
Bancorp  would  be  unable  to  pay its debts as they come due, or the Bancorp's
total  assets  would be less than its total liabilities plus an amount needed to
satisfy  any  preferential  rights  of  shareholders.  The  Bancorp may only pay
dividends  out  of surplus.  Surplus is defined as the excess of a corporation's
assets  over  its liabilities plus stated capital.  Total assets and liabilities
are  determined  by  the Board of Directors, which may base its determination on
such  factors  as  it  considers relevant, including without limitation: (i) the
book  values of assets and liabilities of the Bancorp, as reflected on its books
and  records; and (ii) unrealized appreciation and depreciation of the assets of
the  Bancorp.

     If  in  the  opinion of the applicable federal bank regulatory authority, a
bank  under its jurisdiction is engaged in or is about to engage in an unsafe or
unsound practice (which, depending on the financial condition of the bank, could
include  the  payment of dividends), such authority may require, after notice of
hearing,  that  such  bank  cease  and  desist  from such practice.  The Federal
Reserve  Board has similar authority with respect to bank holding companies.  In
addition,  the  Federal Reserve Bank and the FDIC have issued policy statements,
which  provide  that  insured  banks and bank holding companies should generally
only  pay  dividends  out  of  current  operating  earnings.

     The  Bank,  as  a  state  bank, is subject to the dividend restrictions set
forth  by  the  State  of  Ohio  Division  of Financial Institutions. Under such
restrictions, the Bank may not, without the prior approval of the Superintendent
of Financial Institutions, declare dividends in excess of the sum of the current
year's  earnings  (as  defined) plus the retained earnings (as defined) from the
prior  two  years.

    At December 31, 2002, there were no securities authorized for issuance under
equity  compensation  plans.

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

     As  of  December 31, 2002, the Bancorp had combined assets of $111 million,
$73  million  in net loans, and $101 million in deposits.  The Bank, through its
three  commercial  banking  offices  located in Wood County, Ohio, and two Lucas
County  offices,  provides  financial services to both individual and commercial
customers.  The  Bank  is subject to supervision, examination, and regulation of
the  Division  of  Financial Institutions of the State of Ohio.  The deposits of
the  Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC").
The  Bank is a member of the Federal Reserve System.  Selected financial data on
the  Bancorp's  condition  and  operations  is  filed  with  the  United  States
Securities  and  Exchange Commission (Form 10-KSB and Form 10-QSB) and the Board
of  Governors  of the Federal Reserve System (FRY-9SP).  Selected financial data
on  the  subsidiary  Bank's condition and operations is filed quarterly with the
Ohio  Division  of  Financial  Institutions  and  the  Federal  Reserve  System.

     The Bancorp is a bank holding company engaged in the business of commercial
and  retail  banking  through  its  subsidiary the Bank, which has its principal
office  in  Luckey,  Ohio,  and  accounts for substantially all of the Bancorp's
revenues,  operating  income,  and  assets.

     The  following  discussion  is  intended  to focus on and highlight certain
financial  information regarding the Bank and should be read in conjunction with
the  Consolidated  Financial  Statements  and  related  Notes  to  Consolidated
Financial  Statements,  which  have  been prepared by the Management of Exchange
Bancshares,  Inc.  in  conformity  with generally accepted accounting principles
("GAAP").  The  Board  of  Directors  engaged Dixon, Francis, Davis and Company,
independent  auditors,  to  audit  the financial statements, and their report is
included  on  page 40 of this report.  To assist in understanding and evaluating
major  changes in the Bancorp's and the Bank's financial position and results of
operations, two and three year comparisons are provided in tabular form for ease
of  comparison.

     Three  major  areas of discussion that follow are an analysis of (a) assets
and  liabilities  including  liquidity  and  interest  rate  sensitivity,  (b)
shareholders'  equity  including  dividends and risk-based capital, and (c) 2002
results  of  operations.

I  -  FINANCIAL  CONDITION

     LOAN  PORTFOLIO.  Loans,  as  a  component  of  earning assets, represent a
significant  portion  of earning assets at December 31, 2002.  The Bank offers a
wide  variety  of loans including commercial, consumer, and both residential and
commercial  real  estate in its primary marketing area of Northwestern Ohio.  At
December  31, 2002, the Bank did not have any loan concentrations, that exceeded
10%  of  total loans or, significant amounts of loans for agricultural purposes.

Total  loans  decreased from $81.2 million at December 31, 2001 to $72.5 million
at  December  31,  2002.  This represents a decrease of $8.7 million, or 10.71%,
from  the  previous  year.  The  largest  decrease  was  in  the 1- to 4- family
residential  real  portfolio  as  borrowers  sought refinancing in the secondary
market  to  take  advantage  of  the forty-year low in interest rates. The total
decrease  in residential real estate loans was $5.3 million, or 16.09%. Loans to
consumers  decreased  $2.3  million,  or  16.85  %,  as  a  result  of financing
incentives from automobile manufacturers and other financing sources. Commercial
and  commercial  real  estate  loans  decreased  $1.0  million and $0.9 million,
respectively.  This  represents  an  overall decrease of 5.69% in the commercial
loan  portfolio.  The majority of the decrease was a result of borrowers seeking
lower  interest  rate  from  other  sources.



<TABLE>
<CAPTION>




<S>                                               <C>         <C>         <C>       <C>       <C>        <C>
LOAN INFORMATION

In thousands, except ratios. . . . . . . . .       2002        2001        2000      1999      1998       1997
                                                  ----------  ----------  --------  --------  ---------  ----------

Loans at December 31,
Commercial . . . . . . . . . . .  . . . . . . . .  $   2,582   $   3,596   $ 2,544   $ 3,053   $  2,880   $     955
Agricultural . . . . . . . . . .  . . . . . . . .      1,103         852       816       806        880         709
Real estate
Secured by 1-4 family residential properties. . .     27,687      32,994    37,854    37,333     31,813      24,353
Secured by other properties. . . . . . . . .. . .     28,962      29,835    24,990    20,600     19,199      13,170
Consumer . . . . . . . . . . . . . . . . . .. . .     11,332      13,628    12,928    10,008      7,115       6,322
Tax-exempt . . . . . . . . . . . . . . . . .. . .        820         268       140       150        983       1,360
All other. . . . . . . . . . . . . . . . . .. . .         26           9         7         5          4           3
                                                   ----------  ----------  --------  --------  ---------  ----------
Total. . . . . . . . . . . . . . . . . . . .. . .  $  72,512   $  81,182   $79,279   $71,955   $ 62,874   $  46,872
                                                   ==========  ==========  ========  ========  =========  ==========


Allowance for Loan Losses
Balance at beginning of year . . . . . .  . . . .  $     844   $     756   $ 1,008   $ 1,542   $    624   $     508
Allowance related to acquired loans. . .. . . . .          0           0         0         0        961           0
Provision for loan losses. . . . . . . .. . . . .      2,019          15        75         0          0           0
Charge-offs
Commercial and agricultural. . . . . . .  . . . .        318          92       239       460          0           0
Consumer . . . . . . . . . . . . . . .  . . . . .        647         116        49        54         88          38
Credit Card. . . . . . . . . . . . . . .. . . . .        197          52       118        80         37          31
Real estate. . . . . . . . . . . . . . .. . . . .        396           0         0         0          0           0
                                                   ----------  ----------  --------  --------  ---------  ----------
Total charge-offs. . . . . . . . . . .  . . . . .      1,558         260       406       594        125          69
                                                   ----------  ----------  --------  --------  ---------  ----------
Recoveries
Commercial and agricultural. . . . . .    . . . .         27         238        65         1         60         156
Consumer . . . . . . . . . . . . . . . . .. . . .         70          79        11        21         19          25
Credit card. . . . . . . . . . . . . . .  . . . .          5          15         1        21          1           2
Real estate. . . . . . . . . . . . . . .  . . . .         10           1         2        17          2           2
                                                   ----------  ----------  --------  --------  ---------  ----------
Total recoveries . . . . . . . . . .  . . . . . .        112         333        79        60         82         185
                                                   ----------  ----------  --------  --------  ---------  ----------
Net charge-offs. . . . . . . . . . . .  . . . . .      1,446         (73)      327       534         43        (116)
                                                   ----------  ----------  --------  --------  ---------  ----------
Balance at end of year . . . . . . .. . . . . . .  $   1,417   $     844   $   756   $ 1,008   $  1,542   $     624
                                                   ==========  ==========  ========  ========  =========  ==========

Allocation of Allowance for Loan Losses
Commercial . . . . . . . . . . . . . . . .  . . .  $     555   $     408   $   172   $   471   $  1,001   $     157
Consumer . . . . . . . . . . . . . . . . . . .. .        200         135       104       145         84          72
Real estate. . . . . . . . . . . . . . . .  . . .        192          52         6       173        160         161
Unallocated. . . . . . . . . . . . . . . .. . . .        470         249       474       219        297         234
                                                   ----------  ----------  --------  --------  ---------  ----------
Total. . . . . . . . . . . . . . . .  . . . . . .  $   1,417   $     844   $   756   $ 1,008   $  1,542   $     624
                                                   ==========  ==========  ========  ========  =========  ==========

Credit Quality Ratios
Net charge-offs as a percentage of average loans        1.81%     (0.09)%     0.42%     0.79%      0.08%     (0.26)%
Allowance for loan losses to
        total loans at year end. . . . . . . .. .       1.95%       1.04%     0.95%     1.40%      2.45%      1.33 %

Net charge-offs as a percentage of allowance for
loan losses                                           102.05%     (8.65)%    43.25%    52.98%      2.79%    (18.59)%
Provision for loan losses to average loans  . . .       2.53%      0.02 %     0.10%     0.00%      0.00%      0.00 %
Earnings coverage of net charge-offs . . . .. . .   (0.75) x    (8.11) x    2.07 x    1.17 x    14.49 x    (7.17) x

</TABLE>

    Average loans increased 1.26% in 2002 to represent 78.96% of average earning
assets  compared  to 77.75% in 2001 and 81.22% in 2000.  The portion of the loan
portfolio represented by real estate loans has decreased from 80.05% at December
31,  1997  to  78.12%  at  December  31,  2002. Installment loans to individuals
decreased  to  15.63%  of loans outstanding at December 31, 2002, as compared to
increases  in  1997  through  2001.    The  decrease  in  installment  loans was
primarily  due  to increases in bankruptcies and charged-off loans.   The dollar
amounts  of  commercial loans (including tax-exempt loans) decreased slightly in
2002 to 4.69% of the total loans outstanding primarily as a result of the payoff
of  a  few  large  commercial  loans  and an increase in charged-off loans.  The
increase  experienced  in  1998  was  due  to  the acquisition of the Towne Bank
related loans.   The dollar amount of agricultural loans outstanding at December
31, 2002 represented 1.52% of the total loans outstanding and increased $251,000
as  compared to 2001.  The four years prior to 2002, agricultural loans remained
relatively  constant  while  their  relative portion of total loans continued to
decline.  The  table  entitled 'Loan Information' provides a six-year summary of
the  loan  history.

     In  addition to the loans reported in the Loan Information table, there are
certain  off-balance  sheet  products  such  as  letters  of  credit  and  loan
commitments,  which  are  offered  under  the  same credit standards as the loan
portfolio.  Since  the  possibility  of  a  liability exists, generally accepted
accounting  principles require that these financial instruments be disclosed but
treated  as  contingent  liabilities and thus, not reflected in the accompanying
financial  statements (approximately $9.1 million).  Management closely monitors
the  financial  condition  of  potential  creditors  throughout the terms of the
instrument to assure that they maintain certain credit standards.  Refer to Note
I  of  the Notes to Consolidated Financial Statements for additional information
on  off-balance  sheet  financial  instruments.

     NON-PERFORMING  ASSETS.  The  Table  entitled  "Non-performing  Assets  and
90-Day  Past  Due  Loans"  provides a six-year summary of non-performing assets,
which  are defined as loans accounted for on a non-accrual basis, accruing loans
that  are  contractually  past  due  90 days or more as to principal or interest
payments,  renegotiated  troubled  debt,  and other real estate obtained through
loan  foreclosure.

     A  loan  is  placed  on  non-accrual when payment terms have been seriously
violated  (principal  and/or  interest  payments  are  90 days or more past due,
deterioration  of  the  borrower's  ability to repay, or significant decrease in
value of the underlying loan collateral) and stays on non-accrual until the loan
is  brought  current as to principal and interest.  The classification of a loan
or  other  asset  as  non-accruing  does  not  indicate  that loan principal and
interest will not be collectible.  The Bank adheres to the policy of the Federal
Reserve  that  banks  may  not accrue interest on any loan when the principal or
interest  is  due and has remained unpaid for 90 days or more unless the loan is
both  well  secured  and  in  the  process  of  collection.

     A  loan  is considered restructured or renegotiated when either the rate is
reduced  below current market rates for that type of risk, principal or interest
is forgiven, or the term is extended beyond that which the Bank would accept for
loans  with  comparable  risk.  Properties  obtained  from  foreclosing on loans
secured  by  real estate are adjusted to market value prior to being capitalized
in  an  account  entitled  "Other  Real  Estate  held  for  resale."  Regulatory
provisions  on  other  real  estate are such that after five years, or ten years
under  special  circumstances,  property must be charged-off.  This period gives
the  Bank  adequate  time  to  make  provisions for disposing of any real estate
property.

     Other  real  estate  owned  increased from $92,000 at December 31, 2001, to
$1,150,000 at December 31, 2002. Other real estate owned consists of real estate
or  real  property,  generally  acquired  through  foreclosure action, or by the
borrower  voluntarily  deeding  the  property  to the Bank, i.e. deed in lieu of
foreclosure.  Properties  are  recorded on the books of the Bank at the lower of
cost  or net realizable value; (appraised value less costs associated the sale).

     At  December 31, 2002, the Bank held three properties, two residential real
estate  parcels and one commercial parcel. At December 31, 2002, Management does
not  anticipate  any  loss  associated  with  the  disposition of the properties
currently  held.

     Loans  accounted  for  on  a  non-accrual  basis  at December 31, 2002 were
$1,351,000 as compared to $921,000 as of year-end 2001. Non-performing assets at
December  31, 2002 totaled $3,265,000 or 2.95% of total assets.  This represents
an  increase  of  $1,451,000  or  79.99%  from  December  31,  2001.  The  large
fluctuation  in  non-performing  assets  is  attributable  primarily  to  the
deterioration  in  the  loan  portfolio  and  an  increase in the number of loan
customers  declaring  bankruptcy.    Management  is  continuing to monitor these
assets  and  strengthen  the  Bank's  position  whenever  possible.

<TABLE>
<CAPTION>



<S>                                                          <C>     <C>     <C>    <C>    <C>    <C>
NON-PERFORMING ASSETS

In thousands. . . . . . . . . . . . . . . . . . . . . . . .    2002    2001   2000   1999   1998   1997
                                                             ------  ------  -----  -----  -----  -----

At December 31,
Non-accrual loans . . . . . . . . . . . . . . . . . . . . .  $1,351  $  921  $ 357  $  10  $ 399  $  75
Restructured loans. . . . . . . . . . . . . . . . . . . . .      11      14      0      0      0      0
Loans past due 90 days or more and still accruing . . . . .     753     787    195     74    115     10
                                                             ------  ------  -----  -----  -----  -----

Total non-performing loans. . . . . . . . . . . . . . . . .   2,115   1,722    552     84    514     85
Other real estate owned . . . . . . . . . . . . . . . . . .   1,150      92      0      0      0      0
                                                             ------  ------  -----  -----  -----  -----
Total non-performing assets and 90-day past due loans        $3,265  $1,814  $ 552  $  84  $ 514  $  85
                                                             ======  ======  =====  =====  =====  =====

Impaired loans. . . . . . . . . . . . . . . . . . . . . . .  $  429  $  130  $  80  $  67  $ 720  $  17
                                                             ======  ======  =====  =====  =====  =====


</TABLE>



     ANALYSIS  OF THE ALLOWANCE/PROVISION FOR LOAN LOSS.  The allowance for loan
losses  was  established  and is maintained by periodic charges to the provision
for  loan loss, an operating expense, in order to provide for losses inherent in
the  Bank's  loan  portfolio. Loan losses and recoveries are charged or credited
respectively  to  the  allowance  for  loan losses as they occur.  See the table
entitled  "Loan  Information"  for  a  six-year  summary.

     In  2002,  management  established a revised methodology for evaluating the
adequacy  of  the  allowance for loan and lease losses. Specific allocations are
assigned  to  those  credits  classified  as  being  either  impaired or problem
credits. General allocations are assigned to other credits based upon historical
loan  loss  ratios.  Other  factors affecting the evaluation include the overall
size  and  composition  of  the  loan  portfolio,  local  and  national economic
conditions  and  anticipated  loan  growth.  Management  believes  the  revised
methodology  will  maintain  the  allowance  at  an  adequate  level.

     More than 90% of the Bank's total gross loans are secured by mortgages
on  real property, security agreements on personal property, insurance contracts
from  independent  insurance  companies  or through the full faith and credit of
government  agencies.  The  Bank's  lending  policies  require  substantial down
payments  along  with current market appraisals on collateral when the loans are
originated,  thus  reducing  the  risk  of  any  potential  losses.

     To  further  minimize  the  risks of lending, quarterly reviews of the loan
portfolio  are  made  to  identify  problem loans and to determine the course of
action.  Collection  policies  have  been developed to monitor the status of all
loans  and  are  activated  when  a  loan  becomes  past  due.

     Management  has both  internal  and  external  loan review procedures
that provide  for analysis  of  operating  data, tax returns and financial
statement performance  ratios  for all significant commercial loans, regulatory
classified loans,  past  due  loans  and  internally  identified  "Watch"
loans.  The "Watch" loans  are  graded for asset quality by either the senior
loan officer and/or the internal/external loan review staff.  The  results  of
the grading  process  in  conjunction with independent collateral  evaluations
are used  by  Management and the Board of Directors in determining  the
adequacy of the allowance for loan loss account on a quarterly basis.

