EXCHANGE  BANCSHARES,  INC.
MISSION  STATEMENT

OUR  MISSION  IS:

-    To   maximize  shareholder  value  and  to  provide  a  fair  rate  of
     return on      shareholder  investment  compared  to  industry  average;
-    To   be  responsive  to  customer  needs,  a  partner  in  helping
     consumers and      businesses  in  our  market  area  achieve  their
     financial  goals;
-    To   provide  staff  members  with a positive environment in which to
     contribute corporate  success  and  attain  career  objectives.

THE  EXCHANGE  BANK
MISSION  STATEMENT

OUR  MISSION  IS  TO  BE  THE FINANCIAL CORNERSTONE OF THE COMMUNITIES WE SERVE.

     The  Exchange  Bank exists to provide superior banking services to our
     Customers and  provide  its  shareholders  with  a  fair  return on their
     investment.

To  achieve  our  mission  we  will:
-    Remain  an  independent,  locally  owned,  caring  institution, listening
     to our customers  and  the  communities  we  serve;

-    Set  high  standards  for employees by providing training, guidance and
     sense of pride,  knowing  that  only  through  employee  teamwork can our
     mission be accomplished;

-    Provide  a  superior level of internal service and support to one another;

-    Represent the bank with the utmost pride, professionalism, and high
     standards of ethical  behavior.

We  believe a commitment to high employee performance and a focus on the quality
of  customer  service  are  essential  to  our success and that building a great
financial  organization  is  an  ongoing  process.


                            EXCHANGE BANCSHARES, INC.
                            -------------------------

                                     LUCKEY
                                    WALBRIDGE
                                     HOLLAND
                                    PERRYSBURG
                                     SYLVANIA


CONTENTS
_____________________________________________


Chairman's  Letter                                       2

Management's  Discussion  and  Analysis                  4

Independent  Auditor's  Report                          20

Consolidated  Financial  Statements                     21

Notes  to  the  Consolidated  Financial  Statements     25

Directors,  Officers  and  Employees
     of  The  Exchange  Bank                            41

Corporate  Information                                  42



To  Our  Shareholders:

     During  January  2001,  the  Federal  Reserve  Board  announced  the  first
reduction  of  eleven interest rate reductions in an effort to avoid a recession
and  stimulate  economic growth. By year-end some interest rates were lower than
they  had  been  in  the  last  forty  years.

     With  the  cost  of  borrowing  substantially  reduced,  the  demand  for
refinancing existing debt significantly increased. As a result our interest rate
margins  (the difference between what we had to pay to attract deposits and what
we  could charge to retain borrowings) declined throughout the year, which had a
significant  effect  on  our  financial  performance  in  2001.

     Our  staff  has  worked very hard to provide our customers with the highest
level  of  quality  service in a professional manner. We have provided our staff
with  the  training  and  education  necessary  to  deliver a variety of banking
products  and services in a timely and efficient manner.  The year 2001 provided
many  challenges  and  opportunities  for  Tom  Elder,  President and CEO of The
Exchange Bank, our subsidiary, and his management team. They are to be commended
for  their  tireless  efforts  and  dedication  to  this  end.

     We  experienced  a  $3.3  million, or 3.2%, increase in total assets during
2001.  At  December 31, 2001 our total assets were $106.5 million as compared to
$103.2  million  at  previous  year-end.  Total loans outstanding increased from
$78.5  million to $80.3 million during 2001, while total deposits increased $5.1
million,  or  5.7%, from $90.1 million to $95.2 million at yearend.  Shareholder
equity also increased by 5.3% during the year after having distributed  $293,000
cash  dividends  to  our  shareholders.

     Interest  income remained level from 2000 to 2001 at $8.3 million. Interest
expense  increased  from  $3.9  million  in  2000  to $4.1 million in 2001.  Net
interest  income  declined  by $171,000, primarily as a result of the decline in
interest  rates.  Other  non-interest  income,  which  included service charges,
secondary market loan fees and other miscellaneous income, increased $128,000 in
2001  compared  to 2000. We also experienced an increase of 3.9% in non-interest
expense during 2001 as a result of increased personnel costs, primarily salaries
and  benefits.  Overall, net income for 2001 is down $84,000, or 12.2% from that
of  2000.

