<PAGE>
                     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, 1996
                        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.  $5,527,000.

     State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold or the average 
bid and asked prices if such stock, as of a specified date within the past 60 
days:  As of March 15, 1997, 475,747 shares of Common Stock of the Registrant
were outstanding.  The aggregate market value of the voting stock held by non-
affiliates was $6,000,368 based upon the trading price of $16.00 per share.

                   Documents Incorporated by References
     
     Part III:     Proxy Statement, dated April 10, 1997, of Registrant

     Transitional Small Business Disclosure Format     YES ___  NO _X_

<PAGE>
<TABLE>
<CAPTION>
                           EXCHANGE BANCSHARES, INC.

                                LUCKEY, OHIO

                             Cross Reference Sheet

                     Pursuant to Regulation ss 240.12b-23

_______________________________________________________________________________ 
                                                  FORM 10-KSB       EXHIBIT
     PART  I
                                                  Page No.          Page No.
<S>                                               <C>               <C>
ITEM  1. Description of Business                   1 - 2
                                          
ITEM  2, Description of Property                   2         

ITEM  3. Legal Proceedings                         2

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

    PART  II

ITEM  5. Market for Common Equity
         and Related Stockholder
         Matters                                   3

ITEM  6. Management Discussion
         and Analysis                              3 - 10    
                                                   Exhibit A         All

ITEM  7. Financial Statements                      10        
                                                   Exhibit B         All

ITEM  8. Changes In and Disagreements
         With Accountants on Accounting            Not Applicable
         and Financial Disclosures

    PART  III

ITEM  9. Directors, Executive Officers,
         Promoters and Control Persons:
         Compliance With Section 16(a)                               Exhibit C
         of the Exchange Act                                         C -3   
     
ITEM 10. Executive Compensation                                      C -6

ITEM 11. Security Ownership of Certain
         Beneficial Owners and Management                            C -3

ITEM 12. Certain Relationships and
         Related Transactions                                        C -9

ITEM 13. Exhibits and Reports on                   Exhibit A-Statistical Tables
         Form 8-K                                  Exhibit B-Financial 
                                                             Statements
                                                   Exhibit C-Proxy Statement
                                                             (Incorporated by 
                                                              reference)
                                                   Exhibit D-Article 9 FDS 
                                                             (Exhibit 27)
</TABLE>
<PAGE>
                                      PART I

ITEM 1.  Description of Business

Business

     Exchange Bancshares, Inc. (the "Holding Company" or the "Corporation") 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
Holding Company acquired the Bank effective January 1, 1994.  The Holding 
Company has authorized 750,000 common shares, par value $5.00 per share of which
465,098 are currently outstanding.

     The Holding Company 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 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 Holding Company may in the future acquire or form additional 
subsidiaries, including other banks, to the extent permitted by law. 

     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 remain 
competitive in the market place.

     The Holding Company is subject to regulation by the Board of Governors of
the Federal Reserve System which limits the activities in which the Holding
Company 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 (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 Holding Company 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.

Effect of Government 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 require-
ments 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.

<PAGE>
Employees

     As of December 31, 1996, the Bank had 37 full and 8 part-time employees.  
Personnel costs incurred by the Holding Company are reimbursed to the Bank.

Competition

     The Bank competes with seven area banks and five savings and loan associa-
tions, various credit unions, finance companies, large retail stores, credit 
corporations, and both local and Federal governments for sources and uses of 
funds.  The Bank is the second largest bank headquartered in Wood County, Ohio.

     The competitive factors among financial institutions can be classified into
two categories, competitive rates and competitive services.  With the advent of 
deregulation, rates have become more competitive, especially in the area of time
deposits.  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 three 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, 1996 and December 31, 1995
the legal lending limits were approximately $1,183,200 and $1,173,000 
respectively.  As of December 31, 1996 and 1995, no loans were over the legal 
lending limit.
     