     The  entire allowance for loan losses is available to absorb any particular
loan  loss.  However,  for analytical purposes, the allowance could be allocated
based upon historical net charge-offs of each loan type for the last five years.
If  applied,  commercial  loans  would  require  31.53% of the reserve while the
installment  (consumer)  and  real estate loans would require 52.48% and 15.99%,
respectively.  Currently,  the  allowance  for loan losses has been allocated as
follows;  commercial  loans  39.17%, real estate loans 13.55% and consumer loans
14.11%.  The  remaining  33.17%  of  the  allowance  is currently "unallocated".

     Management  believes  significant  factors  affecting  the  allowance  are
reviewed  regularly  and  that  the  allowance  is adequate to cover potentially
uncollectible  loans  at  December  31,  2002.  The  Bank  has  no exposure from
troubled  debts  to  lesser-developed  countries  or from significant amounts of
agricultural,  real  estate  or  energy  related  loans.

     The average allowance to average loans outstanding ratio increased to 1.11%
in  2002  from  1.03%  in  2001,  after  decreasing  from  1.19% in 2000.    The
allowance  for loan losses to loans outstanding at year-end was 1.95%, 1.04% and
0.95%  for  years  2002,  2001  and  2000,  respectively.

     The  Bank  experienced  net  charge-offs  in 2002 of $1,446,000 or 1.81% of
average  loans  as  compared to net recoveries of  $73,000 or (0.09)% of average
loans  in  2001.    The  average  net  charge-offs for the last five-year period
(1998-2002)  were  $455,000.  Based  upon the revised methodology, as previously
mentioned,  management increased the provision for loan losses during the fourth
quarter  of  2002  to  provide  for  an  adequate  allowance  for  loan  losses.

     The  provision  for  loan  losses  was  $2,019,000 for 2002, an increase of
$2,004,000  compared  to  $15  for  the  same  period  in 2001.  The increase in
provision  for  loan losses was primarily attributable to higher net charge-offs
and  the  increase  in  non-performing  loans.  The  higher net charge-offs were
primarily  due  to  a  deterioration  of credit quality in the loan portfolio, a
related  increase  in  bankruptcies  declared  by  loan  customers and one large
commercial  loan.  Management  anticipates  that  net  charge-offs  will decline
significantly  from  those  experienced  in  2002.

     INVESTMENTS.  Investments  represent  the  second  largest use of financial
resources.  The  investment  portfolio,  shown in the table "Other Balance Sheet
Data  -  Maturity of Investment Securities", includes United States Treasury and
Federal  agency  securities,  state  and  municipal obligations, mortgage-backed
securities,  other securities consisting of corporate debt securities and equity
securities  of  the  Federal Reserve Bank of Cleveland (the "FRB"), Federal Home
Loan  Bank  of  Cincinnati  (the  "FHLB")  and  Great  Lakes  Bankers  Bank.

      All  investment  securities  are carried at market value and classified as
available-for-sale.  At  December  31, 2002 and 2001 the Bancorp's shareholders'
equity  contained  $286,000  and  $280,000, respectively, in unrealized gains on
securities  available-for-sale.

     Investment  securities at year-end 2002 increased $2,837,000 or 19.15% from
year-end  2001  while  federal  funds  sold  increased  $9,704,000  from 2001 or
345.22%.  These  increases  represent  the re-employment of funds from declining
loan  volumes  as  a  result  of  management's  tightening  their credit quality
standards  and  the  refinancing  activities  resulting  from  the interest rate
environment.    Management maintains federal funds sold balances consistently at
levels  that  will  cover  short-term  liquidity  needs  of  the  Bank.

     The  Bank  utilizes  an  outside  investment firm to analyze, evaluate, and
offer  investment  recommendations  to  Management  based  on  such  criteria as
security  ratings,  yields, and terms.  The Bank does not invest in any one type
of  security  over  another.  Funds  allocated  to  the investment portfolio are
constantly  monitored  by  Management to ensure that a proper ratio of liquidity
and  earnings  is  maintained.

     DEPOSITS.  The  "Consolidated  Average Balance Sheet and Related Yields and
Rates"  table  highlights  average  deposits  and interest rates during the last
three  years.  Average  deposits  for  2002  remained level as compared to 2001.
During  2001,  deposits  increased  from  2000  by  $10,437,000,  or 12.08%. The
average  cost  of  funds for the Bank was approximately 3.32% for the year ended
December  31,  2002,  as  compared  to  4.67%  and  4.74%  for  2001  and  2000,
respectively.

     The  Bank's  deposit  structure  can  be  categorized as somewhat cyclical,
increasing  as  public  depositors  receive  tax  allocations  and decreasing as
disbursements are made.  For 2002, the Bank experienced increases in the average
balances  of  NOW  accounts  and savings accounts while time deposits decreased.
The  Bank's  cost  of  funds  has  decreased as the higher interest-bearing time
deposits  repriced  to  lower current market interest rates and transferred into
lower  interest rate NOW and savings accounts.

     SHAREHOLDERS'  EQUITY.  Maintaining  a  strong capital position in order to
absorb  inherent  risk  is one of Management's top priorities.  Selected capital
ratios  for  the  last  three  years,  presented  in  the "Six-Year Consolidated
Financial  Summary"  table,  reveal  that  the Bank has been able to maintain an
average  equity  to  average  asset  ratio of greater than 8.3% for the past six
years.  It  should be noted that this ratio decreased in 2002 to 8.33%, which is
still  exceeds  of  the  regulatory  minimum  capital requirements. The decrease
resulted  primarily from the net loss of ($1,090,000) in 2002 and the payment of
$146,000  in  cash  dividends.

     Banking  regulations have established minimum capital ratios for banks. The
primary  purpose  of  these  requirements  is  to assess the risk in a financial
institution's  balance  sheet  and  off-balance  sheet  financial instruments in
relation  to adjusted capital.  The Bank is required to maintain a minimum total
qualifying  capital ratio of at least 8% with at least 4% of capital composed of
Tier  I  (CORE)  capital.  Tier I capital includes common equity, non-cumulative
perpetual  preferred  stock,  and  minority  interest  less  goodwill  and other
disallowed  intangibles.  Tier  II  (supplementary) capital includes subordinate
debt,  intermediate-term  preferred  stock,  the  allowance  for loan losses and
preferred  stock  not qualifying for Tier I capital.  Tier II capital is limited
to  100% of Tier I capital.  At December 31, 2002, the Bank's risk-based capital
ratio  for  Tier  I and Tier II capital was 11.10% and 12.30% respectively, thus
surpassing  the  required  4%  and  8%  for  Tier  I  and  Tier II capital.  The
"Risk-Based  Capital"  table  contains  a  summary of both the Bank's risk-based
capital  and  leverage  components  and  ratios.

     As  of  December  31, 2002, the most recent notification from the FDIC, the
Bank  was  categorized  as  well  capitalized under the regulatory framework for
prompt  corrective  action.  To remain categorized as well capitalized, the Bank
will have to maintain minimum capital ratios as described in Note O - Regulatory
Matters  of  the  Notes  to  Consolidated  Financial  Statements.


II - COMPARISON OF THE RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER
31,  2002
     AND  2001

     GENERAL.  The  Bancorp  had  a  consolidated  net  loss  of ($1,090,000) or
($1.86)  basic  earnings  per  share  for  the  year  ended December 31, 2002 as
compared  to  net  income of $592,000 or $1.01 basic earnings per share for 2001
and  $676,000 or $1.16 basic earnings per share for 2000.  The net loss for 2002
was  primarily  due  to  the  $2,019,000 provision for loan losses.  For further
discussion,  see  the section entitled "Provision for Loan Losses."    Return on
average  assets ratio (ROA) was (1.01%), 0.56% and 0.68% in 2002, 2001 and 2000,
respectively.  Return  on  average  equity  ratio  (ROE) was (10.51%), 6.03% and
7.29%  in  2002,  2001  and  2000,  respectively.

     NET  INTEREST  INCOME.  Net  interest  income,  the  income  received  on
investments  in  loans,  securities,  due  from  banks,  and  federal funds less
interest  paid to depository and short-term creditors to fund these investments,
the  Bank's primary source of revenue.  The following discussion and analysis of
the  Bank's  net  interest  income  is  based  primarily  on the tables entitled
"Consolidated  Average  Balances  Sheets  and  Related  Yields  and  Rates",
"Rate/Volume  Analysis", and "Interest Rate Sensitivity" for all years presented
using  the  Federal statutory rate of 34%.  These tables have been prepared on a
tax-equivalent  basis.  The  stated  (pre-tax)  yield  on  tax-exempt  loans and
securities  are  lower  than  the  yield  on  taxable assets of similar risk and
maturity.  The  average  balances  were  calculated  on  a  daily  basis.

<TABLE>
<CAPTION>



CONSOLIDATED  AVERAGE  BALANCE  SHEETS  AND  RELATED  YIELDS  AND  RATES


In  thousands,  except  ratios

                                                2002                            2001                2000
                                          --------------                  ---------------      ---------------
                                                Interest   Average             Interest   Average
                                    Average     Income/    Yields/    Average  Income/    Yields/   Average
                                    Balance     Expense    Rates      Balance  Expense    Rates     Balance
                                   ----------  ---------  ----------  -------  ---------  --------  -------
<S>                                <C>         <C>        <C>        <C>       <C>        <C>       <C>
Assets
Cash and due from banks . . . . . . $   3,101                         $  2,564                       $   1,387
Interest bearing deposits in banks. .      37   $      0        0.00%       35  $       2    4.45 %          21
Federal funds sold. . . . . . . . . . . 5,768         87        1.51     7,622        266    3.49         1,987
Investment securities
Taxable debt securities . . . . . . .  14,800        774        5.23    14,190        839    5.91        14,955
Tax-exempt debt securities(1) . . . . .     0          0           0        74          5    6.76           264
Equity securities . . . . . . . . . . .   633         34        5.37       607         42    6.92           575
                                    ---------  ---------               -------  ---------               -------
Total Investment securities . . . .    15,433        808        5.24    14,870        886    5.96        15,794
Loans
Real Estate . . . . . . . . . . . .    25,314      1,974        7.80    29,088      2,471    8.49        32,168
Consumer. . . . . . . . . . . . . .    14,518      1,486       10.24    14,553      1,587   10.91        12,635
Commercial (1). . . . . . . . . . .    39.885      2,680        6.72    35,083      3,079    8.78        32,209
                                    ----------  ---------              -------  ---------               -------
Total loans . . . . . . . . . . .      79,717      6,140        7.70    78,724      7,137    9.07        77,012

Total earning assets. . . . . . . .   100,955      7,035        6.97   101,251      8,291    8.19        94,814
                                                ---------                        ---------
Allowance for loan losses . . . . . . .  (886)                            (808)                           (917)
Other assets. . . . . . . . . . . . .   4,838                            4,894                           6,221
                                      --------                        ---------                      ----------
Total assets. . . . . . . . . . . . $ 108,008                         $107,901                       $ 101,505
                                    =========                         =========                      ==========

Liabilities and Shareholders' Equity
Non-interest-bearing deposits . . . $  10,498                         $ 10,097                       $   9,969
Interest-bearing deposits
NOW accounts. . . . . . . . . . . .    16,437        508        3.09    14,839       540    3.64         13,477
Money market accounts . . . . . ..      1,068         16        1.50     1,151        27    2.31          1,384
Savings accounts. . . . . . . . . . .  17,215        201        1.17    16,086       326    2.03         15,584
Time deposits . . . . . . . . . .      51,345      2,131        4.15    54,673     3,148    5.76         45,995
                                   ----------  ---------               -------  ---------               -------
Total interest-bearing deposits ..     86,065      2,856        3.32    86,749     4,041    4.66         76,440
Borrowed funds. . . . . . . . . .         572         16        2.80       523        34    6.46          5,392
                                   ----------  ---------               -------  ---------               -------
Total interest-bearing liabilities.    86,637      2,872        3.32    87,272     4,075    4.67         81,832
                                               ---------                        ---------
Other liabilities . . . . . . . . . . .   502                              541                              290
Shareholders' equity. . . . . . . . .  10,371                            9,991                            9,414
                                     ---------                        ---------                      ----------
Total liabilities and shareholders'
equity.                              $ 108,008                        $107,901                        $ 101,505
                                    ==========                       =========                       ==========
Net interest income (1) . . . . . . . . . . .  $   4,163                        $  4,216
                                              ==========                        =========

Yield spread. . . . . . . . . . . . . . . . . .                 3.65%                       3.52 %
Net interest income to earnings assets. . . . .                 4.12%                                   4.16 %
Interest-bearing liabilities to earning assets.                85.82%                                  86.19 %

(1)  tax-equivalent basis
                                                      2000
                                                  ------------
                                                Interest   Average
                                                Income/    Yields/
                                                Expense    Rates
                                                 --------  --------
<S>                                              <C>       <C>
Assets
Cash and due from banks
Interest bearing deposits in banks. . . . . . .  $      2    9.52 %
Federal funds sold. . . . . . . . . . . . . . .       125      6.29
Investment securities
Taxable debt securities . . . . . . . . . . . .       887      5.93
Tax-exempt debt securities(1) . . . . . . . . .        20      7.58
Equity securities . . . . . . . . . . . . . . .        33      5.74
                                                 --------
Total Investment securities . . . . . . . . . .       940      5.95
Loans
Real Estate . . . . . . . . . . . . . . . . . .     2,744      8.53
Consumer. . . . . . . . . . . . . . . . . . . .     1,367     10.82
Commercial (1). . . . . . . . . . . . . . . . .     3,089      9.59
                                                 --------
Total loans . . . . . . . . . . . . . . . . . .     7,200      9.35

Total earning assets. . . . . . . . . . . . . .     8,267      8.72
                                                 --------
Allowance for loan losses
Other assets

Total assets


Liabilities and Shareholders' Equity
Non-interest-bearing deposits
Interest-bearing deposits
NOW accounts. . . . . . . . . . . . . . . . . .       484      3.59
Money market accounts . . . . . . . . . . . . .        35      2.53
Savings accounts. . . . . . . . . . . . . . . .       379      2.43
Time deposits . . . . . . . . . . . . . . . . .     2,626      5.71
                                                 --------
Total interest-bearing deposits . . . . . . . .     3,524      4.61
Borrowed funds. . . . . . . . . . . . . . . . .       354      6.57
                                                 --------
Total interest-bearing liabilities. . . . . . .     3,878      4.74
                                                 --------
Other liabilities
Shareholders' equity
Total liabilities and shareholders' equity

Net interest income (1)                       $    4,389
                                              ==========

Yield spread                                                 3.98 %
Net interest income to earnings assets                       4.63 %
Interest-bearing liabilities to earning assets              86.31 %

(1)  tax-equivalent basis
</TABLE>

<TABLE>
<CAPTION>



RATE/VOLUME  ANALYSIS
                                                  2002 Over 2001           2001 Over 2000
                                                  --------------           --------------
                                                        Yield/                       Yield/
In Thousands                                 Volume     Rate     Total     Volume     Rate
                                             ------     ----     -----     ------     ----

Changes  in  Tax  Equivalent  Interest  Income

<S>                                         <C>        <C>      <C>       <C>        <C>
Interest income
Interest-bearing deposits in banks  . . . .  $   0      $   (2)  $    (2)  $   1      $  (1)
Federal funds sold . . . . . . . . . . .. .    (65)       (114)     (179)    160        (19)
Investment securities. . . . . . . . . . .      34        (112)      (78)    (55)          1
Loans. . . . . . . . . . . . . . . . . . .      90      (1,087)     (997)    262       (325)
                                             ------    --------  --------  ------     ------
Total. . . . . . . . . . . . . . . . . . .      59      (1,315)   (1,256)    368       (344)
                                             ------    --------  --------  ------     ------

Interest expense
Interest-bearing deposits. . . . . . . .  .   (113)     (1,072)   (1,185)    302        215
Borrowed funds . . . . . . . . . . . . . ..      3         (21)      (18)   (314)        (6)
                                            ------     --------  --------  ------     ------
Total. . . . . . . . . . . . . . . . . . .    (110)     (1,093)   (1,203)    (12)       209
                                             ------    --------  --------  ------     ------

Net interest income. . . . . . . . . . .  .  $ 169     $  (222)  $   (53)  $ 380      $(553)
                                            ======     ========  ========  ======     ======
Changes in the average balance/rate are allocated entirely to the yield/rate changes


                                                                                       Total
                                                                                       -----
<S>                                                                                   <C>
Interest income
Interest-bearing deposits in banks . . . . . . . . . . . . . . . . . . . . . . . . .  $   0
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    141
Investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (54)
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (63)
                                                                                      ------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     24
                                                                                      ------

Interest expense
Interest-bearing deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    517
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   (320)
                                                                                      ------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    197
                                                                                      ------

Net interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $(173)
                                                                                      ======
Changes in the average balance/rate are allocated entirely to the yield/rate changes
</TABLE>


<TABLE>
<CAPTION>

NON-INTEREST  EXPENSES

In Thousands, except ratios
<S>                          <C>       <C>         <C>     <C>       <C>     <C>
                              2002      % Change    2001    % Change  2000    % Change
Salaries and benefits
Salaries. . . . . . . . . .  $ 1,891         12.16%  $1,686    8.35%   $1,556     6.65%
Benefits. . . . . . . . .        339          5.28      322   (5.01)      339     18.53
                             --------               ------             ------
Total . . . . . . . . . . .  $ 2,230         11.06   $2,008     5.96   $1,895      8.60
                             =======                ======             ======