     In  conjunction with the Company's long-range strategic plan and to provide
for  the future transition of management, your Board of Directors believes it is
in  the best interest of the Company to provide for two additional directors. In
October  2001  Mark  S.  Derkin  and  Thomas J. Elder were added to the Board of
Directors.  Both gentlemen have served for several years as members of the Board
of  Directors  of  The  Exchange  Bank, our banking subsidiary. As a result, the
shareholders are being asked to amend the Code of Regulations to provide for the
permanent  addition  of  two  board  members.

     Jerome  A.  Carpenter,  a veteran banker with over 38 years experience with
The  Exchange Bank, retired as an officer as of December 31, 2001. Mr. Carpenter
has  been  a director of The Exchange Bank for 25 years, also. Mr. Carpenter put
forth  much  effort in establishment of our Walbridge office from its beginning.
Much  credit is due to Mr. Carpenter for the growth and success at the Walbridge
office.  Our  sincere  thanks  to  Mr. Carpenter for his tireless efforts all of
these  years  and  we  extend  our  best  wishes  to Mr. Carpenter and his wife,
Caroline,  in their retirement. Mr. Carpenter will continue as a director of our
subsidiary,  The  Exchange  Bank.

     The  strategic  marketing  plan  for 2001 was very thorough and explicit in
mapping out a route through the year.  Many important goals were achieved in the
retail  and  commercial  areas as well as a product package for future use.  The
results  of  a  random  telephone  survey  indicated  that  we  have  achieved a
significant  improvement  in  our  corporate  image  and  community  awareness.

     The  Perrysburg  office  continues  to  satisfy our mortgage customer needs
through  secondary market lending.  The demand for this type of mortgage lending
was  strong throughout 2001 and we are pleased with the growth we experienced in
this  area.  Another  valuable  service  to  our  customers  is  alternative
investments.  Through  our  Sylvania  office  we  offer  retirement  planning,
annuities  and  mutual  funds,  as  well  as  other  investments.

     As  we  continue  to  move  forward  in  our  96th year as a locally owned,
independent,  community bank we acknowledge that the results would not have been
possible  without  the  endless  efforts of our entire staff, the dedication and
commitment  of our Board of Directors, and the support of our local communities.
We thank all of these for the contributions which each has made during the year.
Most  important  of all, our sincere thanks to all of our shareholders for their
loyalty  and  support  which  you  have  afforded  us  all  of  these  years.


Sincerely,

Exchange  Bancshares,  Inc.





Marion  Layman
Chairman



BUSINESS  OF  EXCHANGE  BANCSHARES

     Exchange  Bancshares,  Inc.,  a  bank  holding company incorporated in 1992
under  the  laws  of  the  State of Ohio ("Bancorp"), owns all of the issued and
outstanding  shares  of The Exchange Bank, a commercial bank chartered under the
laws  of  the  State  of  Ohio ("Bank").  The Bancorp acquired all of the common
shares  of  the  Bank  effective  January  1, 1994.  In June of 1998 the Bancorp
purchased  all of the outstanding common shares of Towne Bank, a commercial bank
chartered under the laws of the State of Ohio ("Towne") and immediately combined
its  operations  with  the  Bank.  Since its formation, the Bancorp's activities
have  been  limited  primarily  to  holding  the  common  shares  of  the  Bank.

     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  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  (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.

SELECTED  CONSOLIDATED  FINANCIAL  INFORMATION  AND  OTHER  DATA

     The  following  tables  set  forth  certain  information  concerning  the
consolidated  financial condition, earnings and other data regarding the Bancorp
at  dates  and  for  the periods indicated.  The financial information should be
read in conjunction with the consolidated financial statements and notes thereto
included elsewhere herin.  However, in the opinion of management of the Bancorp,
all  adjustments necessary for the fair presentation of such financial data have
been  included.  All  such  adjustments  are  of  a normal and recurring nature.
<TABLE>
<CAPTION>


SELECTED  FINANCIAL  DATA
                                                               At December 31,