ITEM 2. Properties

     The Bank's principal office is located at 235 Main Street, Luckey, Ohio 
43443. The Bank's two branches are located at 311 North Main Street, Walbridge,
Ohio 43465, and 940 Clarion Avenue, Holland, Ohio 43528.  All of the above 
properties are owned by the Bank.  The Holding Company operates out of the 
Bank's main office although it has a separate mailing address.  The Holding 
Company reimburses the Bank for the fair value of the space occupied.

ITEM 3. Legal Proceedings

     In the opinion of management of the Holding Company, there are no legal 
proceedings pending to which the Corporation is a party or to which its property
is subject, which, if determined adversely to the Corporation, would be material
in relation to the Corporation's undivided profits or financial condition, nor
are there any proceedings pending other than ordinary routine litigation 
incident to the business of the Corporation.  In addition, no material pro-
ceedings are pending other than ordinary routine litigation incident to the 
business of the Corporation.  In addition, no material proceedings are pending 
or are known to be threatened or contemplated against the Corporation 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 the Registrant's Common Stock and Related Shareholder Matters

     At December 31, 1996, the Corporation had approximately 812 shareholders
of record.  The  McDonald & Company, broker-dealer, makes a limited over-the-
counter market in shares of Corporation Common Stock. In addition, there have
been a limited number of private transactions known to the management of the 
Corporation.  Based solely on information made available to the Corporation from
First Scioto Company and from a limited number of buyers and sellers, shares 
of the Corporation Common Stock that have been traded in private transactions
since January 1, 1996 were traded at a high of $17.00 and a low of $15.50.
There are no plans to list the shares of the Corporation Common Stock on any 
stock exchange. 

     Through 1996, McDonald & Company offered to purchase shares of stock of the
Corporation at $16.00 per share, and was offering to sell such shares at $17.00
per share.  The offer to purchase shares at $16.00 was conditional upon their 
ability to sell the shares at $17.00 per share.  In addition to the shares 
traded through McDonald & Company there have been a limited number of private 
transactions known to the Management of the Corporation.

     Effective January 1, 1994, the Corporation acquired the Bank and share-
holders of the Bank  exchanged one share of Bank stock for four shares of the 
Corporation.  In 1996, the Corporation declared cash dividends of $.15 per 
share payable on June 15, 1996 to shareholders of record on June 1, 1996 and a
cash dividend of $.30 per share payable on December 16, 1996 to shareholders 
of record on December 2, 1996.  The Corporation also declared a five percent 
stock dividend to shareholders of record on June 1, 1996 payable on June 15, 
1996.  In 1995, the Corporation declared cash dividends of $.13 per share pay-
able on June 15, 1995 to shareholders of record on June 2, 1995 and a cash 
dividend of $.24 per share payable on December 15, 1995 to shareholders of 
record on December 2, 1995.  The Corporation also declared a five percent stock 
dividend to shareholders of record on June 2, 1995 payable on June 15, 1995.

     Dividends by the Corporation necessarily depend upon earnings, financial 
condition, appropriate legal restrictions and other factors relevant at the 
time the Board of Directors of the Corporation considers dividend policy.  
Under Ohio Revised Code, the Corporation is prohibited from paying dividends 
if either the Corporation would be unable to pay its debts as they come due, or
the Corporation's total assets would be less than its total liabilities plus 
an amount needed to satisfy any preferential right of shareholders.  The 
Corporation 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 
Corporation, as reflected on its books and records; and (ii) unrealized 
appreciation and depreciation of the assets of the Corporation.

     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 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.

ITEM 6. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

     Exchange Bancshares, Inc., (the "Holding Company") was organized as an Ohio
Corporation and incorporated by the Board of Directors of The Exchange Bank 
(the "Bank") under Ohio law on October 13, 1992, for the purpose of becoming 
a bank holding company owning all of the outstanding shares of the bank.  The 
<PAGE>
Holding Company acquired the Bank on January 1, 1994, and as of December 31, 
1996 had combined assets of $68 million, $41 million in net loans, and $60 
million in deposits.  The Bank through its two commercial banking offices 
located in Wood County, Ohio, and one Lucas County office, 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 (FDIC). The Bank is a member of the 
Federal Reserve System.  Selected financial data on the Holding Company'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-9).  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.