Occupancy and equipment
Depreciation. . . . . . . .  $   233        (15.88)% $  277   (10.93)% $  311   (1.27)%
Maintenance and repairs . .      196          2.08      192     4.92      183    27.08
Real estate taxes . . . . .       65          4.84       62     6.90       58    70.59
Insurance . . . . . . . . .       20         11.11       18     0.00       18    (5.25)
Utilities . . . . . . . . .       70         (1.41)      71    10.94       64    (9.86)
                             -------                 ------            ------
Total . . . . . . . . . . .  $   584         (5.81)  $  620    (2.21)  $  634     8.75
                             =======                 ======            ======

Other expenses
Advertising . . . . . . . .  $   130         18.18%  $  110   12.24 %  $   98  (23.44)%
Dues and subscriptions. . .       18        (18.18)      22    15.79       19    (5.00)
Telephone . . . . . . . . .       79          5.33       75     7.14       70    12.90
Insurance . . . . . . . . .       15         25.00       12    14.29       14   (54.84)
Loan. . . . . . . . . . . .       20         (4.76)      21     8.70       23    21.05
Education . . . . . . . . .       10          0.00       10   (28.75)      14    39.13
Travel and entertainment. .       18        (28.00)      25    (3.85)      26    23.81
FDIC insurance. . . . . . .       16         (5.88)      17     0.00       17    70.00
Legal . . . . . . . . . . .      199        105.15       97    16.87       83   (27.19)
Overdrafts. . . . . . . . .       14        133.33        6   (25.00)       8   (33.33)
Examination and accounting.      203         35.33      150    (8.50)     160    (7.51)
Data processing . . . . . .      165          7.14      154    10.79      139    13.01
State and other taxes . . .      123         (0.81)     124     8.77      114     0.00
Bank and ATM charges. . . .      130          4.84      124    12.73      110    10.00
Credit card . . . . . . . .       62          5.08       59    (1.67)      60   (25.00)
Directors fees. . . . . . .      110         57.14       70     9.38       64     3.23
Postage and courier . . . .      122          2.52      119    (2.46)     122     4.27
Supplies and printing . . .      136         14.29      119    (4.03)     124    (5.34)
Other . . . . . . . . . . .      203        174.32       74   (22.73)      70    34.62
                             -------                 ------            ------
Total . . . . . . . . . . .  $ 1,773         27.74   $1.388     3.97   $1,335    (4.09)
                             =======                 ======            ======
</TABLE>


     The net yield on interest-earning assets has decreased slightly to 4.12% in
2002  from  4.16% and 4.63%, in 2001 and 2000, respectively. Net interest income
(FTE)  (fully  taxable  equivalent)  decreased  $53,000,  or  1.26%, in 2002 and
decreased  $173,000,  or  3.94%,  in  2001.  The  "Rate/Volume  Analysis"  table
analyzes the reason for the changes in interest income by applying either volume
or  rate  changes  to  interest  sensitive  assets  and  liabilities.  Average
interest-earning  assets  decreased  by  $296,000  and  average interest-bearing
liabilities  decreased  by  $635,000  in  2002  which  resulted in increased net
interest income of $169,000 (due to volume); while the overall decrease in rates
for  earning  assets  exceeded the overall decrease in rates on interest-bearing
liabilities  which  resulted  in a net decrease of $222,000 (due to rate) in net
interest income.  The net effect of the changes in volume and interest rates was
to  decrease  interest  earnings  by  $53,000  during  2002.

Net  loan income decreased $997,000, or 13.97%, over the prior year primarily as
a  result  of  the decrease in interest rates, the changes in the composition of
the  portfolio  and  increased  competition  from  financial  and  non-financial
sources.  Average  loan  yields  have  decreased  137  basis  points in 2002 and
decreased  28  basis  points  in  2001. As of year-end 2002, approximately $31.9
million,  or  44.01%, of the loan portfolio is maturing or repricing in the next
year.  Variable  rates  and  short-term  maturities  are two tools Management is
using  to  achieve  greater  flexibility  in  a  changing  rate  environment.

The  investment securities portfolio yield decreased 72 basis points to 5.24% in
2002  from  5.96% in 2001.  Interest income from securities decreased $78,000 to
$808,000  in  2002  from  $886,000 in 2001.  The decreases in yield and interest
income  were  primarily  due  to lower interest rates during 2002.  Reinvestment
yields  on  $3,887,000  of  maturing securities in 2002 decreased due to the low
interest  rate  environment.

Federal  funds  sold  income  decreased  by  $179,000  or 67.23% in 2002 after a
$141,000  or  112.08%  increase  in  2001.  Rate decreased earnings $114,000 and
volume  decreased earnings $65,000 in 2002.  Federal funds are primarily used as
an  investment  mechanism  for  short-term  liquidity  purposes.

Interest-bearing deposit expense decreased $1,185,000 or approximately 29.32% in
2002  after  a $517,000 or 14.67% increase in 2001.  In 2002, the lower rates on
deposits  decreased  interest  expense  $1,072,000  and  the  changes  in volume
decreased  interest  expense  $113,000  in 2002.  Rates paid on NOW accounts and
money  market  accounts decreased 55 basis points and decreased 81 basis points,
respectively in 2002, compared to an increase of 5 basis points for NOW accounts
and  a  22 basis point decrease for money market accounts in 2001.  The rates on
savings  accounts  decreased  86  basis  points  and  the rates on time deposits
decreased  161 basis points in 2002.  The Bank lowered deposit rates during 2002
in  response  to  the  lower  rate  environment.

In  summary,  the "Rate/Volume Analysis" table discloses the reasons for changes
in  interest  income and interest expense.  It should be noted that the changes,
or  restructuring,  in  the  Bank's interest-earning assets (loans, investments,
federal  funds  and  interest-bearing  deposits)  and  the  interest-bearing
liabilities  (NOW,  money  market,  savings,  time  deposits and borrowed funds)
combined  with  the  repricing  of  each  resulted in a decrease in net interest
margins.

The  changes  in both asset and liability volumes in 2002 coupled with repricing
of  both  interest-earning assets and interest-bearing liabilities resulted in a
net  decrease  of  $53,000  in net interest income.  Changes in interest-earning
asset  volume  accounted  for  a  $59,000 increase in net interest income, while
changes  in  interest-bearing  liability  volume  decreased  net interest income
$110,000.  The  decreases  in interest rates on both interest-earning assets and
interest-bearing  liabilities  decreased  net  interest income $222,000 in 2002.

NON-INTEREST  INCOME.  Total  non-interest  income  consists of operating income
attributed  to  providing  deposit accounts for bank customers, secondary market
mortgage  lending,  fees  on  sales  of  annuities and mutual funds, the sale of
investment  securities  and  fees  from  banking  services.

     Non-interest  income  increased  $88,000  or  12.94% to $768,000 in 2002 as
compared to $680,000 in 2001.  The increase in non-interest income was primarily
due to increases of $61,000 or 18.60% in service charges on deposit accounts and
$32,000  or  32.32%  in  fees on sales of annuities and mutual funds, which were
partially offset by a decrease of $25,000 or 13.30% in secondary mortgage market
fees.  The  increase  in  service charges was due to the Bank increasing service
charges to market area levels and the increase in fees on sales of annuities and
mutual funds was due to the increase in sales volume.  The decrease in secondary
mortgage  market  fees  was  due  to a decrease in the volume of loans processed
through  the  secondary  market.

     NON-INTEREST  EXPENSE.  Non-interest expense increased $571,000, or 14.22%,
to  $4,587,000  in  2002,  as  compared to $4,016,000 in 2001.  The increase was
primarily  due  to  increases  of $205,000, or 12.16%, in salaries; $102,000, or
105.15%,  in legal fees; $53,000, or 35.33%, in examination and accounting fees;
$40,000,  or  57.14%,  in  director  fees  and  $129,000,  or  174.32%, in other
expenses, which were partially offset by a decrease of $36,000, or 5.81%, in net
occupancy  and equipment expense.  The increase in salaries was primarily due to
management  and  staffing  changes  as a result of resignations and retirements.
The  increase  in  legal  fees  was  due  to the costs related to the collection
efforts on non-performing loans and corporate issues.  The increases experienced
in  directors  fees  and  examination  and  accounting  expenses  are  directly
attributable to the increased oversight of the Bank's loan portfolio as a result
of  credit  quality  deterioration.  The  increase  in other expenses, primarily
collection  and  repossession  expense, directly relate to credit quality issues
and increased activity with other real estate owned. Net occupancy and equipment
expenses  decreased  as  a  number  of  assets  became fully depreciated without
requiring  replacement  purchases.  The "Non-Interest Expenses" table contains a
summary  of  these  items for the years ended December 31, 2002, 2001, and 2000.

     INCOME  TAXES.  Applicable  income tax benefits of $585,000 in 2002 consist
of  federal  taxes  only.  Impacting the tax provisions for the three years
presented  in  this  report  is  the  amount  of the provision for possible loan
losses;  $2,019,000  in 2002, $15,000 in 2001 and $75,000 in 2000 and the amount
of  tax-exempt  income on securities; $0 in 2002, $5,000 in 2001, and $20,000 in
2000.  The effective income tax rates for years ended December 31, 2001 and 2000
were  31.24%  and  32.13%,  respectively.

     Statement  of Financial Accounting Standard (SFAS) No. 109, "Accounting for
Income  Taxes"  requires  a liability approach to accounting for income taxes as
opposed  to  a deferred approach.  The liability approach places emphasis on the
accuracy  of the balance sheet while the deferred approach emphasizes the income
statement.  Under  the  liability approach, deferred taxes are computed based on
the  tax  rates  in  effect  for  the periods in which temporary differences are
expected  to  reverse.  An  annual  adjustment  of the deferred tax liability or
asset  is  made  for  any  subsequent  change  in  tax  rates.

IMPACT  OF  INFLATION  AND  CHANGING  PRICES

     The  financial  statements  and  related  data  presented  herein have been
prepared  in  accordance  with  GAAP, which require the measurement of financial
position  and  results  of  operations  primarily in terms of historical dollars
without  considering changes in the relative purchasing power of money over time
because  of  inflation.

Virtually  all assets and liabilities of the Bancorp are monetary in nature.  As
a  result, interest rates have a more significant impact on performance than the
effects  of  general  levels  of  inflation.

LIQUIDITY  AND  CAPITAL  RESOURCES

     Management utilizes several tools currently available to monitor and ensure
that  liquid funds are available to satisfy the normal loan and deposit needs of
its  customers  while taking advantage of investment opportunities as they arise
in  order  to maintain consistent growth and interest income.  Cash and due from
banks,  marketable  investment  securities with maximum one-year maturities, and
federal  funds  sold are the principal components of asset liquidity.  Referring
to "Interest Rate Sensitivity" table, the Bank is in an asset sensitive position
up  to  one  year, which is more beneficial in a period of rising interest rates
since  assets can be repriced at higher rates.  In periods of declining interest
rates,  a  liability  sensitive position is more favorable as interest sensitive
liabilities may be adjusted to declining market rates prior to maturing interest
sensitive  assets.   The  three-month  category  of  interest  sensitive  assets
includes approximately $12.5 million of federal funds sold which can be invested
to  offset  any  negative  gap  in  a  rising  rate  environment.

Management utilizes variable rate loans and adjustable rate deposits to maintain
desired  net  interest  margins.  A  procedural  process  has  been developed to
monitor  changes  in  market  rates on interest sensitive assets and liabilities
with  appropriate  action  being  taken  when  warranted.

<TABLE>

INTEREST  RATE  SENSITIVITY

<CAPTION>


INTEREST  RATE  SENSITIVITY

<S>                                <C>       <C>        <C>         <C>         <C>      <C>
                                              Over       Over        Over
In thousands, except ratios . . .   Within    3 Months   1 Year      3 Years     After
At December 31, 2002. . . .   . .   3 Months  to 1 Year  to 3 Years  To 5 Years  5 Years  Total
                                    --------  ---------  ----------  ----------  -------  --------
Loans                              $17,406     $14,040   $17,839     $12,770     $10,457   $ 72,512
Investment securities                1,080       4,494    10,848         549         681     17,652

Other earning assets                12,544           0         0           0           0     12,544

Other assets                             0           0         0           0       7,980      7,980
                                   -------    --------   --------     --------  --------   --------
Total assets                       $31,030     $18,534   $28,687      $13,319    $19,118   $110,688
                                  ========    ========   ========     ========  ========   ========

Non-interest-bearing deposits      $     0     $     0   $     0      $     0    $11,535   $ 11,535
Interest-bearing deposits           16,682      22,632    36,434        5,990      7,572     89,310
Borrowed funds                           3          13        37           33         14        100
Other liabilities and equity             0           0         0            0      9,743      9,743
                                  --------     --------  --------     --------   --------  --------

Total liabilities and equity       $16,685     $22,645   $36,471      $ 6,023    $28,864   $110,688
                                   ========   ========   ========      ========   ======== ========

Gap*                               $14,345     $(4,111)  $(7,784)     $ 7,296    $(9,746)
Cumulative gap                      14,345      10,234     2,450        9,746          0

Cumulative gap as a percent
of total assets                      12.96%       9.25%    2.21%        8.80%

OTHER BALANCE SHEET DATA
</TABLE>


<TABLE>
<CAPTION>


In  thousands,  except  ratios


CONTRACTURAL MATURITY OF TOTAL INVESTMENT
SECURITIES AVAILABLE-FOR-SALE (A)
<S>                                 <C>              <C>

                                     Within 1 Year    1-5 Years
                                     Amount/Yield     Amount/Yield
                                     --------------   ---------------
At December 31, 2002
Investment securities
available-for-sale:
U.S. Treasury. . . . . . . .  . . .  $ 1,012  6.44%   $ 1,655  3.77%
Federal agency . . . . . . . . . . .   3,591  6.92%     6,892  4.02%
Mortgage-backed
    Securities  . . . . . .                0  0.00%     1,346  3.34%
Corporate debt . . . . . . . . . . . . . . 0  0.00%     1,558  5.06%
Equity . . . . . . . . . . . . . . . .     0  0.00%         0  0.00%
                                          --------      ------------
Total Securities
Available-for-Sale . . . . . . ..    $ 4,603  6.81%   $11,451  4.05%
                                     =============== ===============


CONTRACTURAL MATURITY OF TOTAL INVESTMENT SECURITIES AVAILABLE-FOR-SALE (A)
<S>                                 <C>            <C>                 <C>            <C>
                                     Carrying Value                                    Total
                                     5 - 10 Years   No Fixed Maturity   Total          Market
                                     Amount/Yield   Amount/Yield        Amount/Yield   Value
                                     ------------   ------------        -------------  ----------
At December 31, 2002
Investment securities
available-for-sale:
U.S. Treasury. . . . . . . . . . ..  $     0  0.00%  $  0  0.00%       $ 2,667  4.84%  $ 2,667
Federal agency . . . . . . . . . . .       0  0.00%     0  0.00%        10,483  5.03%   10,483
Mortgage-backed
    Securities . . . . . . . . . . .  .  952  3.24%     0  0.00%         2,298  3.30%    2,298
Corporate debt . . . . . . . . . . . . .   0  0.00%     0  0.00%         1,558  5.06%    1,558
Equity . . . . . . . . . . . . . . . . .   0  0.00%   646  4.96%           646  4.96%      646
                                      -----          ----              -------         -------
Total Securities
Available-for-Sale . . . . . . .  .  $   952  3.24%  $646  4.96%       $17,652  4.78%  $17,652
                                     =======         ====              =======         =======
</TABLE>
<TABLE>
<CAPTION>


MATURITY OF LOANS (A)                   Within     1-5     After 5
                                        1 year    Years    Years  Total
                                        ------     -----     -----
<S>                                     <C>      <C>      <C>     <C>
Commercial,agricultural and tax exempt  $ 2,771  $ 1,594  $  140  $ 4,505
Real Estate-nonresidential . . . . . .   12,274   13,181   3,507   28,962
                                        -------  -------  ------  -------
Total. . . . . . . . . . . . . . . . .  $15,045  $14,775  $3,647  $33,467
                                        =======  =======  ======  =======

Fixed. . . . . . . . . . . . . . . . .  $ 4,306  $ 4,028  $  911  $ 9,245
Variable . . . . . . . . . . . . . . .   10,740   10,747   2,735   24,222
                                        -------  -------  ------  -------
Total. . . . . . . . . . . . . . . . .  $15,046  $14,775  $3,646  $33,467
                                        =======  =======  ======  =======

</TABLE>




<TABLE>
<CAPTION>

MATURITY OF DEPOSITS
<S>                             <C>     <C>        <C>      <C>       <C>      <C>
                                         Within     3-6      6-12      Over 12
In thousands . . . . . . . . . . . . .   3 Months   Months   Months    Months   Total
                                         ---------  -------  --------  -------  -----
At December 31, 2002
Time Deposits of $100,000 or more. . .   $   3,881  $   889  $  3,083  $ 6,576  $14,429
                                         =========  =======  ========  =======  =======

Certificates of deposit.. . . . . . . .  $   9,815  $ 5,861  $ 26,888  $ 5,527  $48,091
                                         =========  =======  ========  =======  =======


DEPOSITS AT DECEMBER 31, . . . . .2002    2001      2000     1999     1998     1997
                                  ------- ----      -----    -----    ----     ----

Non-interest-bearing deposits.    $11,535 $10,943   $9,446   $9,587   $9,655   $6,371
Interest-bearing deposits
NOW and money market accounts. . . 16,168  16,615   14,395   14,357   14,835    9,757
Savings accounts . . . . . . . . . 17,862  16,757   15,128   15,713   15,990   14,591

Certificates of deposit and
individual retirement accounts     55,280  50,916   51,139   43,884   44,711   33,209
                                  -----  -------  --------  -------  -------  -------

Total deposits . . . . . . .    $ 100,845  $95,231 $90,108  $83,541  $85,191  $63,928
                                =========  ======= =======  =======  =======  =======

</TABLE>
(a)Excludes  consumer  and  real estate  loans  of  $39,045.