                                             2001      2000     1999     1998     1997     1996
                                           --------  --------  -------  -------  -------  -------
<S>                                        <C>       <C>       <C>      <C>      <C>      <C>
                                                           (Dollars in thousands)
Total amount of:
Assets. . . . . . . . . . . . . . . . . .  $106,456  $103,155  $98,599  $94,641  $72,795  $68,206
Cash and cash equivalents (1) . . . . . .     6,765     4,570    5,103    7,987    6,192    4,694
Investment securities available-for-sale.    14,815    15,335   16,866   18,448   16,362   17,664
Investment securities held-to-maturity. .         0       100      276    1,022    2,406    3,184
Loans (2) . . . . . . . . . . . . . . . .    80,338    78,523   70,947   61,332   46,248   40,963
Deposits. . . . . . . . . . . . . . . . .    95,231    90,108   83,541   85,191   63,928   60,158
Borrowed funds. . . . . . . . . . . . . .       115     2,632    5,152      173      198        0
Shareholders' equity. . . . . . . . . . .    10,490     9,961    9,260    8,956    8,434    7,811
</TABLE>

(Footnotes  on  following  page)
<TABLE>
<CAPTION>



SUMMARY  OF  EARNINGS  AND  OTHER  DATA
                                                                       Year ended December 31,


                                                       2001     2000     1999     1998     1997     1996
                                                      -------  -------  -------  -------  -------  -------
<S>                                                   <C>      <C>      <C>      <C>      <C>      <C>
                                                                       (Dollars in thousands)
Statements of Income
Interest Income. . . . . . . . . . . . . . . . . . .  $8,287   $8,261   $7,191   $6,587   $5,565   $5,211
Interest Expense . . . . . . . . . . . . . . . . . .   4,075    3,878    3,187    2,958    2,387    2,174
                                                      -------  -------  -------  -------  -------  -------
Net interest income. . . . . . . . . . . . . . . . .   4,212    4,383    4,004    3,629    3,178    3,037
Provision for loan losses. . . . . . . . . . . . . .      15       75        0        0        0       75
                                                      -------  -------  -------  -------  -------  -------
Net interest income after provision for loan losses.   4,197    4,308    4,004    3,629    3,178    2,962
Non-interest income. . . . . . . . . . . . . . . . .     680      552      641      420      320      314
Non-interest expenses. . . . . . . . . . . . . . . .   4,016    3,864    3,720    3,125    2,293    2,195
                                                      -------  -------  -------  -------  -------  -------
Income before income taxes . . . . . . . . . . . . .     861      996      925      924    1,205    1,081
Income tax expense . . . . . . . . . . . . . . . . .     259      310      282      301      373      334
                                                      -------  -------  -------  -------  -------  -------
Net income . . . . . . . . . . . . . . . . . . . . .  $  602   $  686   $  643   $  623   $  832   $  747
                                                      =======  =======  =======  =======  =======  =======

Number of full service offices . . . . . . . . . . .       5        5        5        5        3        3



SELECTED FINANCIAL RATIOS:
                                                             At or for the year ended December 31,
                                                      ----------------------------------------------------
                                                        2001     2000     1999     1998     1997     1996
                                                      -------  -------  -------  -------  -------  -------

Return on assets (3) . . . . . . . . . . . . . . . .    0.56%    0.68%    0.68%    0.74%    1.17%    1.10%
Return on equity (4) . . . . . . . . . . . . . . . .    6.03     7.29     7.13     7.66    10.28     9.82
Interest rate spread (5) . . . . . . . . . . . . . .    3.52     3.98     4.00     3.92     3.98     4.09
Net interest margin (6). . . . . . . . . . . . . . .    4.16     4.63     4.59     4.62     4.75     4.78
Noninterest expense to average assets (7). . . . . .    3.73     3.81     3.94     3.70     3.20     3.24
Average equity to average assets . . . . . . . . . .    9.26     9.27     9.54    10.41    11.38    11.23
Equity to assets at year end . . . . . . . . . . . .    9.86     9.66     9.39     9.46    11.60    11.46
Non-performing loans to total loans (8). . . . . . .    2.14     0.70     0.12     0.82     0.19     0.78
Non-performing loans to total assets . . . . . . . .    2.12     0.54     0.09     0.54     0.12     0.50
Allowance for loan losses to total loans . . . . . .    1.04     0.95     1.40     2.45     1.33     1.22
Allowance for loan losses to non-performing loans. .   49.01    73.02     8.33    33.33    13.62    63.19
Net charge-offs (recoveries) to average loans. . . .   (0.09)    0.42     0.79     0.08    (0.26)    0.13
Dividend payout ratio (9). . . . . . . . . . . . . .   48.67    41.55    41.88    37.80    28.74    27.71
Per Common Share
Net Income (10)
Basic. . . . . . . . . . . . . . . . . . . . . . . .  $ 1.03   $ 1.18   $ 1.12   $ 1.09   $ 1.47   $ 1.37
Diluted. . . . . . . . . . . . . . . . . . . . . . .    1.03     1.18     1.12     1.09     1.47     1.37
Dividends declared . . . . . . . . . . . . . . . . .    0.50     0.49     0.47     0.45     0.43     0.36
Stockholders' equity (11). . . . . . . . . . . . . .   17.88    17.01    16.77    16.26    15.31    14.39
</TABLE>
-----------------------------------------------
1)  Includes  cash and amounts due from depository institutions and
    interest-bearing deposits  in  other  financial  institutions
2)  Net  of  unearned  income.
3)  Net  income  divided  by  average  total  assets.
4)  Net  income  divided  by  average  total  equity.
5)  Average  yield on interest-earning assets less average costs
    of interest-bearing liabilities.
6)  Net  interest  income  as  a  percentage of average interest
    earning assets.
7)  Noninterest  expense  divided  by  average  total  assets.
8)  Non-performing  assets  consist  of nonaccruing loans,
    accruing loans 90 days or more  past due and real estate acquired
    (or deemed acquired) in foreclosure proceedings  or  in  lieu
    thereof.
9)  Dividends  declared  per  share  divided  by  basic  earnings
    per  share.
10) Net  income  divided  by  weighted-average  common  shares
    outstanding.
11) Total  shareholders'  equity  divided  by  shares  outstanding.