     Exchange Bancshares, Inc. is a bank holding company engaged in the business
of commercial and retail banking through its subsidiary The Exchange Bank, 
Luckey, Ohio, which accounts for substantially all of the Holding Company'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 Financial Statements and related Notes (see Exhibit B - Financial State-
ments, of this report) which have been prepared by the Management of Exchange 
Bancshares, Inc. in conformity with generally accepted accounting principles.  
The Board of Directors engaged Robb, Dixon, Francis, Davis, Oneson and Company,
independent auditors, to audit the financial statements, and their report is 
included in Exhibit B of this report.  To assist in understanding and evaluating
major changes in the Holding Company'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.  Please refer to Exhibit A - Statistical Tables, 
of this report.

     Three major areas of discussion that follow are an analysis of (a) assets
and liabilities including liquidity and interest rate sensitivity, (b) share-
holders' equity including dividends and risk-based capital, and (c) 1996 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, 1996.  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, 1996, the 
Bank did not have any loan concentrations which exceeded 10% of total loans or 
significant amounts of loans for agricultural purposes.

     Average loans increased 5.36% in 1996 to represent 61.48% of average 
earning assets compared to 59.84% in 1995 and 56.07% in 1994.  Year-end total 
real estate loans of $32,365,000 represented approximately 77.91% of the total 
loans outstanding.  The portion of the loan portfolio represented by real estate
loans has increased from 72.74% at December 31, 1992 to 77.91% at December 31, 
1996.  Installment loans to individuals have continued to decline steadily 
since 1992 from 19.49% of loans outstanding to 14.55% at December 31, 1996.  The
dollar amounts of commercial loans (including tax-exempt loans) have decreased
from 7.69% at December 31, 1992 to 7.51% at December 31, 1996.  Table 2 provides
a five-year loan history.

     In addition to the loans reported in Table 2 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 
$5.98 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 Notes K and L of  the Notes to 
Consolidated Financial Statements for additional information on off-balance 
sheet financial instruments.

<PAGE>
Non-Performing Assets

     Table 3 provides a five-year summary of nonperforming 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 fore-
closure.

     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.

     Loans accounted for on a non-accrual basis decreased $140,000 or 41.67% 
as of year-end 1996.  Nonperforming assets at December 31, 1996 totaled 
$344,000 or 0.50% of total assets.  This represents a decrease of $49,000 or 
12.47% from December 31, 1995.

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 Table 4 for a five-year summary.

     The allowance/provision for loan losses is determined by Management by 
considering such factors as the size and character of the loan portfolio, loan 
loss experience, problem loans, and economic conditions in its market area. 
The risk associated with the lending operation can be minimized by evaluating 
each loan independently based on criteria which includes, but is not limited 
to, (a) the purpose of the loan, (b) the credit history of the borrower, (c) 
the market value of the collateral involved, and (d) the down payment made.

     More than 90% of the Bank's total gross loans are secured by deeds of trust
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 pay-
ments 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 implemented internal 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 loans are graded for asset quality by the reviewer and independently 
analyzed by both the senior loan officer and the chief executive officer of 
the bank.  The results of the grading process in conjunction with independent 
collateral evaluation are used by Management and the Board of Directors in 
determining the adequacy of the allowance for loan loss account on a quarterly
basis. 

<PAGE>
     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 net historical charge-offs of each loan type for the last five years.
If applied, commercial loans would require 41.94% of the reserve while the 
installment (consumer) and real estate loans would require 51.88% and 6.18%, 
respectively.  The losses experienced, combined with the type and market value
of the collateral securing the consumer loan portfolio, is the primary reason
for the larger percentage allocation of the allowance to this loan type.

     Management believes significant factors affecting the allowance are 
reviewed regularly and that the allowance is adequate to cover potentially 
uncollectible loans.  The Bank has no exposure from troubled debts to lesser 
developed countries nor from significant amounts of agricultural, real estate
or energy related loans.