RECENTLY  ISSUED  ACCOUNTING  PRONOUNCEMENTS

     In  July  2001,  the  Financial  Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS
141),  and  Statement  of  Financial  Accounting Standards No. 142, Goodwill and
Other  Intangible  Assets  (SFAS  142).     SFAS  141  requires  all  business
combinations  initiated  after June 30, 2001 be accounted for under the purchase
method.  SFAS  141  supersedes  APB  Opinion  No. 16, Business Combinations, and
Statement of Financial Accounting Standards No 38, Accounting for Preacquisition
Contingencies  of  Purchased  Enterprises,  and  is  effective  for all business
combinations  initiated  after  June  30, 2001. SFAS 142 addresses the financial
accounting  and  reporting  for  acquired  goodwill and other intangible assets.
Under  the new rules, the company is no longer required to amortize goodwill and
other  intangible  assets with indefinite lives, but will be subject to periodic
testing  for  impairment.  SFAS  142  supersedes  APB Opinion No. 17, Intangible
Assets.  Effective  January  1,  2001,  the  company  will adopt SFAS 142 and is
evaluating the effect that such adoption may have on its consolidated results of
operations  and  financial  position.  However,  the  company  expects  that  a
significant  amount  of  its  intangible  assets  will  no  longer be amortized.

     In  August  2001,  the  FASB  issued  FAS  No.  143,  Accounting  for Asset
Retirement  Obligations,  which  requires  that the fair value of a liability be
recognized  when incurred for the retirement of a long lived asset and the value
of  the asset be increased by that amount.  The statement also requires that the
liability  be maintained at its present value in subsequent periods and outlines
certain disclosures for such obligations.  The adoption of this statement, which
is  effective  January 1, 2003, is not expected to have a material effect on the
Company's  financial  statements.

     In October 2001, the FASB issued FAS No. 144, Accounting for the Impairment
or  Disposal  of  Long-Lived  Assets.  FAS  No.  144  supercedes FAS No. 121 and
applies  to  all  long-lived  assets  (including  discontinued  operations)  and
consequently  amends  APB  Opinion  No.  30,  Reporting  Results  of
Operations-Reporting  the  Effects  of Disposal of a Segment of a Business.  FAS
No.  141  requires  that long-lived assets that are to be disposed of by sale be
measured  at  the lower of book value or fair value less costs to sell.  FAS No.
144  is  effective  for  financial  statements issued for fiscal years beginning
after  December  15,  2001  and  generally,  its  provisions  are  to be applied
prospectively.  The  adoption  of  this  statement  is  not  expected  to have a
material  effect  on  the  Company  financial  statements.

     In April 2002, the FASB issued FAS No. 145, Recission of FASB Statement No.
4,  44  and  64,  Amendment of FASB Statement No. 13, and Technical Corrections.
FAS  No.  145  rescinds  FAS  No.  4,  which  required all gains and losses from
extinguishment  of  debt  to  be  aggregated  and, if material, classified as an
extraordinary item, net of related income tax effect.  As a result, the criteria
in APB Opinion No. 30 will now be used to classify those gains and losses.  This
statement  also  amends  FAS  No. 13 to require that certain lease modifications
that  have  economic effects similar to sale-leaseback transactions be accounted
for  in  the  same  manner  as sale-leaseback transactions.  This statement also
makes  technical  corrections  to  existing  pronouncements,  which  are  not
substantive but in some cases may change accounting practice.  The provisions of
this statement related to the rescission of FAS No. 4 shall be applied in fiscal
years beginning after May 15, 2002.  Any gain or loss on extinguishments of debt
that  was  classified,  as an extraordinary item in prior periods presented that
does  not  meet  the  criteria  in  APB  Opinion No. 30 for classification as an
extraordinary  item  shall be reclassified.  Early adoption of the provisions of
this  statement  related  to  FAS  No.  13  shall  be effective for transactions
occurring  after  May 15, 2002.  All other provisions of this statement shall be
effective  for  financial  statements  issued  on  or  after May 15, 2002. Early
applications  of  this  statement are encouraged.  The adoption of the effective
portions  of  this  statement  did not have an impact on the Company's financial
position  of  results  of operations.  The adoption of the remaining portions of
this  statement  is  not  expected  to have an impact on the Company's financial
position  or  results  of  operations.

     In  July 2002, the FASB issued FAS No. 146, Accounting for Costs Associated
with  Exit  or  Disposal  Activities, which requires companies to recognize cost
associated  with  exit or disposal activities when they are incurred rather than
at  the  date  of  a  commitment  to  an  exit or disposal plan.  This statement
replaces  EITF  Issue  No.  94-3,  Liability  Recognition  for  Certain Employee
Termination  Benefits  and  Other  Costs  to Exit an Activity (Including Certain
Costs  Incurred  in  a  Restructuring).  The new statement will be effective for
exit  or  disposal activities initiated after December 31, 2002, the adoption of
which  is  not  expected  to  have  a material effect on the Company's financial
statements.

     On  October  1,  2002,  ASB  issued  FAS  No.  147, Acquisitions of Certain
Financial  Institutions, effective for all business combinations initiated after
October  1,  2002.  This  statement  addresses  the  financial  accounting  and
reporting  for the acquisition of all or part of a financial institution, except
for  a  transaction  between  two  or  more  mutual enterprises.  This statement
removes  acquisitions of financial institutions, other than transactions between
two  or  more  mutual  enterprises, from the scope of FAS No. 72, Accounting for
Certain  Acquisitions of Banking or Thrift Institutions, and FASB Interpretation
No.  9,  Applying APB Opinions No. 16 and 17 When a Savings and Loan Association
or  a Similar Institution is Acquired in a Business Combination Accounted for by
the  Purchase Method.  The acquisition of all or part of a financial institution
that  meets  the  definition of a business combination shall be accounted for by
the  purchase  method in accordance with FAS No. 141, Business Combinations, and
FAS No. 142, Goodwill and Other Intangible Assets.  This statement also provides
guidance  on the accounting for the impairment of disposal of acquired long-term
customer-relationship  intangible  assets  (such  as  depositor-and
borrower-relationship  intangible  assets  and  credit  cardholder  intangible
assets),  including  those  acquired  in transactions between two or more mutual
enterprises.  The  adoption of this statement is not expected to have a material
effect  on  the  Company's  financial  statements.

     On  December  31,  2002,  the  FASB  issued  FAS  No.  148,  Accounting for
Stock-Based  Compensation - Transition and Disclosure, which amends FAS No. 123,
Accounting  for  Stock-Based  Compensation.  FAS  No.  148 amends the disclosure
requirements  of  FAS  No.  123  to  require  more  prominent  and more frequent
disclosures  in  financial  statements  about  the  effects  of  stock-based
compensation.  Under  the  provisions of FAS No. 123, companies that adopted the
preferable,  fair  value  based  method  were  required  to  apply  that  method
prospectively  for  new  stock  option  awards.  This contributed to a "ramp-up"
effect  on  stock-based  compensation  expense  in the first few years following
adoption,  which  caused concern for companies and investors because of the lack
of  consistency  in  reported  results.  To  address  that  concern, FAS No. 148
provides  two  additional  methods  of  transition that reflect an entity's full
complement  of  stock-based  compensation  expense  immediately  upon  adoption,
thereby  eliminating  the ramp-up effect.  FAS No. 148 also improves the clarity
and  prominence  of  disclosures  about  the pro forma effects of using the fair
value  based  method  of  accounting  for  stock-based  compensation  for  all
companies-regardless  of  the accounting method used- by requiring that the data
be  presented  more  prominently  and  in  a  more  user-friendly  format in the
footnotes  to the financial statements.  In addition, the statement improves the
timeliness  of  those disclosures by requiring that this information be included
in  interim as well as annual financial statements.  The transition guidance and
annual discloser provisions of FAS No. 148 are effective for fiscal years ending
after  December  15,  2002,  with  earlier  application  permitted  in  certain
circumstances.  The  interim  disclosure  provisions are effective for financial
reports  containing  financial  statements  for  interim periods beginning after
December  15,  2002.

     In  November,  2002,  the  FASB  issued  Interpretation No. 45, Guarantor's
Accounting  and  Disclosure  requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of  Others.  This interpretation elaborates on the
disclosures  to  be  made  by  a  guarantor  in its interim and annual financial
statements  about  its  obligations under certain guarantees that it has issued.
This  interpretation  clarifies that a guarantor is required to disclose (a) the
nature  of  the  guarantee, including the approximate term of the guarantee, how
the  guarantee  arose,  and  the  events or circumstances that would require the
guarantor  to  perform  under the guarantee; (b) the maximum potential amount of
future  payments  under the guarantee; (c) the carrying amount of the liability,
if  any  for the guarantor's obligations under the guarantee; and (d) the nature
and  extent of any recourse provisions or available collateral that would enable
the  guarantor  to  recover  the  amounts  paid  under  the  guarantee.  This
interpretation  also clarifies that a guarantor is required to recognize, at the
inception  of  a guarantee, a liability for the obligations it has undertaken in
issuing  the  guarantee,  including  its  ongoing  obligation  to stand ready to
perform  over  the  term  of  the  guarantee  in  the  event  that the specified
triggering  events  or  conditions  occur.   The  objective  of  the  initial
measurement  of  that  liability  is  the  fair  value  of  the guarantee at its
inception.  The  initial  recognition and initial measurement provisions of this
interpretation  are  applicable  on  a prospective basis to guarantees issued or
modified  after  December  31,  2002,  irrespective  of  the  guarantor's fiscal
year-end.  The  disclosure requirements in this interpretation are effective for
financial  statements  of  interim  and annual periods ending after December 15,
2002.

<TABLE>
<CAPTION>



<PAGE>
SIX-YEAR  CONSOLIDATED  FINANCIAL  SUMMARY


In thousands, except per common share amounts and ratios     2002       2001       2000       1999      1998      1997
                                                           ---------  ---------  ---------  --------  --------  --------
<S>                                                        <C>        <C>        <C>        <C>       <C>       <C>
Years Ended December 31,
Statements of Income
Interest Income . . . . . . . . . . . . . . . . . . . . .  $  7,035   $  8,287   $  8,261   $ 7,191   $ 6,587   $ 5,565
Interest Expense. . . . . . . . . . . . . . . . . . . . .     2,872      4,075      3,878     3,187     2,958     2,387
                                                           ---------  ---------  ---------  --------  --------  --------
Net interest income . . . . . . . . . . . . . . . . . . .     4,163      4,212      4,383     4,004     3,629     3,178
Provision for loan losses . . . . . . . . . . . . . . . .     2,019         15         75         0         0         0
                                                           ---------  ---------  ---------  --------  --------  --------
Net interest income after provision for loan losses . . .     2,144      4,197      4,308     4,004     3,629     3,178
Non-interest income . . . . . . . . . . . . . . . . . . .       768        680        552       641       420       320
Non-interest expenses . . . . . . . . . . . . . . . . . .     4,587      4,016      3,864     3,720     3,125     2,293
                                                           ---------  ---------  ---------  --------  --------  --------
Income before income taxes. . . . . . . . . . . . . . . .    (1,675)       861        996       925       924     1,205
Income tax expense. . . . . . . . . . . . . . . . . . . .      (585)       269        320       300       301       373
                                                           ---------  ---------  ---------  --------  --------  --------
Net (loss) income . . . . . . . . . . . . . . . . . . . .  $ (1,090)  $    592   $    676   $   625   $   623   $   832
                                                           =========  =========  =========  ========  ========  ========

Per Common Share
Net (Loss) Income
Basic . . . . . . . . . . . . . . . . . . . . . . . . . .  $  (1.86)  $   1.01   $   1.16   $  1.09   $  1.09   $  1.47
Diluted . . . . . . . . . . . . . . . . . . . . . . . . .     (1.86)      1.01       1.16      1.09      1.09      1.47
Dividends declared. . . . . . . . . . . . . . . . . . . .      0.25       0.50       0.49      0.47      0.45      0.43
Shareholders' equity. . . . . . . . . . . . . . . . . . .     15.72      17.85      17.01     16.05     16.26     15.31

Selected Consolidated Balance Sheet Data at December 31,
Assets. . . . . . . . . . . . . . . . . . . . . . . . . .  $110,688   $106,456   $103,155   $98,599   $94,641   $72,795
Investment securities . . . . . . . . . . . . . . . . . .    17,652     14,815     15,435    17,142    19,470    18,768
Loans (a) . . . . . . . . . . . . . . . . . . . . . . . .    72,512     81,182     79,279    71,955    62,874    46,872
Deposits. . . . . . . . . . . . . . . . . . . . . . . . .   100,845     95,231     90,108    83,541    85,191    63,928
Borrowed funds. . . . . . . . . . . . . . . . . . . . . .       100        115      2,632     5,152       173       198
Shareholders' equity. . . . . . . . . . . . . . . . . . .     9,222     10,452      9,933     9,242     8,956     8,434

Ratios (b)
Per $100 of average assets
Net Interest Income(loss) (tax-equivalent basis). . . . .  $   3.86   $   4.06   $   4.39   $  4.27   $  4.31   $  4.51
Provision for loan losses . . . . . . . . . . . . . . . .      1.87       0.01       0.07         0         0         0
                                                           ---------  ---------  ---------  --------  --------  --------
Net interest income after provision for loan losses . . .      1.99       4.05       4.32      4.27      4.31      4.51
Non-interest income . . . . . . . . . . . . . . . . . . .      0.71       0.46       0.47      0.65      0.50      0.45
Non-interest expense. . . . . . . . . . . . . . . . . . .      4.25       3.71       3.80      3.93      3.71      3.20
                                                           ---------  ---------  ---------  --------  --------  --------
Income before income taxes. . . . . . . . . . . . . . . .     (1.55)      0.80       0.99      0.98      1.10      1.76
Income tax expense. . . . . . . . . . . . . . . . . . . .     (0.54)      0.25       0.32      0.32      0.36      0.59
                                                           ---------  ---------  ---------  --------  --------  --------
Net (loss) income . . . . . . . . . . . . . . . . . . . .  $  (1.01)  $   0.55   $   0.67   $  0.66   $  0.74   $  1.17
                                                           =========  =========  =========  ========  ========  ========

Return on average assets. . . . . . . . . . . . . . . . .    (1.01)%      0.55%      0.67%     0.66%     0.74%     1.17%
Return on average shareholders' equity. . . . . . . . . .   (10.51)%      5.93%      7.18%     6.93%     7.66%    10.28%
Average shareholders' equity to average assets. . . . . .      9.60%      9.26%      9.27%     9.54%    10.41%    11.38%
Dividend payout ratio . . . . . . . . . . . . . . . . . .        --      49.49%     42.16%    43.04%    37.80%    28.74%
Tier 1 capital ratio at December 31 . . . . . . . . . . .     11.10%     12.91%     13.50%    14.04%    14.00%    16.10%
Tier 1 and Tier 2 capital ratio at December 31. . . . . .     12.30%     14.02%     14.57%    15.29%    15.30%    17.30%
Tier 1 leverage ratio at December 31. . . . . . . . . . .      7.70%      8.97%      9.14%     9.48%     9.10%     9.90%
</TABLE>

(a)     Net  of  unearned  income.
(b)     Based  on  average  balances  and  net  income  for  the  periods.

<TABLE>
<CAPTION>








CONSOLIDATED  INCOME  SUMMARY

In thousands, except percentages          2002               2001% Change        2000% Change       1999    1998    1997
                                        --------            -------------        -------------   ------   ------  ------
<S>                                     <C>       <C>            <C>            <C>     <C>       <C>     <C>     <C>
Interest income (tax-equivalent basis)  $ 7,035   $       8,291       (15.15)%  $8,267     0.29%  $7,210  $6,618  $5,608
Interest expense . . . . . . . . . . .    2,872           4,075       (29.52)%   3,878     5.08%   3,187   2,958   2,387
                                        --------  -------------                 ------            ------  ------  ------
Net interest income. . . . . . . . . .    4,163           4,216        (1.26)%   4,389   (3.94)%   4,023   3,660   3,221
Provision for loan losses. . . . . . .    2,019              15      13360.00%      75  (80.00)%       0       0       0
                                        --------  -------------                 ------            ------  ------  ------
Net interest income after provision
for loan losses. . . . . . . . . . . .    2,144           4,201       (48.96)%   4,314   (2.62)%   4,023   3,660   3,221
Non-interest income. . . . . . . . . .      768             680         12.94%     552    23.19%     641     420     320
Non-interest expense . . . . . . . . .    4,587           4,016         14.22%   3,864     3.93%   3,720   3,125   2,288
                                        --------  -------------                 ------            ------  ------  ------
Income before income taxes . . . . . .   (1,675)            865      (293.64)%   1,002  (13.67)%     944     955   1,253
Income tax expense . . . . . . . . . .     (585)            269      (317.47)%     320  (15.94)%     300     301     375
Tax-equivalent adjustment. . . . . . .        0               4      (100.00%)       6  (33.33)%      19      31      43
                                        --------  -------------                 ------            ------  ------  ------
Net income(loss) . . . . . . . . . . .  $(1,090)  $         592      (284.12%)  $  676  (12.43)%  $  625  $  623  $  835
                                        ========  =============                 ======            ======  ======  ======
</TABLE>

<TABLE>
<CAPTION>


QUARTERLY  CONDENSED  CONSOLIDATED  FINANCIAL  INFORMATION

                                                  2002 Quarters
In thousands, except per common
Share amounts and ratios                      Fourth     Third
<S>                                          <C>        <C>    <C>
Interest income                               $  1,542   $  1,786
Interest expense                                   716        725
                                              ---------  ---------
Net interest income                                826      1,061
Provision for loan losses                          979        825
                                              ---------  ---------
Net interest income after
   Provision for loan losses                      (153)       236

Non-interest income                                207        221
Non-interest expense                             1,268      1,174
                                               --------  ---------
Income before income taxes                      (1,214)      (717)
Income tax expense                                (412)      (248)
                                               --------  ---------
Net (loss) income                              $  (802)  $   (469)
                                               ========  =========