<PAGE>


MANAGEMENT'S  DISCUSSION  AND  ANALYSIS
     OF  FINANCIAL  CONDITION  AND  RESULTS  OF  OPERATIONS

GENERAL

     Exchange  Bancshares,  Inc.,  was  organized  as  an  Ohio  Corporation and
incorporated  by  the  Board of Directors of The Exchange 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 Bancorp acquired the Bank on January
1,  1994,  and  as of December 31, 2001 had combined assets of $106 million, $80
million  in  net loans, and $95 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.

     Exchange Bancshares, Inc. is a bank holding company engaged in the business
of commercial and retail banking through its subsidiary The Exchange 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 20 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) 2001
results  of  operations.

FINANCIAL  CONDITION

     LOAN  PORTFOLIO.  Loans,  as  a  component  of  earning assets, represent a
significant  portion  of earning assets at December 31, 2001.  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, 2001, 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  2.22%  in  2001  to  represent 77.75% of average
earning  assets  compared  to 81.22% in 2000 and 75.89% in 1999.  Year-end total
real estate loans of $62.8 million represented approximately 77.39% of the total
loans  outstanding. The portion of the loan portfolio represented by real estate
loans  has  increased from 77.83% at December 31, 1996 to 81.13% at December 31,
1998,  decreasing  to  77.39%  at  December  31,  2001.  Installment  loans  to
individuals  continued  to increase moderately to 16.80% of loans outstanding at
December  31,  2001,continuing  the  trend  begun  in  1997.  Prior  to 1997 the
installment  loan  portfolio  had  been  declining steadily since 1993 when they
comprised  16.60%  of  total  loan  portfolio.  The dollar amounts of commercial
loans (including tax-exempt loans) increased in 2001 to 4.76% of the total loans
outstanding  primarily  as a result of the general increase in demand loans. The
increase  experienced  in  1998  was  due  to  the acquisition of the Towne Bank
related  loans.  Prior  to  1998  the  commercial  loan  portfolio  had remained
constant,  however,  their  relative portion of the loan portfolio had decreased
from  5.58%  at  December  31,  1996  to 4.94% at December 31, 1997.  The dollar
amount  of agricultural loans outstanding at December 31, 2001 represented 1.05%
of  the  total  loans outstanding.  Agricultural loans outstanding have remained
relatively constant over the last four years while the relative portion of total
loans  has continued to decline.  The table entitled "Loan Information" provides
a  six-year  summary  of  the  loan  history.