     The average allowance to average loans outstanding ratio increased to 1.27%
in 1996 from 1.26% and 1.27% in 1995 and 1994, respectively.  The allowance 
for loan losses to loan balances outstanding at year-end was 1.22%, 1.26%, and
1.25% for years 1996, 1995, and 1994, respectively.

     Net charge-offs in 1996 of $50,000 decreased $52,000 from $102,000 in 1995.
The 1996 decrease is primarily attributed to a single borrower whose financial 
condition had worsened in 1995.  Net charge-offs in 1995 increased to $102,000
from $84,000 in 1994.  The yearly average net charge-offs for the same five-year
period (1992-1996) were $74,400.
 
     The decrease in the provision for the allowance for loan loss as compared
to 1995 is attributed to efforts by Management (in 1995) to strengthen loan 
administration, underwriting guidelines, and collection policies and procedures
coupled with the increase in the amount of credits granted.  It should be noted
that as the Bank's loan portfolio experiences growth, there will normally be 
an increase in credit losses.  However, it is Management's intention to minimize
such losses through prompt loan collection efforts and the credit review 
process.

Investments

     Investments represent the second largest use of financial resources.  The
investment portfolio, shown in Table 5, includes United States securities, state
and municipal obligations, mortgage-backed securities, other securities 
consisting of collateralized mortgage obligations (CMO), and equity securities
of the Independent State Bank of Ohio.

     A portion of the portfolio's investment debt securities classified as 
Held-To-Maturity are those securities which the Bank has the ability and intent
to hold to maturity.  These securities are stated at cost adjusted for the 
amortization of premium and accretion of discount, computed by the interest 
method.  The remainder of the debt securities and the Bank's marketable equity 
investment securities are carried at cost or market value, whichever is the 
lower, and accordingly are classified as Available-For-Sale.

       In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Invest-
ments in Debt and Equity Securities.  Under SFAS No. 115, beginning in 1994 debt
and equity securities not classified as either held-to-maturity securities or 
trading securities are classified as available-for-sale securities and reported
at fair value, with unrealized gains and losses excluded from earnings and 
reported in a separate component of shareholder's equity.  On January 1, 1994, 
the Bank adopted SFAS No. 115.  The effect of adopting SFAS No. 115 was to 
increase shareholders' equity $227,000 at January 1, 1994 and decrease share-
holders' equity $332,000 at December 31, 1994.  At December 31, 1996 and 1995 
the Company's shareholders' equity contained $60,000 and $94,000, respectively,
in unrealized gains on securities available-for-sale.

     Investment securities at year-end 1996 increased $269,000 or 1.32% over 
year-end 1995 while federal funds sold decreased $1,641,000 from 1995.  Because
the increase in total deposit account balances did not meet the funding needs
of the Bank's loan portfolio, coupled with the interest rate structure within 
<PAGE>
the investment portfolio, federal funds sold were utilized to fund the current
loan demand.  Federal funds sold are consistently maintained 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

     Table 8 highlights average deposits and interest rates during the last 
three years.  Average deposits have increased in 1996, approximately $1,252,000
or 2.14% from 1995 which had decreased from 1994, approximately $2,749,000 or 
4.69%. The average cost of funds for the bank was approximately 3.63% for the 
year ended December 31, 1996 compared to 3.48% and 3.08% for 1995 and 1994, 
respectively.

     The Bank's deposit structure can be categorized as somewhat cyclical, 
increasing as public depositors receive tax allocations and decreasing as dis-
bursements are made.  During 1996 the Bank also experienced continued shifting 
of individual deposits from the traditional savings passbook accounts to higher 
yielding time open or time certificate accounts.  As a result the Bank's cost 
of funds has increased steadily putting additional pressure on the net interest 
margin.  Management has responded to this pressure by competitively pricing
its loan products and managing the investable funds.  As a result, the net
interest margin has increased by 10 basis points since December 31, 1995.