Per Common Share
Net (loss) income
Basic                                          $  (1.37)  $  (0.80)
Diluted                                           (1.37)    ( 0.80)
Dividends declared                                 0.05       0.00
Shareholders' equity                              15.72      17.22
Stock price range
High                                              20.00      20.00
Low                                               19.00      19.00

Tax-equivalent Yields and Rates
Interest-bearing deposits in banks                 0.00%      0.00%
Federal funds sold                                 1.39%      1.68%
Investment securities                              4.70%      5.11%
Loans                                              6.81%      7.69%
Total earning assets                               5.84%      6.91%
Interest-bearing deposits                          3.12%      3.26%
Borrowed funds                                     4.53%      3.83%
Total interest-bearing liabilities                 3.12%      3.26%
 Interest rate spread                              2.72%      3.65%
Net interest
 Margin                                            3.13%      4.10%
Ratios
Return on assets                                 (2.84)%    (1.70)%
Leverage                                           7.65%      8.54%
Return on average shareholders' equity          (32.00)%   (17.80)%

Average Assets
Cash and due from banks                        $  3,198   $  3,154
Interest-bearing deposits in banks                   31         35
Federal funds sold                               11,995      6,820
Investment securities                            17,052     14,831
Loans                                            75,611     80,812
Allowance for loan losses                        (1,164)      (765)
Other assets                                      5,307      4,839
                                               ---------  ---------
Total average assets                           $112,030   $109,726
                                               =========  =========


Total earning assets                           $104,689   $102,498
                                               =========  =========

Average Liabilities and Shareholders'  Equity
Non-interest-bearing deposits                  $ 10,994   $ 10,536
Interest-bearing deposits                        90.676     87,576
Borrowed funds                                      100        590
Other liabilities                                   318        573
Shareholders' equity                              9,942     10,451
                                               ---------  ---------
Total average liabilities and
Shareholders' equity                           $112,030   $109,726
                                               =========  =========

                                              2002 Quarters                     2001 Quarters

In thousands, except per common
Share amounts and ratios
                                               Second     First      Fourth     Third      Second     First
<S>                                           <C>        <C>        <C>        <C>        <C>        <C>
Interest income . . . . . . . . . . . . . . .  $  1,853   $  1,854   $  2,026   $  2,041   $  2,117   $  2,103
Interest expense. . . . . . . . . . . . . . .       688        743        900      1,055      1,069      1,051
                                               ---------  ---------  ---------  ---------  ---------  ---------
Net interest income . . . . . . . . . . . . .     1,165      1,111      1,126        986      1,048      1,052
Provision for loan losses . . . . . . . . . .       169         46          0          0          0         15
                                               ---------  ---------  ---------  ---------  ---------  ---------
Net interest income after
   Provision for loan losses. . . . . . . . .       996      1,065      1,126        986      1,048      1,037

Non-interest income . . . . . . . . . . . . .       160        180        209        188        154        129
Non-interest expense. . . . . . . . . . . . .     1,109      1,036      1,017        986      1,023        990
                                               ---------  ---------  ---------  ---------  ---------  ---------
Income before income taxes. . . . . . . . . .        47        209        318        188        179        176
Income tax expense. . . . . . . . . . . . . .         9         66        110         50         55         54
                                               ---------  ---------  ---------  ---------  ---------  ---------
Net (loss) income . . . . . . . . . . . . . .  $     38   $    143   $    208   $    138   $    124   $    122
                                               =========  =========  =========  =========  =========  =========

Per Common Share
Net (loss) income
Basic . . . . . . . . . . . . . . . . . . . .  $   0.06   $   0.24   $   0.35   $   0.24   $   0.21   $   0.21
Diluted . . . . . . . . . . . . . . . . . . .      0.06       0.24       0.35       0.24       0.21       0.21
Dividends declared. . . . . . . . . . . . . .      0.20       0.00       0.30       0.00       0.20       0.00
Shareholders' equity. . . . . . . . . . . . .     17.94      17.95      17.85      17.91      17.51      17.46
Stock price range
High. . . . . . . . . . . . . . . . . . . . .     19.60      19.00      19.50      19.00      20.00      22.75
Low . . . . . . . . . . . . . . . . . . . . .     18.15      18.00      17.00      17.00      17.00      18.25

Tax-equivalent Yields and Rates
Interest-bearing deposits in banks. . . . . .      0.00%      0.00%      2.36%      4.18%      4.87%      5.36%
Federal funds sold. . . . . . . . . . . . . .      1.55%      1.59%      2.33%      3.19%      4.26%      5.38%
Investment securities . . . . . . . . . . . .      5.58%      5.63%      5.96%      5.81%      6.36%      6.02%
Loans . . . . . . . . . . . . . . . . . . . .      8.07%      8.18%      8.81%      8.83%      9.35%      9.48%
Total earning assets. . . . . . . . . . . . .      7.57%      7.65%      7.86%      7.78%      8.44%      8.79%
Interest-bearing deposits . . . . . . . . . .      3.30%      3.60%      4.14%      4.67%      4.89%      5.01%
Borrowed funds. . . . . . . . . . . . . . . .      2.22%      2.80%      6.80%      6.60%      7.69%      6.32%
Total interest-bearing liabilities. . . . . .      3.29%      3.59%      4.14%      4.67%      4.89%      5.03%
 Interest rate spread . . . . . . . . . . . .      4.28%      4.06%      3.72%      3.11%      3.55%      3.76%
Net interest
 Margin . . . . . . . . . . . . . . . . . . .      4.76%      4.58%      4.30%      3.71%      4.16%      4.40%
Ratios
Return on assets. . . . . . . . . . . . . . .      0.15%      0.55%      0.80%      0.71%      0.55%      0.47%
Leverage. . . . . . . . . . . . . . . . . . .      9.41%      9.47%      8.97%      8.89%      8.88%      9.25%
Return on average shareholders' equity. . . .      1.44%      5.50%      8.54%      7.71%      5.98%      5.00%

Average Assets
Cash and due from banks . . . . . . . . . . .  $  3,004   $  3,047   $  2,480   $  2,642   $  2,621   $  2,937
Interest-bearing deposits in banks. . . . . .        52         32         24         28         43         46
Federal funds sold. . . . . . . . . . . . . .     1,686      2,454      7,818     10,959      8,623      2,998
Investment securities . . . . . . . . . . . .    15,047     14,784     14,974     14,160     15,044     15,315
Loans . . . . . . . . . . . . . . . . . . . .    81,376     81,120     79,122     77,246     77,206     78,568
Allowance for loan losses . . . . . . . . . .      (773)      (838)      (802)      (922)      (988)    (1,003)
Other assets. . . . . . . . . . . . . . . . .     4,632      4,564      5,590      5,747      5,690      5,383
                                               ---------  ---------  ---------  ---------  ---------  ---------
Total average assets. . . . . . . . . . . . .  $105,024   $105,163   $109,206   $109,860   $108,239   $104,246
                                               =========  =========  =========  =========  =========  =========


Total earning assets. . . . . . . . . . . . .  $ 98,161   $ 98,390   $101,938   $102,393   $100,916   $ 96,927
                                               =========  =========  =========  =========  =========  =========

Average Liabilities and Shareholders'  Equity
Non-interest-bearing deposits . . . . . . . .  $ 10,243   $ 10,209   $ 10,971   $ 10,150   $  9,721   $  9,529
Interest-bearing deposits . . . . . . . . . .    82,654     83,257     87,008     88,990     88,003     82,927
Borrowed funds. . . . . . . . . . . . . . . .     1,078        526        116        117        129      1,754
Other liabilities . . . . . . . . . . . . . .       491        632        903        548        458        267
Shareholders' equity. . . . . . . . . . . . .    10,558     10,539     10,208     10,055      9,928      9,769
                                               ---------  ---------  ---------  ---------  ---------  ---------
Total average liabilities and
Shareholders' equity. . . . . . . . . . . . .  $105,024   $105,163   $109,206   $109,860   $108,239   $104,246
                                               =========  =========  =========  =========  =========  =========
</TABLE>



<TABLE>
<CAPTION>


ITEM  7.  FINANCIAL  STATEMENTS.
EXCHANGE  BANCSHARES,  INC.  -  CONSOLIDATED  BALANCE  SHEETS
=============================================================
                                                (Dollars in thousands)
                                                     December  31,

                                                     2002       2001
                                                   ---------  ---------
<S>                                                <C>        <C>
ASSETS

Cash and cash equivalents
Cash and amounts due from depository institutions  $  3,221   $  3,931
Interest-bearing demand deposits in banks . . . .        29         23
Federal funds sold. . . . . . . . . . . . . . . .    12,515      2,811
                                                   ---------  ---------
Total cash and cash equivalents . . . . . . . . .    15,765      6,765

Investment securities
Securities available-for-sale . . . . . . . . . .    17,652     14,815
                                                   ---------  ---------
Total investment securities . . . . . . . . . . .    17,652     14,815

Loans . . . . . . . . . . . . . . . . . . . . . .    72,512     81,182
Allowance for loan losses . . . . . . . . . . . .    (1,417)      (844)
                                                   ---------  ---------
Net loans . . . . . . . . . . . . . . . . . . . .    71,095     80,338

Premises and equipment, net . . . . . . . . . . .     3,395      3,428
Accrued interest receivable . . . . . . . . . . .       671        788
Intangible assets . . . . . . . . . . . . . . . .        83         83
Deferred income taxes . . . . . . . . . . . . . .       180          0
Foreclosed assets . . . . . . . . . . . . . . . .     1,150         92
Other assets. . . . . . . . . . . . . . . . . . .       697        147
                                                   ---------  ---------

TOTAL ASSETS. . . . . . . . . . . . . . . . . . .  $110,688   $106,456
                                                   =========  =========

LIABILITIES

Deposits:
Noninterest-bearing . . . . . . . . . . . . . . .  $ 11,535   $ 10,943
Interest-bearing. . . . . . . . . . . . . . . . .    89,310     84,288
                                                   ---------  ---------
Total deposits. . . . . . . . . . . . . . . . . .   100,845     95,231

Borrowed funds. . . . . . . . . . . . . . . . . .       100        115
Accrued interest payable. . . . . . . . . . . . .       190        256
Deferred income taxes . . . . . . . . . . . . . .         0         12
Other liabilities . . . . . . . . . . . . . . . .       331        390
                                                   ---------  ---------

TOTAL LIABILITIES . . . . . . . . . . . . . . . .   101,466     96,004

SHAREHOLDERS' EQUITY
Preferred shares ($25.00 par value) 750 shares
authorized, 0 shares issued . . . . . . . . . . .         0          0
Common shares ($5.00 par value) 750,000 shares
authorized, 586,644 issued. . . . . . . . . . . .     2,933      2,933
Additional paid-in capital. . . . . . . . . . . .     5,071      5,071
Retained earnings . . . . . . . . . . . . . . . .       932      2,168
Accumulated other comprehensive income. . . . . .       286        280
                                                   ---------  ---------


TOTAL SHAREHOLDERS' EQUITY. . . . . . . . . . . .     9,222     10,452
                                                   ---------  ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . .  $110,688   $106,456
                                                   =========  =========
</TABLE>


-------------------------------------------
See accompanying notes
<TABLE>
<CAPTION>



<PAGE>
          EXCHANGE BANCSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME
          =============================================================
                                   (Dollars in thousands, except per share data)
                                                   Year Ended December 31,

                                                     2002     2001    2000
                                                   --------  ------  ------
<S>                                                <C>       <C>     <C>
INTEREST INCOME
-------------------------------------------------
Interest and fees on loans. . . . . . . . . . . .  $ 6,140   $7,134  $7,200
Interest and dividends on investment securities .      808      885     934
Interest on federal funds sold. . . . . . . . . .       87      266     125
Interest on due from bank deposits. . . . . . . .        0        2       2
                                                   --------  ------  ------

TOTAL INTEREST INCOME . . . . . . . . . . . . . .    7,035    8,287   8,261

INTEREST EXPENSE
-------------------------------------------------
Interest on deposits. . . . . . . . . . . . . . .    2,856    4,041   3,524
Interest on advances from Federal Home Loan Bank.       16       34     354
                                                   --------  ------  ------

TOTAL INTEREST EXPENSE. . . . . . . . . . . . . .    2,872    4,075   3,878
                                                   --------  ------  ------

NET INTEREST INCOME . . . . . . . . . . . . . . .    4,163    4,212   4,383

Provision for loan losses . . . . . . . . . . . .    2,019       15      75
                                                   --------  ------  ------

NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES . . . . . . . . . . . . . . . . .    2,144    4,197   4,308

NON-INTEREST INCOME
-------------------------------------------------
Service charges on deposits . . . . . . . . . . .      389      328     291
Secondary market loan fees. . . . . . . . . . . .      163      188      75
Fees on sales of annuities and mutual funds . . .      131       99     114
Gain on sale of investments . . . . . . . . . . .       19        0       0
Other income. . . . . . . . . . . . . . . . . . .       66       65      72
                                                   --------  ------  ------

TOTAL NON-INTEREST INCOME . . . . . . . . . . . .      768      680     552

NON-INTEREST EXPENSES
Salaries and employee benefits. . . . . . . . . .    2,230    2,008   1,895
Occupancy and equipment, net. . . . . . . . . . .      584      620     634
Bank and ATM charges. . . . . . . . . . . . . . .      130      124     110
Credit card . . . . . . . . . . . . . . . . . . .       62       59      60
Data processing . . . . . . . . . . . . . . . . .      165      154     139
Directors fees. . . . . . . . . . . . . . . . . .      110       70      64
Examination and accounting fees . . . . . . . . .      203      150     160
State and other taxes . . . . . . . . . . . . . .      123      124     114
Postage and courier . . . . . . . . . . . . . . .      122      119     122
Supplies and printing . . . . . . . . . . . . . .      136      119     124
Advertising . . . . . . . . . . . . . . . . . . .      130      110      98
Legal . . . . . . . . . . . . . . . . . . . . . .      199       97      83
Telephone . . . . . . . . . . . . . . . . . . . .       79       75      70
Other expenses. . . . . . . . . . . . . . . . . .      314      187     191
                                                   --------  ------  ------

TOTAL NON-INTEREST EXPENSES . . . . . . . . . . .    4,587    4,016   3,864
                                                   --------  ------  ------

INCOME (LOSS) BEFORE FEDERAL INCOME
TAX EXPENSE . . . . . . . . . . . . . . . . . . .   (1,675)     861     996

Federal income tax expense (benefit). . . . . . .     (585)     269     320
                                                   --------  ------  ------

NET INCOME (LOSS) . . . . . . . . . . . . . . . .  $(1,090)  $  592  $  676
                                                   ========  ======  ======

EARNINGS PER SHARE:
Basic . . . . . . . . . . . . . . . . . . . . . .  $ (1.86)  $ 1.01  $ 1.16
Diluted . . . . . . . . . . . . . . . . . . . . .  $ (1.86)  $ 1.01  $ 1.16
</TABLE>


---------------------------------------
See accompanying notes
<TABLE>
<CAPTION>

EXCHANGE  BANCSHARES,  INC.
CONSOLIDATED  STATEMENTS  OF  CHANGES  IN  SHAREHOLDERS'  EQUITY

                                             Number of shares                     (Dollars in thousands)
                                             ----------------                   -----------------------------------------------

                                                                                                         Accumulated
                                                                       Additional                           Other        Compre-
                                      Common      Treasury    Common    paid-in   Retained   Treasury    Comprehensive   Hensive
                                      Stock        Stock      Stock     Capital   Earnings     Stock        Income       Income
                                   ------------  ----------  --------  ---------  ---------  ---------  ---------------  -------

<S>                                <C>           <C>         <C>       <C>        <C>        <C>        <C>              <C>
Balances at December 31, 1999,
   as previously reported . . . .      552,239           0   $  2,761  $  4,382   $   2,206  $       0  $          (89)

Prior-period adjustment-error in
   accounting for FHLB stock
   dividends in accordance with
   SFAS 109 . . . . . . . . . . .                                                       (18)
                                   ------------      ------   -------   ---------  ---------  ---------  --------------
Balances at December 31, 1999,
   as restated. . . . . . . . . .      552,239           0      2,761     4,382       2,188          0             (89)

Net income. . . . . . . . . . . .                                                       676                           $     676
Other comprehensive income-
Change in unrealized
gain (loss) on securities
available-for-sale,
net of tax of $88 . . . . . . . .                                                                                 170       170
                                                                                                                         -------
Comprehensive income. . . . . . .                                                                                        $  846
                                                                                                                         =======
Cash dividends declared
($.49 per share). . . . . . . . .                                                      (285)
5% stock dividend declared. . . .       27,420                   137        567        (704)
Issuance of common stock. . . . .        5,844                    30        106          (6)
                                   ------------    ----------  --------  ---------   -------       --------      -------

Balances at December 31, 2000 . .      585,503           0     2,928      5,055       1,869          0              81

Net income. . . . . . . . . . . .                                                       592                              $  592
Other comprehensive income-
Change in unrealized
gain (loss) on securities
available-for-sale,
net of tax of $102. . . . . . . .                                                                                  199      199
                                                                                                                         -------
Comprehensive income. . . . . . .                                                                                        $  791
                                                                                                                         =======
Cash dividends declared
($.50 per share). . . . . . . . .                                                     (293)
Issuance of common stock. . . . .        1,141                    5          16
                                   ------------  ----------  --------     ------     ------        ----         -------

Balances at December 31, 2001 . .      586,644           0    2,933       5,071      2,168           0             280

Net income (loss) . . . . . . . .                                                   (1,090)                             $(1,090)
Other comprehensive income-
Change in unrealized
gain (loss) on securities
available-for-sale,
net of tax of $3. . . . . . . . .                                                                                    6       6
                                                                                                                        -------
Comprehensive income (loss) . . .                                                                                      $(1,084)
                                                                                                                       ========
Cash dividends declared
($.25 per share). . . . . . . . .                                                    (146)
                                   ------------     -------   -------     ------    -------        ----          -----