<TABLE>
<CAPTION>


LOAN  INFORMATION


In thousands, except ratios                                        2001       2000      1999      1998        1997       1996
                                                                ----------  --------  --------  ---------  ----------  ---------
<S>                                                            <C>         <C>       <C>       <C>        <C>         <C>
Loans at December 31,
Commercial                                                      $   3,596   $ 2,544   $ 3,053   $  2,880   $     955   $    783
Agricultural                                                          852       816       806        880         709        802
Real estate
Secured by 1-4 family residential properties                       32,994    37,854    37,333     31,813      24,353     20,826
Secured by other properties                                        29,835    24,990    20,600     19,199      13,170     11,449
Consumer                                                           13,628    12,928    10,008      7,115       6,322      6,067
Tax-exempt                                                            268       140       150        983       1,360      1,533
All other                                                               9         7         5          4           3         11
                                                                ----------  --------  --------  ---------  ----------  ---------
Total                                                           $  81,182   $79,279   $71,955   $ 62,874   $  46,872   $ 41,471
                                                                ==========  ========  ========  =========  ==========  =========

Allowance for Loan Losses
Balance at beginning of year                                    $     756   $ 1,008   $ 1,542   $    624   $     508   $    483
Allowance related to acquired loans                                     0         0         0        961           0          0
Provision for loan losses                                              15        75         0          0           0         75
Charge-offs
Commercial and agricultural                                            92       239       460          0           0          0
Consumer                                                              116        49        54         88          38         48
Credit Card                                                            52       118        80         37          31         20
Real estate                                                             0         0         0          0           0          0
                                                                ----------  --------  --------  ---------  ----------  ---------
Total charge-offs                                                     260       406       594        125          69         68
                                                                ----------  --------  --------  ---------  ----------  ---------
Recoveries
Commercial and agricultural                                           238        65         1         60         156          0
Consumer                                                               79        11        21         19          25         13
Credit card                                                            15         1        21          1           2          3
Real estate                                                             1         2        17          2           2          2
                                                                ----------  --------  --------  ---------  ----------  ---------
Total recoveries                                                      333        79        60         82         185         18
                                                                ----------  --------  --------  ---------  ----------  ---------
Net charge-offs                                                       (73)      327       534         43        (116)        50
                                                                ----------  --------  --------  ---------  ----------  ---------
Balance at end of year                                          $     844   $   756   $ 1,008   $  1,542   $     624   $    508
                                                                ==========  ========  ========  =========  ==========  =========

Allocation of Allowance for Loan Losses
Commercial                                                            408   $   172   $   471   $  1,001   $     157   $    183
Consumer                                                              135       104       145         84          72         68
Real estate                                                            52         6       173        160         161        159
Unallocated                                                           249       474       219        297         234         98
                                                                ----------  --------  --------  ---------  ----------  ---------
Total                                                           $     844   $   756   $ 1,008   $  1,542   $     624   $    508
                                                                ==========  ========  ========  =========  ==========  =========

Credit Quality Ratios
Net charge-offs as a percentage of average loans                   (0.09)%     0.42%     0.79%      0.08%     (0.26)%      0.13%
Allowance for loan losses to
        total loans at year end                                      1.04%     0.95%     1.40%      2.45%      1.33 %      1.22%

Net charge-offs as a percentage of allowance for   loan losses     (8.65)%    43.25%    52.98%      2.79%    (18.59)%      9.84%
Provision for loan losses to average loans                          0.02 %     0.10%     0.00%      0.00%      0.00 %      0.19%
Earnings coverage of net charge-offs                               (8.25)x    2.10 x    1.20 x    14.49 x    (7.17) x    14.94 x
</TABLE>


     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 $8.3 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 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
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.

     Loans  accounted  for  on  a  non-accrual  basis  at December 31, 2001 were
$921,000  as  compared  to $357,000 as of year-end 2000. Nonperforming assets at
December  31,  2001 totaled $1,814 or 1.70% of total assets.  This represents an
increase  of  $1.3  million  or  228.62%  from  December  31,  2000.  The  large
fluctuation  in  nonperforming  assets  is  attributable primarily to the assets
acquired  as a result of the merger with Towne Bank. Management has continued to
monitor  these  assets  and  strengthen  the  Bank's position whenever possible.