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 Table 9, "Capital Resources," reveal that the Bank has been
able to maintain an average equity to average asset ratio of greater than 9% 
for the past three years.  It should be noted that this ratio increased by 
114 basis points in 1995 to 10.71% and an additional 52 basis points in 1996 
to 11.23%.  It should also be noted that the return on average assets increased
in 1996 to 1.10% from 0.93% in 1995.  This is due primarily to rising interest
rates, deposit growth fluctuations, an increase in loan volume, the decrease 
in investments and a modest increase in operating costs. 

     The yield (interest expense) on interest bearing liabilities increased 
less rapidly than the yield (interest income) on interest earning assets, 
resulting in an increase in the Bank's interest margin.  As indicated earlier,
the average allowance for loan losses to average loans outstanding was 1.27%,
1.26% and 1.27% for years 1996, 1995, and 1994, respectively.

     Banking regulations have established minimum capital ratios for banks. The
primary purpose of these requirements is to assess the riskiness of 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 dis-
allowed 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, 1996, the Bank's risk-based capital ratio for 
Tier I and Tier II capital was 21.33% and 22.58% respectively, thus surpassing 
the required 4% and 8% for Tier I and Tier II capital.  Table 10 is a summary 
of both the Bank's risk-based capital and leverage components and ratios.

II - RESULTS OF OPERATIONS
 
     The Holding Company had consolidated net income of $747,000 or $1.59 per 
share, for the year ended December 31, 1996 as compared to $612,000 or $1.28 
per share for 1995 and $580,000 or $1.22 per share for 1994.  Return on average 
assets ratio (ROAA) was 1.10%, 0.93% and 0.85% in 1996, 1995, and 1994, 
respectively.

<PAGE> 
     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 is the Bank's primary source 
of revenue.  The following discussion and analysis of the Bank's net interest 
income is based primarily on Table 12, "Average Balances and Interest Rates," 
Table 13, "Net Interest Income," Table 14, "Rate/Volume Analysis of Changes in
Interest Income and Interest Expenses," and on rate of 34%.  Tables 12, 13 and
14 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 monthly 
basis.
  
     The net yield on interest-earning assets has increased to 4.78% in 1996 
from 4.68% and 4.34% in 1995 and 1994, respectively.  Net interest income in-
creased $138,000 or 4.70% in 1996 and $136,000 or 4.85% in 1995, while earnings
increased $135,000 or 22.06% in 1996 from $612,000 in 1995 and increased $32,000
or 5.52% in 1995 from $580,000 in 1994.  Table 14 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 increased
($1,600,000) and average interest-bearing liabilities decreased ($133,000) in
1996 which resulted in increased earnings of $121,000 (due to volume); while 
rates increased for all but tax-free debt securities and federal funds 
categories of assets; and rates increased for savings and NOW accounts and 
increased for time deposits which resulted in a net increase of $17,000 (due 
to rate) in net interest income.  The net effect of the changes in volume and 
interest rates was to increase interest earnings by $138,000 during 1996.

     Net loan income increased $268,000 or 7.65% over the prior year primarily 
as a result of the increased yields resulting from the changes in the composi-
tion of the portfolio, increased competition from financial and non-financial 
sources, and Management's strengthening of loan underwriting standards.  Average
loan yields have increased 20 basis points in 1996 after a 59-basis point in-
crease in 1995.  As of year-end 1996 approximately $23,234,000 or 56.02% 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 flex-
ibility in a changing rate environment.

     Interest rates on tax-free investment securities have decreased three basis
points in 1996, from an average portfolio yield of 7.06% to 7.03%, and interest
rates on equity investment securities have increased 68 basis points from an 
average portfolio yield of 5.48% to 6.16%, resulting in a $44,000 increase in 
taxable income due to rates.  Additionally, a $39,000 decline in income due to 
the volume, resulted in a net increase in income of $5,000. Approximately 
$8,400,000 of securities matured in 1996.  Reinvestment yields on approximately
$6,105,000 of maturing securities in 1997 will be used to determine appropriate
maturities or alternative investments.