Balances at December 31, 2002 . .      586,644           0  $  2,933    $  5,071   $   932    $       0  $         286
                                   ============  ==========  ========  =========  =========  =========  ===============

---------------------------------------
See accompanying notes

</TABLE>





<TABLE>
<CAPTION>


                 EXCHANGE BANCHSARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOWS
                 =================================================================
                                                                      (Dollars  in  thousands)
                                                                       Year ended December 31,

                                                                       2002      2001      2000
                                                                     --------  --------  ---------
<S>                                                                  <C>       <C>       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . .  $(1,090)  $   592   $    676
Adjustments to reconcile net income to net cash
Provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . . . . . .    2,019        15         75
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . .      233       276        311
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . .        0         7          7
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . .     (195)       27         81
Investment securities amortization (accretion), net . . . . . . . .      119        55         55
Gain from sale of investment securities . . . . . . . . . . . . . .      (19)        0          0
Gain from sale of other real estate owned . . . . . . . . . . . . .       (8)        0          0
Originations of loans held-for-sale . . . . . . . . . . . . . . . .        0         0          0
Proceeds from loans held-for-sale . . . . . . . . . . . . . . . . .        0         0         34
Changes in operating assets and liabilities:
Accrued interest receivable . . . . . . . . . . . . . . . . . . . .      117        60       (127)
Accrued interest payable. . . . . . . . . . . . . . . . . . . . . .      (65)      (37)       103
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . .     (551)     (106)       493
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . .      (20)      190       (296)
                                                                     --------  --------  ---------
Net cash provided by operating activities . . . . . . . . . . . . .      540     1,079      1,412

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of held-to-maturity securities . . . . . .        0       100        175
Purchases of available-for-sale securities. . . . . . . . . . . . .   (7,336)   (5,234)    (4,542)
Proceeds from sale of available-for-sale securities . . . . . . . .      521         0          0
Proceeds from maturities of available-for-sale securities . . . . .    3,887     6,000      6,277
Net change in loans . . . . . . . . . . . . . . . . . . . . . . . .    6,075    (1,830)    (7,650)
Purchases of premises and equipment . . . . . . . . . . . . . . . .     (201)     (255)       (97)
Proceeds from sale of other real estate owned . . . . . . . . . . .      100         0          0
                                                                     --------  --------  ---------
Net cash  provided by (used in) investing activities. . . . . . . .    3,046    (1,219)    (5,837)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Noninterest-bearing, interest-bearing demand, and savings deposits.    2,099     5,347       (689)
Certificates of deposit . . . . . . . . . . . . . . . . . . . . . .    3,514      (223)     7,255
Proceeds from short-term Federal Home Loan Bank advances. . . . . .        0         0     21,000
Payments on short-term Federal Home Loan Bank advances. . . . . . .      (15)   (2,500)   (23,500)
Payments on long-term Federal Home Loan Bank advances . . . . . . .        0       (17)       (19)
Issuance of common stock. . . . . . . . . . . . . . . . . . . . . .        0        21        130
Prior period adjustment . . . . . . . . . . . . . . . . . . . . . .      (38)        0          0
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . .     (146)     (293)      (285)
                                                                     --------  --------  ---------
Net cash provided by financing activities . . . . . . . . . . . . .    5,414     2,335      3,892
                                                                     --------  --------  ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . . . .    9,000     2,195       (533)
-------------------------------------------------------------------  --------

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR. . . . . . . . . . .    6,765     4,570      5,103
-------------------------------------------------------------------  --------  --------  ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR. . . . . . . . . . . . . .  $15,765   $ 6,765   $  4,570
-------------------------------------------------------------------  ========  ========  =========

SUPPLEMENTAL DISCLOSURES
-------------------------------------------------------------------
Cash paid during the year for interest. . . . . . . . . . . . . . .  $ 2,938   $ 4,111   $  3,775
Cash paid during the year for income taxes. . . . . . . . . . . . .      291       146        287

-------------------------------------
See accompanying notes

</TABLE>


                            EXCHANGE BANCSHARES, INC.
                                  LUCKEY, OHIO
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

NATURE  OF  OPERATIONS
Exchange  Bancshares,  Inc.  (the  "Bancorp")  is  a  bank holding company whose
principal  activity  is  the  ownership  and  management  of  its  wholly-owned
subsidiary,  The  Exchange  Bank,  (the  "Bank").  The Bank generates commercial
(including agricultural), mortgage and consumer loans and receives deposits from
customers  located primarily in portions of Lucas and Wood Counties in Northwest
Ohio.  The  Bank  operates  under a state bank charter and provides full banking
services.  As  a  state bank, the Bank is subject to regulations by the State of
Ohio  Division  of Financial Institutions and the Federal Reserve System through
the  Federal  Reserve  Bank  of  Cleveland  (FRB).

BASIS  OF  CONSOLIDATION
The  consolidated  financial  statements  include  the  accounts  of  Exchange
Bancshares,  Inc.  and  its  wholly-owned  subsidiary,  The Exchange Bank, after
elimination  of  all  material  intercompany  transactions  and  balances.

USE  OF  ESTIMATES
The  preparation  of  financial statements in conformity with generally accepted
accounting principles requires management 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
the  reported  amounts  of  revenues  and  expenses during the reporting period.
Actual  results  could  differ  from  those  estimates.

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that  are  particularly  susceptible  to  significant  changes in the
economic  environment  and  market  conditions.  In  connection  with  the
determination  of  the estimated losses on loans, management obtains independent
appraisals  for  significant  collateral.

The Bank's loans are generally secured by specific items of collateral including
real  property,  consumer  assets, and business assets.  Although the Bank has a
diversified  loan  portfolio,  a  substantial portion of its debtors' ability to
honor  their  contracts  is  dependent  on  local  economic  conditions  in  the
agricultural  industry.

While  management  uses  available  information  to  recognize  losses on loans,
further  reductions  in  the carrying amounts of loans may be necessary based on
changes  in  local economic conditions.  In addition, regulatory agencies, as an
integral  part  of  their examination process, periodically review the estimated
losses  on  loans.  Such  agencies  may require the Bank to recognize additional
losses  based on their judgments about information available to them at the time
of  their examination.  Because of these factors, it is reasonably possible that
the  estimated  losses on loans may change materially in the near term.  However
the  amount  of  change  that  is  reasonably  possible  cannot  be  estimated.

INVESTMENT  SECURITIES
Debt  securities  are  classified  as  held-to-maturity  when  the  Bank has the
positive  intent  and  ability  to  hold the securities to maturity.  Securities
held-to-maturity  are  carried  at amortized cost.  The amortization of premiums
and  accretion  of  discounts  are  recognized  in interest income using methods
approximating  the  interest  method  over  the  period  to  maturity.

Debt  securities  not  classified  as  held-to-maturity  are  classified  as
available-for-sale.  Securities  available-for-sale  are  carried  at fair value
with  unrealized  gains  and  losses  reported  in  other  comprehensive income.
Realized  gains  (losses) on securities available-for-sale are included in other
income  (expense)  and,  when applicable,  are reported as a reclassification
adjustment, net of tax, in other comprehensive income. Gains and losses on sales
of securities are determined on the  specific-identification  method.

Declines in the fair value of individual held-to-maturity and available-for-sale
securities  below their cost that are other than temporary result in write-downs
of  the  individual securities to their fair value.  The related write-downs are
included  in  earnings  as  realized  losses.

LOANS  HELD  FOR  SALE
Mortgage  loans originated and held for sale in the secondary market are carried
at  the  lower  of  cost  or market value determined on an aggregate basis.  Net
unrealized  losses  are  recognized  in a valuation allowance through charges to
income.  Gains  and  losses  on  the  sale of loans held for sale are determined
using  the  specific  identification  method.

LOANS
Loans  are  stated  at  unpaid  principal  balances, less the allowance for loan
losses  and  net  deferred  loan  fees.

Loan origination fees, as well as certain direct origination costs, are deferred
and  amortized  as  a yield adjustment over the lives of the related loans using
the  interest  method. Amortization of deferred loan fees is discontinued when a
loan  is  placed  on  nonaccrual  status.

Interest  income  generally  is not recognized on specific impaired loans unless
the  likelihood  of  further loss is remote.  Interest payments received on such
loans are applied as a reduction of the loan principal balance.  Interest income
on  other nonaccrual loans is recognized only to the extent of interest payments
received.

ALLOWANCE  FOR  LOAN  LOSSES
The  allowance  for  loan losses is maintained at a level which, in management's
judgment,  is  adequate  to absorb credit losses inherent in the loan portfolio.
The  amount  of  the  allowance  is  based  on  management's  evaluation  of the
collectibility  of  the  loan  portfolio, including the nature of the portfolio,
credit  concentrations,  trends in historical loss experience, specific impaired
loans,  and  economic  conditions  and  other  risks  inherent in the portfolio.
Allowances  for  impaired  loans  are  generally  determined based on collateral
values  or  the present value of estimated cash flows.  Although management uses
available  information  to  recognize  losses on loans, because of uncertainties
associated  with  local  economic conditions, collateral values, and future cash
flows  on impaired loans, it is reasonably possible that a material change could
occur  in the allowance for loan losses in the near term. However, the amount of
the  change  that  is reasonably possible cannot be estimated.  The allowance is
increased  by  a  provision  for  loan  losses, which is charged to expense, and
reduced  by  charge-offs, net of recoveries. Changes in the allowance related to
impaired  loans  are  charged  or  credited  to  the  provision for loan losses.

PREMISES  AND  EQUIPMENT
Land  is carried at cost.  Other premises and equipment are recorded at cost net
of  accumulated  depreciation.  Depreciation is computed using the straight-line
method  based  principally  on  the  estimated  useful  lives  of  the  assets.
Maintenance  and  repairs  are  expensed  as  incurred while major additions and
improvements  are  capitalized.

OTHER  REAL  ESTATE  OWNED
Real  estate  properties  acquired  through  or  in lieu of loan foreclosure are
initially recorded at the lower of the Bank's carrying amount or fair value less
estimated selling cost at the date of foreclosure.  Any write-downs based on the
asset's  fair  value at the date of acquisition are charged to the allowance for
loan  losses.  After foreclosure, these assets are carried at the lower of their
new  cost  basis or fair value less cost to sell.  Costs of significant property
improvements  are  capitalized,  whereas  costs relating to holding property are
expensed.  The  portion  of interest costs related to development of real estate
is  capitalized.  Valuations  are  periodically performed by management, and any
subsequent  write-downs are recorded as a charge to operations, if necessary, to
reduce  the  carrying value of a property to the lower of its cost or fair value
less  cost  to  sell.

INCOME  TAXES
Income  taxes  are  provided  for  the  tax  effects  reported  in the financial
statements  and  consist  of  taxes  currently  due  plus deferred taxes related
primarily  to  differences  between  the basis of available-for-sale securities,
allowance  for loan losses, accumulated depreciation, non-accrual loan interest,
deferred  acquisition costs and net deferred loan fees.  The 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. Deferred tax assets and liabilities are
reflected at income tax rates applicable to the period in which the deferred tax
assets  and  liabilities  are expected to be realized or settled.  As changes in
tax  laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.  The Bancorp files a consolidated income
tax  return  with  its  subsidiary.

STATEMENTS  OF  CASH  FLOWS
The  Bancorp  considers  all  cash and amounts due from depository institutions,
interest-bearing  deposits  in  other  banks,  and federal funds sold to be cash
equivalents  for  purposes  of  the  statements  of  cash  flows.

RECLASSIFICATIONS
Certain amounts in 2001 and 2000 have been reclassified to conform with the 2002
presentation.



NOTE  B  -  PRIOR  PERIOD  ADJUSTMENT

The  accompanying  financial  statements for 2001 and 2000 have been restated to
correct  an  error  in  treating  Federal  Home  Loan  Bank stock dividends as a
permanent  non-taxable  income  item  when  it  is  to be treated as a temporary
difference  as part of the Company's deferred tax calculation. The effect of the
restatement was to decrease net income in 2001 and 2000 by $10,000 net of income
tax  of $5,000 in each year. Retained earnings at the beginning of 2000 has been
adjusted  for  the  effects  of  the  restatements  on  prior  years.



NOTE  C  -  RESTRICTION  ON  CASH  AND  DUE  FROM  BANKS

The  Bank  is  required to maintain reserve funds in cash or on deposit with the
Federal  Reserve  Bank  and  other correspondent banks.  The required reserve at
December  31,  2002  and  2001  was  $533,000  and  $709,000,  respectively.



NOTE  D  -  INVESTMENT  SECURITIES

The  amortized  cost  of  securities  and  their  approximate fair values are as
follows:

<TABLE>
<CAPTION>


Available-for-sale
------------------
                                                             (Dollars  in  thousands)
                                        December  31,  2002                             December  31,  2001
                                        -------------------                             -------------------
                                           Gross        Gross                             Gross         Gross
                            Amortized   unrealized    unrealized    Fair    Amortized   unrealized    unrealized    Fair
                               cost        gains        losses      value      cost        gains        losses      value
                            ----------  -----------  ------------  -------  ----------  -----------  ------------  -------
<S>                         <C>         <C>          <C>           <C>      <C>         <C>          <C>           <C>
US Government. . . . . . .  $    2,587  $        80  $         0   $ 2,667  $    2,524  $        58  $         0   $ 2,582

Federal agency . . . . . .      10,167          317            0    10,484      10,210          375           (5)   10,580

Mortgage-backed securities       2,295            3            0     2,298           0            0            0         0

Corporate debt securities.       1,533           25           (1)    1,557       1,032            4           (8)    1,028

Equity securities. . . . .         646            0            0       646         625            0            0       625
                            ----------  -----------  ------------  -------  ----------  -----------  ------------  -------

Total. . . . . . . . . . .  $   17,228  $       425  $        (1)  $17,652  $   14,391  $       437  $       (13)  $14,815
                            ==========  ===========  ============  =======  ==========  ===========  ============  =======
</TABLE>

The  amortized cost and estimated fair value of securities available-for-sale at
December  31,  2002,  by  contractual  maturity,  are  as  follows:

<TABLE>
<CAPTION>
                                (Dollars in thousands)

                                  Available-for-sale
                                  ------------------
<S>                                 <C>         <C>
                                    Amortized   Fair
Amounts maturing in :. . . . . . .  Cost        Value
                                    ----------  -------

One year or less . . . . . . . . .  $    4,504  $ 4,603
After one year through five years.      11,128   11,451
After five years through ten years         950      952
Equity securities. . . . . . . . .         646      646
                                    ----------  -------

Total. . . . . . . . . . . . . . .  $   17,228  $17,652
                                    ==========  =======
</TABLE>

Expected  maturities  will  differ from contractual maturities because borrowers
may  have  the  right  to  call or prepay obligations without call or prepayment
penalties.

During  2002,  the Bank sold securities available-for-sale for total proceeds of
approximately $521,000 resulting in $19,000 in gross realized gains and no gross
realized  losses.

The  Bank  did  not  sell  any  securities  in  2001,  or  in  2000.

Investment  securities  with  a  carrying value of approximately $11,414,000 and
$10,746,000  were  pledged  at  December  31,  2001  and  2002 to secure certain
deposits.



NOTE  E  -  LOANS  AND  ALLOWANCE  FOR  LOAN  LOSSES

<TABLE>
<CAPTION>


Loans  at  December  31,  2002  and  2001  are  summarized  as  follows:
                                               (Dollars in thousands)

                                                  2002      2001
                                                --------  --------
<S>                                             <C>       <C>       <C>
Loans secured by real estate:
Construction . . . . . . . . . . . . . . . . .  $ 2,258   $ 1,694
Farmland . . . . . . . . . . . . . . . . . . .    2,288     2,711
One-to four-family residential properties. . .   27,687    32,994
Multifamily (5 or more) residential properties       59     1,203
Nonfarm nonresidential properties. . . . . . .   24,357    24,227
Agricultural production. . . . . . . . . . . .    1,103       852
Commercial and industrial. . . . . . . . . . .    2,582     3,596
Consumer . . . . . . . . . . . . . . . . . . .   11,332    13,696
Municipal. . . . . . . . . . . . . . . . . . .      820       268
Other loans. . . . . . . . . . . . . . . . . .       26         9
                                                --------  --------
                                                 72,512    81,250
Unearned income. . . . . . . . . . . . . . . .        0       (68)
                                                --------  --------

Total. . . . . . . . . . . . . . . . . . . . .  $72,512   $81,182
                                                ========  ========

<PAGE>
                                                   2002      2001     2000
                                                --------  --------  -------
Allowance for loan losses:

Balance, beginning of year . . . . . . . . . .  $   844   $   756   $1,008
Provision for loan losses. . . . . . . . . . .    2,019        15       75
Recoveries on loans. . . . . . . . . . . . . .      112       333       79
Loans charged off. . . . . . . . . . . . . . .   (1,558)     (260)    (406)
                                                --------  --------  -------

Balance, end of year . . . . . . . . . . . . .  $ 1,417   $   844   $  756
                                                ========  ========  =======

</TABLE>

At  December 31, 2002 and 2001, the total recorded investment in impaired loans,
all  of  which had allowances determined in accordance with SFAS No. 114 and No.
118, amounted to approximately $429,000 and $130,000, respectively.  The average
recorded  investment  in  impaired  loans amounted to approximately $428,000 and
$135,000  for  the  years  ended  December 31, 2002 and 2001, respectively.  The
allowance  for  loan  losses related to impaired loans amounted to approximately
$219,000  and  $82,000  at  December  31, 2002 and 2000, respectively.  Interest
income  on impaired loans of $2,000, $14,000 and $20,000 was recognized for cash
payments  received  in  2002,  2001  and  2000,  respectively.  The  Bank has no
commitments  to  loan  additional  funds  to  borrowers  whose  loans  have been
classified  as  impaired.