<TABLE>
<CAPTION>


NON-PERFORMING  ASSETS  AND  90-DAY  PAST  DUE  LOANS


In thousands, except per share amounts                        2001   2000   1999   1998   1997   1996
                                                             ------  -----  -----  -----  -----  -----
<S>                                                          <C>     <C>    <C>    <C>    <C>    <C>
At December 31,
Non-accrual loans . . . . . . . . . . . . . . . . . . . . .  $  921  $ 357  $  10  $ 399  $  75  $ 196
Restructured loans. . . . . . . . . . . . . . . . . . . . .      14      0      0      0      0      0
                                                             ------  -----  -----  -----  -----  -----
Total non-accrual and restructured loans. . . . . . . . . .     935    357     10    399     75    196
Other real estate owned . . . . . . . . . . . . . . . . . .      92      0      0      0      0      0
                                                             ------  -----  -----  -----  -----  -----
Total non-performing assets . . . . . . . . . . . . . . . .    1027    357     10    399     75    196
Loans past due 90-days or more* . . . . . . . . . . . . . .     787    195     74    115     10    125
                                                             ------  -----  -----  -----  -----  -----
  Total non-performing assets and 90-day past due loans      $1,814  $ 552  $  84  $ 514  $  85  $ 321
                                                             ======  =====  =====  =====  =====  =====

Impaired loans. . . . . . . . . . . . . . . . . . . . . . .  $  130  $  80  $  67  $ 720  $  17  $  23
                                                             ======  =====  =====  =====  =====  =====

*Excludes non-accrual and restructured loans
</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
entitle  "Loan  Information"  for  a  six-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
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  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  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 net historical charge-offs of each loan type for the last five years.
If  applied,  commercial  loans  would  require  35.52% of the reserve while the
installment  (consumer)  and  real  estate loans would require 61.34% and 3.14%,
respectively.  Currently, the allowance for loan losses has been allocated based
upon  the results of the loan reviews and management's assessment of the overall
portfolio  and  other  factors  as follows; commercial loans 48.34%, real estate
loans 6.16% and consumer loans 16.00%.  The remaining 29.50% of the allowance is
currently  "unallocated".  The  losses  experienced,  combined with the type and
market  value of the collateral securing the various loans within the portfolio,
is  the  primary  reason  for  the percentage allocation of the allowance to the
individual  loan  types.

     Management  believes  significant  factors  affecting  the  allowance  are
reviewed  regularly  and  that  the  allowance  is adequate to cover potentially
uncollectible  loans  at  December  31,  2001.  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 decreased to 1.03%
in  2001 from 1.19% and 2.18% in 2000 and 1999, respectively.  The allowance for
loan  losses to loan balances outstanding at year-end was 1.04%, 0.95% and 1.40%
for  years  2001,  2000  and  1999,  respectively.

     The  Bank  experienced net recoveries in 2001 of $73,000 as compared to net
charge-offs  in $327,000 in 2000.  The average net charge-offs for the preceding
three  years  (1998-2000)  were  $301,000.  The  1997  net  recovery position is
primarily  attributed  to a single borrower.  The yearly average net charge-offs
for the last five-year period (1997-2001) were $143,000.  Based upon the ongoing
assessment  of  the  quality  of  the  loan  portfolio and local economic trends
management  felt  it  was  necessary  to  reinitiate the periodic provisions for
possible  loan  losses.

     The  absence of a provision for loan losses in 1999 was due to the $961,000
allowance  for  possible loan losses associated with the merger of Towne Bank in
1998  as  well  as,  the over-all quality of the loan portfolio and management's
assessment  of the local economic conditions.  The decrease in the provision for
the  allowance for loan loss in 1997 and prior years 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  would  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 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 collateralized mortgage obligations
("CMO's"),  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.

     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  market  value,  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
Investments 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 shareholders' equity. At December 31,
2001 and 2000 the Bancorp's shareholders' equity contained $280,000 and $81,000,
respectively,  in  unrealized gains and losses on securities available-for-sale.

     Investment  securities  at  year-end  2001 decreased $620,000 or 4.02% from
year-end  2000  while  federal  funds  sold  increased $1.1 million from 2000 or
66.63%.  Because  the  funding needs of the Bank's loan portfolio increased at a
lesser  rate than the deposits of the Bank, excess funds were utilized to reduce
borrowings  and  satisfy  other cash requirements.  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  have increased in 2001, by approximately $10.4
million,  or  12.08%  from  2000,  which  had  also  increased  from  1999,  by
approximately $2.0 million, or 2.38%. The average cost of funds for the Bank was
approximately  4.68%  for the year ended December 31, 2001 compared to 4.74% and
4.22%  for  2000  and  1999,  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. The Bank experienced increases in the average balances
of all deposit categories during 2001 except money market accounts. The shifting
of  individual deposits from the traditional savings passbook accounts to higher
yielding  time  open  or  time  certificate  accounts  seems to have subsided as
evidenced  by  the  composition  of  the  deposit portfolios as of year-end 2001
compared  to year-end 2000.  The Bank's cost of funds has decreased as the older
higher  interest-bearing  deposits  repriced  to  current market interest rates.
Management  is  continually  monitoring  the  local  market  and  responds  to
competitive  pressures  by  pricing  the  Bank's  loan products and managing the
investable  funds.  As  a result, the net interest margin has decreased 47 basis
points  since  December  31,  2000.