     Federal funds sold income increased $1,000 or 0.52% in 1996 after a $63,000
or 48.84% increase in 1995.  Volume increased earnings $15,000 and rates de-
creased earnings $14,000 in 1996.  Federal funds are primarily used as an 
investment mechanism for short-term liquidity purposes.

     Interest-bearing deposit expense increased $136,000 or approximately 6.67%
in 1996 after a $146,000 or 7.72% increase in 1995.  The volume increase caused
interest expense to increase $43,000 while changes in rates caused a $93,000 in-
crease in interest expense in 1995.  Rates paid on Savings/NOW/insured deposits 
and time deposits increased four and 30 basis points respectively in 1996, 
compared to a decrease of five and an increase of 88 basis points respectively 
in 1995.  These improvements were partially offset by the general increase in
time deposit accounts coupled with an offsetting decrease in rates paid on 
Savings/NOW/insured deposits has occurred as a result of the rising interest
rates and the continued pressure on interest margins.  Also, competition from
non-financial institutions has resulted in a shifting of depositors' resources.
 
     In summary, Table 14, "Rate Volume Analysis of Changes in Interest Income 
and Interest Expense," 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 and federal funds) and the 
interest-bearing liabilities (savings and time deposits) combined with the 
repricing of each resulted in an increase in net interest margins. 

<PAGE>
     The changes in both asset and liability volumes in 1996 coupled with 
repricing of both interest-earning assets and interest-bearing liabilities 
resulted in a net increase of $138,000 net interest income.  Changes in volume 
accounted for a $121,000 increase in net interest income, while changes in rates
increased net interest income $17,000.

     The increases in both asset and liability volumes in 1995 had less of an 
effect on the net interest margin, $1,000 increase, than the increases in the 
yields on assets and liabilities, a $135,000 increase.

Other Income and Other Expense 

     Total other income consists of operating income attributed to providing 
deposit accounts for bank customers, the disposition of investment securities 
prior to their maturity (which are classified as available-for-sale), and fees 
from banking services.

     Total other expenses consists of operating expense attributed to staffing 
(personnel costs), operation and maintenance of bank building and equipment, 
banking services promotion, taxes and assessments, and other operating expenses.
Table 16, "Other Income and Other Expenses," contains a summary of these items 
for the years ended December 31, 1996, 1995, and 1994.
 
Income Taxes

     Applicable income taxes of $334,000 in 1996 consist of federal taxes only.
For the previous two years the federal tax rate was 34%.

     Impacting the tax provisions for the three years covered in this report 
is the level of the provision for possible loan losses ($75,000 in 1996, 
$120,000 in 1995 and $80,000 in 1994) and the level of tax-exempt income on 
securities which was $64,000, $63,000, and $63,000  for the three years 
presented.

     The Financial Accounting Standards Board issued Statement of Financial 
Accounting Standard (SFAS) No. 109, "Accounting for Income Taxes" in February 
1992.  This statement, effective for fiscal years beginning after December 15, 
1992, amends or supersedes existing pronouncements relating to the accounting 
for income taxes.  The Bank adopted the Statement in 1993.  SFAS No. 109 re-
quires 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.

Effects of Inflation/Changing Prices 

     The effects of inflation on operations of the Bank occur through increased 
operating costs which can be recovered through increased prices for services.  
Virtually all of the Bank's assets and liabilities are monetary in nature and 
can be repriced on a more frequent basis than in other industries.  Every effort
is being made through interest sensitivity Management to monitor products and 
interest rates and their impact on future earnings. 

Liquidity and Interest Rate Sensitivity Management

     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 Table 17, the Bank is in a liability sensitive position up to one
year which is more beneficial in a period of declining interest rates since
liabilities can be repriced at lower rates.  In periods of rising interest 
rates, an asset sensitive position is more favorable as interest sensitive 
assets may be adjusted to rising market rates prior to maturing interest 
sensitive liabilities.  The three-month category of interest sensitive 
liabilities include approximately $24,528,000 of savings, NOW accounts, and 
<PAGE>
insured earnings which can be adjusted nearly immediately to offset any positive
gap in a declining rate environment.