The  Bank  has  entered  into  transactions  with  certain  directors, executive
officers,  significant  shareholders,  and  their affiliates.  Such transactions
were  on  substantially the same terms, including interest rates and collateral,
as those prevailing at the time of comparable transactions with other customers,
and  did  not,  in  the opinion of management, involve more than a normal credit
risk  or  present any other unfavorable features.  The aggregate amount of loans
to  such  related  parties  at  December 31, 2002 was $499,000.  During the year
ended  December  31,  2002,  new  loans made to such related parties amounted to
$160,000  and  payments  amounted  to  $285,000.


Loans totaling $1,150,000 were transferred from loans to other real estate owned
during 2002. Loans totaling $92,000 were transferred from loans to other real
estate owned during 2001.



NOTE  F  -  PREMISES  AND  EQUIPMENT

A  summary  of  premises  and  equipment  at December 31, 2002 and 2001 follows:

<TABLE>
<CAPTION>


                       (Dollars in thousands)


                            2002      2001
                          --------  --------
<S>                       <C>       <C>
Land . . . . . . . . . .  $   738   $   738
Buildings. . . . . . . .    3,254     3,254
Equipment. . . . . . . .    2,119     1,918
                          --------  --------

                            6,111     5,910
Accumulated depreciation   (2,716)   (2,482)
                          --------  --------

Total. . . . . . . . . .  $ 3,395   $ 3,428
                          ========  ========
</TABLE>

NOTE  G  -  DEPOSITS

Deposit  account  balances  at  December  31,  2002  and 2001, are summarized as
follows:

<TABLE>
<CAPTION>


                             (Dollars in thousands)

                                  2002     2001
                                --------  -------
<S>                             <C>       <C>
Noninterest-bearing. . . . . .  $ 11,535  $10,943
Interest-bearing demand. . . .    16,168   16,615
Savings accounts . . . . . . .    17,862   16,757
Individual retirement accounts     7,189    6,339
Certificates of deposit. . . .    48,091   44,577
                                --------  -------

Total. . . . . . . . . . . . .  $100,845  $95,231
                                ========  =======
</TABLE>

The  aggregate  amount  of  jumbo  certificates  of  deposit  with  a  minimum
denomination  of  $100,000  was  approximately  $14,429,000  and  $12,056,000 at
December  31,  2002  and  2001.

Certificates  maturing  in  years  ending  December 31, as of December 31, 2002:

<TABLE>
<CAPTION>


(Dollars in thousands)


<S>         <C>
2003 . . .  $25,664
2004 . . .    9,512
2005 . . .    8,419
2006 . . .    1,510
After 2006    2,986
            -------

Total. . .  $48,091
            =======
</TABLE>



The  Bank  held related party deposits of approximately $815,000 and $952,000 at
December  31,  2002  and  2001,  respectively.

Overdrawn  demand  deposits  reclassified as loans totaled $25,000 and $9,000 at
December  31,  2002  and  2001,  respectively.



NOTE  H  -  BORROWED  FUNDS

Borrowed  funds  are  comprised  of  the  following  at  December  31:
<TABLE>
<CAPTION>


                                                          (Dollars in thousands)

                                              Current
                                              Interest        BALANCE
                                              Rate        2002      2001
-------------------------------------------  ----------   --------------
<S>                                          <C>         <C>       <C>
Fixed rate advances, with monthly principal
  and interest payments due July 1, 2017. .       6.85%  $100      $115

Total advances. . . . . . . . . . . . . . .              $100      $115
                                                         ====      ====
</TABLE>


Federal  Home  Loan  Bank  ("FHLB") advances are collateralized by all shares of
FHLB  stock  owned  by  the  Bank  (totaling $481,000) and by 100% of the Bank's
qualified mortgage loan portfolio (totaling approximately $27,687,000). Based on
the carrying amount of "FHLB" stock owned by the Bank, total "FHLB" advances are
limited  to  approximately  $15,669,000.

The  aggregate  minimum  future  annual  principal payments on FHLB advances are
$14,000  in  2003,  $12,000  in  2004,  $11,000 in 2005, and $63,000 after 2005.

NOTE  I  -  FEDERAL  INCOME  TAXES

The components of income tax expense for the years ended December 31, 2002, 2001
and  2000  are  as  follows:


<TABLE>
<CAPTION>


                               (Dollars in thousands)


<S>                             <C>     <C>    <C>
                                 2002    2001   2000
                                ------  -----  -----

Income tax expense
Current tax expense (benefit).  $(780)  $ 242  $ 239
Deferred tax expense (benefit)   (195)     27     81
                                ------  -----  -----

Total. . . . . . . . . . . . .  $(585)  $ 269  $ 320
                                ======  =====  =====
</TABLE>



A  reconciliation  of  the federal statutory tax rate to the Bancorp's effective
tax  rate  for  the years ended December 31, 2002, 2001, and 2000 is as follows:
<TABLE>
<CAPTION>


                                     (Dollars in thousands)


<S>                                  <C>     <C>     <C>
                                      2002    2001    2000
                                     ------  ------  ------

Federal statutory income tax at 34%  $(570)  $ 293   $ 338
Tax exempt income . . . . . . . . .     (5)     (7)     (7)
Net operating loss carryforward . .    (19)    (19)    (19)
Non-deductible expenses . . . . . .      2       6       3
Other . . . . . . . . . . . . . . .      7      (4)      5
                                     ------  ------  ------

Total . . . . . . . . . . . . . . .  $(585)  $ 269   $ 320
                                     ======  ======  ======
</TABLE>


The tax effects of temporary differences which comprise the significant portions
of the Company's deferred tax assets and deferred tax liabilities as of December
31,  2002  and  2001  are  as  follows:
<TABLE>
<CAPTION>


                                         (Dollars in thousands)

                                               2002    2001
                                              ------  ------
<S>                                           <C>     <C>
Deferred tax assets:
 Allowance for loan losses . . . . . . . . .  $ 341   $ 190
 Net operating loss carryforward . . . . . .    266     309
 Nonaccrual loans. . . . . . . . . . . . . .     80      29
                                              ------  ------

                                                687     528

Deferred tax liabilities:
 Loan fees . . . . . . . . . . . . . . . . .    (10)    (10)
 Depreciation. . . . . . . . . . . . . . . .    (55)    (33)
 Investment securities . . . . . . . . . . .   (147)   (144)
 Other . . . . . . . . . . . . . . . . . . .    (29)    (44)
                                              ------  ------

                                               (241)   (231)

Valuation allowance for deferred tax assets.   (266)   (309)
                                              ------  ------

 Net deferred tax asset (liability). . . . .  $ 180   $ (12)
                                              ======  ======
</TABLE>



In  accordance  with  Internal  Revenue  Code  Section  382,  utilization of the
Company's  net  operating  loss  carryforward  is  estimated  to  be  limited to
approximately  $57,000 per year.  The net operating loss carryforward expires in
2016.



NOTE  J  -  FINANCIAL  INSTRUMENTS  WITH  OFF-BALANCE-SHEET  RISK

In  the  normal  course  of  business,  the Bank has outstanding commitments and
contingent  liabilities,  such  as  commitments to extend credit , which are not
included  in  the  accompanying  consolidated  financial  statements. The Bank's
exposure to credit loss in the event of nonperformance by the other party to the
financial  instruments  for  commitments to extend credit and standby letters of
credit  is  represented  by  the  contractual  or  notional  amount  of  those
instruments.  The  Bank uses the same credit policies in making such commitments
as  it does for instruments that are included in the consolidated balance sheet.

Financial  instruments  whose  contract  amount  represents  credit risk were as
follows:
<TABLE>
<CAPTION>


                    (Dollars in thousands)


                         2002    2001
                        ------  ------
<S>                     <C>     <C>
Home equity lines. . .  $2,245  $1,608
Credit card lines. . .   2,653   2,838
Other loan commitments   4,109   3,753
Letter of credit . . .     138     138
                        ------  ------

Total. . . . . . . . .  $9,145  $8,337
                        ======  ======
</TABLE>



Commitments  to  extend  credit  are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have  fixed  expiration  dates  or  other termination clauses and may
require  payment of a fee.  Since many of the commitments are expected to expire
without  being  drawn  upon,  the  total  commitment  amounts do not necessarily
represent  future  cash  requirements.  The  Bank  evaluates  each  customer's
creditworthiness  on  a  case-by-case  basis.  The amount and type of collateral
obtained,  if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation.  Collateral held varies but may include accounts
receivable,  inventory,  property and equipment, and income-producing commercial
properties.

The Bank has not been required to perform on any financial guarantees during the
past  two years.  The Bank has not incurred any losses on its commitments during
the  past  two  years.

The  Bank  maintains  several  bank  accounts  at  six  banks.  Accounts  at  an
institution  are  insured by the Federal Deposit Insurance Corporation (FDIC) up
to  $100,000.  Cash  at  two  of  these  institutions exceeded federally insured
limits.  The  amount  in  excess  of  the  FDIC  limit  totaled  $1,476,000.



NOTE  K  -  COMMITMENTS  AND  CONTINGENT  LIABILITIES

The  Bancorp  periodically  is subject to claims and lawsuits which arise in the
ordinary  course  of  business.  It  is  the  opinion  of  management  that  the
disposition  or  ultimate resolution of such claims and lawsuits will not have a
material  adverse  effect  on  the  financial  position  of  the  Bancorp.



NOTE  L  -  RESTRICTION  ON  DIVIDENDS

The  Bank  is subject to certain restrictions on the amount of dividends that it
may  pay  without  prior  regulatory  approval.  The  Bank  normally  restricts
dividends  to  a lesser amount.  At December 31, 2002, no retained earnings were
available  for  the  payment  of  dividends to the holding company without prior
regulatory  approval.



<PAGE>

NOTE  M  -  EMPLOYEE  BENEFIT  PLANS

In 1994 the Profit Sharing Plan was changed to a discretionary Prototype Cash or
Deferred  Profit  Sharing  Plan  and  Trust/Custodial  Account  Plan  which also
includes  a 401(k) plan.  Under the new plan the Bank will match fifty cents for
each  dollar  which the employee voluntarily contributes to the plan. This match
by  the  Bank  is limited to three percent of the employee's annual salary.  The
contributions  made  by the Bank for the years 2002, 2001 and 2000 were $23,000,
$33,000,  $30,000,  respectively.  Forty-six  employees participated in the plan
during  2002,  forty-six in 2001, and thirty-eight employees participated in the
plan  during  2000.



NOTE  N  -  EARNINGS  PER  SHARE

The  corporation  adopted  Statement  of Financial Accounting Standards No. 128,
"Earnings  per  Share"  (SFAS  #128),  at  the  end  of 1998, which replaced the
calculation  of  primary  and fully diluted earnings per share with earnings per
share  and  earnings per share - assuming dilution.  Because there are no common
stock equivalents, no difference exists between the application of SFAS #128 and
previous  methods.  Accordingly,  no  restatement  at prior years was necessary.

The  following  table  sets  forth  the  computation  of  earnings  per  share:
<TABLE>
<CAPTION>


                                    (Dollars in thousands, except per share data)

                                                 2002         2001        2000
                                              -----------  ----------  ----------
Numerator:
<S>                                           <C>          <C>         <C>
Net income (loss), earnings per share and
  earnings per share - assuming dilution . .  $   (1,090)  $      592  $      676

Denominator:
Weighted average shares outstanding,
  earnings per share and earnings per share-
  assuming dilution. . . . . . . . . . . . .   586,644.0    585,553.2   583,870.0

Earnings per share . . . . . . . . . . . . .  $    (1.86)  $     1.01  $     1.16
                                              ===========  ==========  ==========
Earnings per share - assuming dilution . . .  $    (1.86)  $     1.01  $     1.16
                                              ===========  ==========  ==========
</TABLE>

NOTE  O  -  REGULATORY  MATTERS

The  Bank  is subject to various regulatory capital requirements administered by
its  primary federal regulator, the Federal Reserve Bank (FRB).  Failure to meet
minimum  capital  requirements  can  initiate  certain  mandatory,  and possible
additional discretionary actions by regulators that, if undertaken, could have a
direct material affect on the Bancorp and the consolidated financial statements.
Under  the  regulatory  capital adequacy guidelines and the regulatory framework
for  prompt  corrective  action,  the Bank must meet specific capital guidelines
that  involve  quantitative  measures  of  the  Bank's  assets, liabilities, and
certain  off-balance-sheet  items  as  calculated  under  regulatory  accounting
practices.  The  Bank's  capital  amounts  and  classification  under the prompt
corrective  action  guidelines are also subject to qualitative judgements by the
regulators  about  components,  risk  weightings,  and  other  factors.

Qualitative  measures  established  by  regulation  to  ensure  capital adequacy
require  the  Bank  to  maintain minimum amounts and ratios of: total risk-based
capital  and  Tier  I  capital  to  risk-weighted  assets  (as  defined  in  the
regulations),  and  Tier  I  capital to average assets (as defined).  Management
believes,  as  of  December  31,  2002,  that  the Bank meets all of the capital
adequacy  requirements  to  which  it  is  subject.

As  of  December  31, 2002, the most recent notification from the FDIC, the Bank
was  categorized  as  well capitalized under the regulatory framework for prompt
corrective  action.  To  remain  categorized  as well capitalized, the Bank will
have  to  maintain  minimum  total  risk-based,  Tier  I  risk-based, and Tier I
leverage  ratios  as  disclosed  in the table below.  There are no conditions or
events  since the most recent notification that management believes have changed
the  Bank's  prompt  corrective  action  category.

The  Bank's  actual  and  required  capital  amounts  and ratios are as follows:

<TABLE>
<CAPTION>


                                               (Dollars in thousands)

                                                                                                To Be Well
                                                                                            Capitalized Under
                                                                           For Capital      Prompt Corrective
                                           Actual                       Adequacy Purposes   Action Provisions
                                       --------------                  ------------------  ------------------
                                 Amount              Ratio               Amount        Ratio   Amount   Ratio
                           ------------------  ------------------  ------------------  ------  -------  ------
<S>                        <C>                 <C>                 <C>                 <C>     <C>      <C>
As of December 31, 2002:
Total Risk-Based Capital
(to Risk-Weighted Assets)  $ 9,538               12.3%  $            6,192               8.0%  $ 7,740   10.0%
Tier I Capital
(to Risk-Weighted Assets)    8,565               11.1                3,096               4.0     4,644    6.0
Tier I Capital
(to Average Assets) . . .    8,565                7.7                3,358               3.0     5,597    5.0

As of December 31, 2001:
Total Risk-Based Capital
(to Risk-Weighted Assets)  $10,636               14.0%  $            6,070               8.0%  $ 7,587   10.0%
Tier I Capital
(to Risk-Weighted Assets)    9,792               12.9                3,035               4.0     4,552    6.0
Tier I Capital
(to Average Assets) . . .    9,792                9.0                3,274               3.0     5,456    5.0
</TABLE>


NOTE  P  -  FAIR  VALUES  OF  FINANCIAL  INSTRUMENTS

Statement  of  Financial  Accounting  Standards  No. 107, Disclosures about Fair
Value  of  Financial  Instruments, requires disclosure of fair value information
about  financial  instruments,  whether  or  not  recognized in the statement of
financial  condition.  In  cases  where  quoted market prices are not available,
fair  values  are  based  on  estimates  using  present value or other valuation
techniques.  Those  techniques  are  significantly  affected  by the assumptions
used,  including  the discount rate and estimates of future cash flows.  In that
regard,  the  derived fair value estimates cannot be substantiated by comparison
to  independent  markets  and, in many cases, could not be realized in immediate
settlement  of  the  instruments.  Statement  No. 107 excluded certain financial
instruments  and  all nonfinancial instruments from its disclosure requirements.
Accordingly,  the  aggregate  fair  value amounts presented do not represent the
underlying  value  of  the  Bank.

The following methods and assumptions were used by the Company in estimating its
fair  value  disclosures  for  financial  instruments:

Cash  and  cash equivalents:  The carrying amounts reported in the balance sheet
for  cash  and  cash  equivalents  approximate  those  assets'  fair  values.

Investment  securities:  Fair  values  for  investment  securities  are based on
quoted  market  prices.

Loans:  For  variable-rate loans that reprice frequently and with no significant
change  in  credit  risk,  fair  values are based on carrying amounts.  The fair
values  for  other  loans  (for  example,  fixed rate commercial real estate and
rental  property  mortgage  loans  and  commercial  and  industrial  loans)  are
estimated using discounted cash flow analysis, based on interest rates currently
being  offered  for  loans  with  similar  terms  to borrowers of similar credit
quality.  Loan  fair value estimates include judgments regarding future expected
loss  experience  and  risk characteristics.  Fair values for impaired loans are
estimated  using  discounted cash flow analysis or underlying collateral values,
where  applicable.

Deposits:  The  fair  values  disclosed  for demand deposits are, by definition,
equal  to  the  amount  payable  on demand at the reporting date (that is, their
carrying  amounts).  The  carrying  amounts  of  variable-rate,  fixed-term
money-market accounts and certificates of deposit approximate their fair values.
Fair  values  for  fixed-rate  certificates  of  deposit  are  estimates using a
discounted  cash  flow calculation that applies interest rates currently offered
on  certificates  to  a  schedule  of  aggregated  contractual  expected monthly
maturities  on  time  deposits.

Accrued  interest: The carrying amounts of accrued interest approximate the fair
values.

Borrowed  funds:  The  carrying  amounts  of  borrowed funds are estimated using
discounted cash flow analysis based on interest rates currently being offered on
borrowed  funds.