     Management utilizes variable rate loans (on a limited basis) 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.

     Refer to Exhibit A - Statistical Tables

ITEM 7. Financial Statements

     Refer to Exhibit B - Financial Statements

ITEM 8. Changes in and Disagreements with Accountants on Accounting and 
        Financial Disclosure.

     None

<PAGE>
                                    PART  III
                                    

ITEM 9.  Directors and Executive Officers of the Registrant

     The information set forth under the caption "INFORMATION REGARDING NOMINEES
AND CONTINUING DIRECTORS" of the Definitive Proxy Statement of the Holding 
Company to be filed prior to April 10, 1997 with the United States Securities 
and Exchange Commission is incorporated by reference herein.

ITEM 10.  Executive Compensation

     The information set forth under the caption "SUMMARY COMPENSATION TABLE" 
of the Proxy Statement of the Holding Company to be filed prior to April 10, 
1997 with the United States Securities and Exchange Commission is incorporated
by reference herein.

ITEM 11.  Security Ownership of Certain Beneficial Owners and Management

     The information set forth under the caption "INFORMATION REGARDING NOMINEES
AND CONTINUING DIRECTORS" of the Proxy Statement of the Holding Company to be 
filed prior to April 10, 1997 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 "INDEBTEDNESS OF AND TRANS-
ACTIONS WITH OFFICERS AND DIRECTORS" of the Proxy Statement of the Holding 
Company to be filed prior to April 10, 1997 with the United States Securities 
and Exchange Commission is incorporated by reference herein.

ITEM 13.  Exhibits, Financial Statements, and Reports on Form 8-K

     (a)  The following documents are filed as a part of this Report:

          1.  Exhibit A - Statistical Tables:

              All schedules, except those included by reference in Items 6 and 
              7, are omitted because they are not applicable, not required, or 
              the information is included in the financial statements or the 
              notes thereto, or the proxy statement.


          2.  Exhibit B - Financial Statements:

              Independent Auditors' Report
              Consolidated Balance Sheets - As of December 31, 1996 and 1995  
              Consolidated Statements of Income - Years Ended December 31, 
                         1996, 1995 and 1994
              Consolidated Statement of Changes in Shareholders' Equity - Years
                         Ended December 31, 1996, 1995 and 1994
              Consolidated Statements of Cash Flows - For the Years Ended 
                         December 31, 1996, 1995 and 1994
              Notes to Consolidated Financial Statements


          3.  Exhibit C - Proxy Statement:

              Proxy Statement of the Holding Company to be filed prior to April
              10, 1997 with the United States Securities and Exchange Commission

<PAGE>
          4.  Reports on Form 8-K

              The Holding Company has not filed any reports on Form 8-K during 
              the last quarter of 1996. 

<PAGE>
SIGNATURES

     Pursuant to the requirements of Section 13 OR 15 (d) of the Securities 
Exchange Act of 1934, the Registrant has duly caused this report to be signed 
on its behalf by the undersigned, thereunto duly authorized in the City of 
Luckey, State of Ohio on the 27th day of March, 1997.


                           EXCHANGE BANCSHARES, INC.


                           s/Marion Layman          
                           _____________________________
                           Marion Layman
                           Chairman, President, and Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following Directors in the capacities indicated 
on March 27, 1997.


     s/Marion Layman                         s/Rolland I. Huss
     ____________________________            _____________________________
     Marion Layman, Chairman                 Rolland I. Huss, Vice-Chairman


     s/Donald H. Lusher                      s/Cecil R. Adkins
     ____________________________            _____________________________
     Donald H. Lusher, Director              Cecil R. Adkins, Director



     s/Joseph R. Hirzel                      s/David G. Marsh     
     ____________________________            _____________________________
     Joseph R. Hirzel, Director              David G. Marsh, Director
     Secretary and Treasurer

     s/Donald A. Gerke                       s/Edmund J. Miller
     _____________________________           ____________________________
     Donald A. Gerke, Director               Edmund J. Miller, Director


     s/Norma J. Christen
     _____________________________
     Norma J. Christen, Director