The estimated fair values of the Company's financial instruments at December 31,
are  as  follows:


<TABLE>
<CAPTION>


                                       (Dollars in thousands)


                                           2002      2001
                                        --------  ---------
<S>                          <C>       <C>       <C>       <C>
                             Carrying.  Fair      Carrying  Fair
                             Amount. .  Value     Amount    Value
                            ---------  -------    --------- -----
Financial assets:
Cash and cash equivalents .  $ 15,765  $  15,765  $ 6,765  $ 6,765
Investments securities. . .    17,652     17,652   14,815   14,815
Loans . . . . . . . . . . .    72,512     71,569   81,182   81,083
Accrued interest receivable       671        671      788      788

Financial liabilities:
Deposits. . . . . . . . . .   100,845    101,833   95,231   93,929
Borrowed funds. . . . . . .       100        100      115      115
Accrued interest payable. .       190        190      256      256
</TABLE>



NOTE  Q  -  PARENT  COMPANY  FINANCIAL  INFORMATION

Condensed  financial  information  for Exchange Bancshares, Inc. (parent company
only)  follows:


<TABLE>
<CAPTION>


                            CONDENSED BALANCE SHEETS
                                           (Dollars in thousands)
                                                At December 31,
                                                ---------------
<S>                                               <C>     <C>
                                                   2002    2001
                                                  ------   -----
Assets
Noninterest-bearing deposit with subsidiary bank  $   21  $    66
Interest-bearing deposit in subsidiary bank. . .     100      175
Investment in subsidiary bank. . . . . . . . . .   8,934   10,155
Deferred income taxes. . . . . . . . . . . . . .      72        0
Other assets . . . . . . . . . . . . . . . . . .     118      198
                                                  ------  -------

Total assets . . . . . . . . . . . . . . . . . .  $9,245  $10,594
                                                  ======  =======

Liabilities and Shareholders' Equity
Other liabilities. . . . . . . . . . . . . . . .  $   23  $   104
Shareholders' Equity . . . . . . . . . . . . . .   9,222   10,490
                                                  ------  -------

Total liabilities and shareholders' equity . . .  $9,245  $10,594
                                                  ======  =======
</TABLE>


<TABLE>
<CAPTION>


                            CONDENSED STATEMENTS OF INCOME
                                                            (Dollars in thousands)
                                                           Year ended December 31,
                                                           ------------------------
<S>                                                            <C>       <C>    <C>
                                                                2002     2001   2000
                                                               --------  -----  -----
Income
Interest on deposits in subsidiary bank . . . . . . . . . . .  $     5   $  11  $   5
Dividends from subsidiary bank. . . . . . . . . . . . . . . .      329     400    300
                                                               --------  -----  -----
Total income. . . . . . . . . . . . . . . . . . . . . . . . .      334     411    305

Expenses
Salaries. . . . . . . . . . . . . . . . . . . . . . . . . . .       86      26     26
Severance . . . . . . . . . . . . . . . . . . . . . . . . . .       55       0      0
Accounting and consulting fees. . . . . . . . . . . . . . . .       61      34     29
Legal . . . . . . . . . . . . . . . . . . . . . . . . . . . .       59       8     13
Director fees . . . . . . . . . . . . . . . . . . . . . . . .       48      13      9
Other expenses. . . . . . . . . . . . . . . . . . . . . . . .       43      27     43
                                                               --------  -----  -----
Total expenses. . . . . . . . . . . . . . . . . . . . . . . .      352     108    120
                                                               --------  -----  -----

Income (loss) before income taxes and equity in undistributed
 Earnings of subsidiary . . . . . . . . . . . . . . . . . . .      (18)    303    185
Income tax benefit. . . . . . . . . . . . . . . . . . . . . .      118      33     40
                                                               --------  -----  -----
Income before undistributed earnings of subsidiary. . . . . .      100     336    225
Equity in undistributed earnings of subsidiary. . . . . . . .   (1,190)    256    451
                                                               --------  -----  -----
 Net income . . . . . . . . . . . . . . . . . . . . . . . . .  $(1,090)  $ 592  $ 676
                                                               ========  =====  =====
</TABLE>


<TABLE>
<CAPTION>



                       CONDENSED STATEMENTS OF CASH FLOWS

                                                       (Dollars in thousands)
                                                      Year ended December 31,
                                                      -----------------------
                                                        2002     2001    2000
                                                      --------  ------  ------
<S>                                                   <C>       <C>     <C>
Cash Flows from Operating Activities
Net income (loss). . . . . . . . . . . . . . . . . .  $(1,090)  $ 592   $ 676
 Adjustments to reconcile net income to net cash
      flows provided by operating activities:

 Deferred income taxes . . . . . . . . . . . . . . .      (72)      0       0
 Change in other assets. . . . . . . . . . . . . . .       79    (155)    269
 Change in other liabilities . . . . . . . . . . . .      (81)    (25)   (146)
 Equity in undistributed earnings of subsidiary. . .    1,190    (256)   (451)
                                                      --------  ------  ------
Net cash provided by (used in) operating activities.       26     156     348

Cash Flows from Investing Activities
 Purchase of time deposit. . . . . . . . . . . . . .        0       0    (175)
 Maturity of time deposit. . . . . . . . . . . . . .       75       0       0
                                                      --------  ------  ------
Net cash provided by (used in) financing activities.       75       0    (175)

Cash Flows from Financing Activities
 Proceeds from sale of common stock. . . . . . . . .        0      22     131
 Cash dividends paid . . . . . . . . . . . . . . . .     (146)   (293)   (285)
                                                      --------  ------  ------

Net cash used in financing activities. . . . . . . .     (146)   (271)   (154)
                                                      --------  ------  ------

Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . . . . . .      (45)   (115)     19

Cash and cash equivalents
Beginning of year. . . . . . . . . . . . . . . . . .       66     181     162
                                                      --------  ------  ------
End of year. . . . . . . . . . . . . . . . . . . . .  $    21   $  66   $ 181
                                                      ========  ======  ======
</TABLE>



                          INDEPENDENT AUDITOR'S REPORT




The  Board  of  Directors
Exchange  Bancshares,  Inc.
Luckey,  Ohio


     We  have  audited  the  consolidated balance sheets of Exchange Bancshares,
Inc.  and  Subsidiary  as  of  December  31,  2002  and  2001,  and  the related
consolidated  statements  of  income,  changes  in shareholders' equity and cash
flows  for  each  of the years in the three-year period ended December 31, 2002.
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 auditing standards generally
accepted  in the United States of America.  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  consolidated  financial  position of Exchange
Bancshares,  Inc.  and  Subsidiary  as  of  December  31, 2002 and 2001, and the
consolidated  results  of  their operations and their cash flows for each of the
years  in  the  three-year  period  ended  December 31, 2002, in conformity with
accounting  principles  generally  accepted  in  the  United  States of America.




     /s/Dixon,  Francis,  Davis
&  Company


Granville,  Ohio
January  23,  2003



ITEM  8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
FINANCIAL  DISCLOSURE.

          None

                                       PART  III
                                       ---------


ITEM  9.  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT.

     The information set forth under the caption "VOTING SECURITIES AND
PRINCIPAL HOLDERSTHEREOF", "PROPOSAL - DIRECTORS" and "DIRECTORS AND
EXECUTIVE OFFICERS" of  the  Definitive  Proxy Statement of the Holding
Company  to  be  filed prior to April 10, 2003 with the United States
Securities and  Exchange  Commission  is  incorporated  by  reference
herein.


ITEM  10.  EXECUTIVE  COMPENSATION.

     The information set forth under the caption "COMPENSATION OF
DIRECTORS and EXECUTIVE OFFICERS" of the  Proxy  Statement of the
Holding Company to be filed prior to April 10, 2003 with  the  United
States  Securities and Exchange Commission is incorporated by
reference  herein.


ITEM  11.  SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED  STOCKHOLDER  MATTERS.

     The information set forth under the caption "VOTING SECURITIES AND
PRINCIPAL HOLDERSTHEREOF", "PROPOSAL - DIRECTORS" and "DIRECTORS AND
EXECUTIVE OFFICERS"  of the Proxy Statement of the Holding Company to be
filed  prior  to  April  10, 2003 with the United States Securities and
Exchange Commission  is  incorporated  by  reference  herein.


ITEM  12.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS

            The information set forth under the caption "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS " of the Proxy Statement of the Holding
Company to be filed prior to April 10, 2003 with the United States Securities
and Exchange Commission is incorporated by reference herein.


ITEM 13.  Exhibits and Reports on Form 8-K.
 -------------------------------------------

     (a)     Exhibits

          3(i)     The  Amended  and  Restated  Articles  of  Incorporation  of
                   Exchange  Bancshares,  Inc.
                   (Incorporated  by  reference.)
          3(ii)    Code  of  Regulations  of  Exchange  Bancshares,  Inc.
                   (Incorporated  by  reference.)
          10.1     Change of Control Agreement (Jeffery A. Robb Sr.)
          10.2     Change of Control Agreement(Thomas E. Funk)
          21       Subsidiaries
          99.1     Certification of Chief Executive Officer under Section 906 of
                   the  Sarbanes-Oxley  Act  of  2002.
          99.2     Certification  of Chief Financial Officer under Section 906
                   of  the  Sarbanes-Oxley  Act  of  2002.
          99.3     Proxy  Statement  (Incorporated  by  reference.)
          99.4     Safe  Harbor  Under  the Private Securities Litigation Reform
                   Act  of  1995

     (b)     Report  on  Form  8-K

             The  Registrant  filed  the  following  reports  on  Form  8-K:

             Form  8-K  filed  December 4, 2002, appointment of Rod H. Gallagher
             as Executive  Vice  President,  The Exchange  Bank.

             Form  8-K  filed  January  3,  2003,  containing  December  24,
             2002 Shareholder  Letter.

ITEM 14.  CONTROLS AND PROCEDURES

The Chief Executive Officer and the Chief Financial Officer have reviewed, as of
a  date  within  90  days of this filing, the disclosure controls and procedures
that  ensure  that  information  relating to Bancorp required to be disclosed by
Bancorp  in  the  reports  that  it  files  or  submits under the Securities and
Exchange  Act  of  1934,  as  amended,  is  recorded,  processed, summarized and
reported in a timely and proper manner. Based upon this review, Bancorp believes
that  there  are  adequate  controls  and  procedures  in  place.  There  are no
significant  changes  in  the  controls  or  other factors that could affect the
controls  after  the  date  of  evaluation.

<PAGE>

SIGNATURES

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

EXCHANGE  BANCSHARES,  INC.                    EXCHANGE BANCSHARES,  INC.

/s/  Jeffery  A.  Robb  Sr.                    /s/  Thomas  E.  Funk
------------------------------------           -------------------------------
Jeffery  A.  Robb,  Sr.                        Thomas  E.  Funk
President,  and  Chief  Executive  Officer     Vice  President,  Chief
Principal  Executive  Officer                  Financial  Officer and  Treasurer
                                               Principal  Financial  Officer

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

/s/  Marion  Layman                            /s/  Rolland  I.  Huss
-----------------------------------            --------------------------------
Marion  Layman,  Chairman                      Rolland  I.  Huss

March  31,  2003                               March  31,  2003
----------------                               ----------------
Date                                           Date
/s/  Jeffery  A.  Robb Sr.                     /s/Cecil  R.  Adkins
-----------------------------------            ---------------------------------
Jeffery  A.  Robb, Director, President & CEO   Cecil  R. Adkins, Director

March  31,  2003                               March  31,  2003
----------------                               ----------------
Date                                           Date

/s/Joseph  R.  Hirzel                          /s/DavidG.  Marsh
-----------------------------------            ---------------------------------
Joseph  R.  Hirzel,  Director                  David  G.  Marsh, Director
Secretary

March  31,  2003                               March  31,  2003
----------------                               ----------------
Date                                           Date

/s/Donald  P.  Gerke                          /s/Edmund  J.  Miller
-----------------------------------           ---------------------------------
Donald  P.  Gerke,  Director                  Edmund  J. Miller, Director

March  31,  2003                              March  31,  2003
----------------                              ----------------
Date                                          Date

/s/Norma  J.  Christen                        /s/Mark  S.  Derkin
-----------------------------------           ---------------------------------
Norma  J.  Christen,  Director                Mark  S.  Derkin,  Director


March  31,  2003                              March  31,  2003
----------------                              ----------------
Date                                          Date

/s/Thomas  E.  Funk
------------------------------------
Thomas  E.  Funk,  Vice  President,
Chief  Financial  Officer  and  Treasurer


March  31,  2003
----------------
Date

                                 CERTIFICATIONS
I,  Jeffery  A.  Robb,  Sr.,  certify  that:
1.  I  have  reviewed  this annual report on Form 10-KSB of Exchange Bancshares,
Inc.;
2.  Based  on  my  knowledge,  this  annual  report  does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not  misleading  with  respect to the period covered by this annual
report;
3.  Based  on  my  knowledge,  the  financial  statements,  and  other financial
information  included  in  this  annual  report,  fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods  presented  in  this annual report;
4.  The  registrant's  other  certifying  officers  and  I  are  responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  have:
a)  designed  such  disclosure  controls  and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is  made  known  to  us by others within those entities, particularly during the
period  in  which  this  annual  report  is  being  prepared;
b)  evaluated  the  effectiveness  of  the  registrant's disclosure controls and
procedures  as  of a date within 90 days prior to the filing date of this annual
report  (the  "Evaluation  Date");  and
c)  presented  in  this annual report our conclusions about the effectiveness of
the  disclosure  controls  and  procedures  based  on  our  evaluation as of the
Evaluation  Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most  recent evaluation, to the registrant's auditors and the audit committee of
registrant's  board  of  directors  (or  persons  performing  the  equivalent
functions):
a)  all significant deficiencies in the design or operation of internal controls
which  could  adversely  affect  the  registrant's  ability  to record, process,
summarize  and  report  financial  data and have identified for the registrant's
auditors  any  material  weaknesses  in  internal  controls;  and
b)  any  fraud,  whether  or  not  material,  that  involves management or other
employees who have a significant role in the registrant's internal controls; and
6.  The  registrant's  other  certifying  officers  and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard  to  significant  deficiencies  and  material  weaknesses.
Date:  March  28,  2003
/s/Jeffery  A.  Robb,  Sr.
Jeffery  A.  Robb,  Sr.
President  and  Chief  Executive  Office.















                                 CERTIFICATIONS
I,  Thomas  E.  Funk,  certify  that:
1.  I  have  reviewed  this annual report on Form 10-KSB of Exchange Bancshares,
Inc.;
2.  Based  on  my  knowledge,  this  annual  report  does not contain any untrue
statement  of a material fact or omit to state a material fact necessary to make
the  statements  made, in light of the circumstances under which such statements
were  made,  not  misleading  with  respect to the period covered by this annual
report;
3.  Based  on  my  knowledge,  the  financial  statements,  and  other financial
information  included  in  this  annual  report,  fairly present in all material
respects  the  financial  condition, results of operations and cash flows of the
registrant  as  of,  and  for,  the  periods  presented  in  this annual report;
4.  The  registrant's  other  certifying  officers  and  I  are  responsible for
establishing  and  maintaining disclosure controls and procedures (as defined in
Exchange  Act  Rules  13a-14  and  15d-14)  for  the  registrant  and  have:
a)  designed  such  disclosure  controls  and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is  made  known  to  us by others within those entities, particularly during the
period  in  which  this  annual  report  is  being  prepared;
b)  evaluated  the  effectiveness  of  the  registrant's disclosure controls and
procedures  as  of a date within 90 days prior to the filing date of this annual
report  (the  "Evaluation  Date");  and
c)  presented  in  this annual report our conclusions about the effectiveness of
the  disclosure  controls  and  procedures  based  on  our  evaluation as of the
Evaluation  Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most  recent evaluation, to the registrant's auditors and the audit committee of
registrant's  board  of  directors  (or  persons  performing  the  equivalent
functions):
a)  all significant deficiencies in the design or operation of internal controls
which  could  adversely  affect  the  registrant's  ability  to record, process,
summarize  and  report  financial  data and have identified for the registrant's
auditors  any  material  weaknesses  in  internal  controls;  and
b)  any  fraud,  whether  or  not  material,  that  involves management or other
employees who have a significant role in the registrant's internal controls; and
6.  The  registrant's  other  certifying  officers  and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard  to  significant  deficiencies  and  material  weaknesses.
Date:  March  28,  2003
/s/Thomas  E.  Funk
Thomas  E.  Funk
Vice  President  and  Chief  Financial  Officer.



                                INDEX TO EXHIBITS
                                -----------------


EXHIBIT NUMBER                    DESCRIPTION
--------------                    -----------

     3(i)                         The  Amended  and  Restated  Articles  of
                                  Incorporation Incorporated by reference to
                                  the Registrant's Quarterly Report  on
                                  Form 10-QSB for the Quarter Ended
                                  June  30,  1995  ("June  30,  1995, 10-QSB"),
                                  Exhibit  3(i)

     3(ii)                        Code  of  Regulations  Incorporated  by
                                  reference  to  the May  1, 2002 Registrant's
                                  Quarterly Report on Form  10-QSB  for  the
                                  quarter  ended June  30,  2002  ("June  30,
                                  2002, 10-QSB"), Exhibit  3(ii)

     10.1                         Change of Control Agreement with
                                  Jeffery A. Robb Sr..

     10.2                         Change of Control Agreement with
                                  Thomas E. Funk

     21                           Subsidiaries  of  Exchange  Incorporated by
                                  reference

     99.1                         Certification  of Chief Executive Officer
                                  under  Section 906  of  the  Sarbanes-Oxley
                                  Act  of  2002.

     99.2                         Certification  of Chief Financial Officer
                                  under  Section 906  of  the  Sarbanes-Oxley
                                  Act  of  2002.

     99.3                         Proxy Statement Incorporated by reference
                                  to  the definitive  Proxy  Statement  of  the
                                  Registrant  for  the  2003  Annual
                                  Meeting  of  Shareholders  of  Exchange
                                  Bancshares,  filed  with  the
                                  Securities  and  Exchange  Commission

     99.4                         Safe  Harbor  Under  the  Private
                                  Securities  Litigation  Reform
                                  Act  of  1995