     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 9.2% for the past six
years.  It should be noted that this ratio decreased by 1 basis point in 2001 to
9.26%,  which  is  still exceeds of the regulatory minimum capital requirements.
The  decrease  resulted  primarily the declaration of $293,000 in cash dividends
coupled  with  the $3.3 million growth in total assets.  It should also be noted
that  the  return on average assets decreased to $0.56 in 2001 compared to $0.68
in  2000.

     The yield (interest expense) on interest-costing liabilities decreased less
rapidly  than the yield (interest income) on interest- earning assets, resulting
in  a decrease in the Bank's interest margin.  As indicated earlier, the average
allowance  for  loan  losses  to  average loans outstanding was 1.03%, 1.19% and
2.18%  for  years  2001,  2000,  and  1999,  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
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, 2001, the Bank's risk-based capital
ratio  for  Tier  I and Tier II capital was 12.91% and 14.02% 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.

COMPARISON  OF  THE RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED    DECEMBER
31,  2001  AND  2000

     GENERAL.  The  Bancorp  had  consolidated  net  income of $602,000 or $1.03
basic  earnings  per  share, for the year ended December 31, 2001 as compared to
$686,000  or $1.18 basic earnings per share for 2000 and $643,000 or $1.12 basic
earnings  per  share  for 1999. Return on average assets ratio (ROAA) was 0.56%,
0.68%  and  0.68%  in  2001,  2000,  and  1999,  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
is  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", "Income
Statement  Data  -  Changes  in Tax Equivalent Income",  and "Interest Sensitive
Assets and Liabilities" 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  monthly  basis.


<TABLE>
<CAPTION>


CONSOLIDATED  AVERAGE  BALANCE  SHEETS  AND  RELATED  YIELDS  AND  RATES


In thousands, except ratios
---------------------------
                                                               2001                 2000                1999
                                                            ---------            ----------          ---------


                                                   Interest    Average              Interest  Average            Interest
                                        Average    Income/     Yields/    Average   Income/   Yields/   Average  Income/
                                        Balance    Expense     Rates      Balance   Expense   Rates     Balance  Expense
                                        ---------  ----------  ---------  --------  --------  --------  -------  --------
<S>                                    <C>        <C>         <C>        <C>       <C>       <C>       <C>      <C>

Assets
Cash and due from banks                 $  2,564                          $  1,387                      $  1,501
Interest bearing deposits in banks            35   $       2       4.45 %       21   $     2      9.52 %      17  $    1
Federal funds sold.                        7,622         266       3.49      1,987       125      6.29     3,408     167
Investment securities
Taxable debt securities                   14,190         839       5.91     14,955       887      5.93   16,717       969
Tax-exempt debt securities(1)                 74           5       6.76        264        20      7.58      435        30
Equity securities                            607          42       6.92        575        33      5.74      575        35
                                        --------   ---------              --------   -------            -------   -------
Total Investment securities               14,870         886       5.96     15,794       940      5.95   17,727     1,034
Loans
Real Estate                               29,088       2,471       8.49     32,168     2,744      8.53   31,491      2,605
Consumer                                  14,553       1,587      10.91     12,635     1,367     10.82    8,149        951
Commercial (1)                            35,083       3,079       8.78     32,209     3,089      9.59   26,930      2,452
                                       ---------   ---------              --------  --------            -------    -------
Total loans                               78,724       7,137       9.07     77,012     7,200      9.35   66,570      6,008

Total earning assets                     101,251       8,291       8.19     94,814     8,267      8.72   87,722      7,210
                                         -------                           -------                       ------
Allowance for loan losses                   (808)                             (917)                      (1,451)
Other assets                               4,894                             6,221                        6,677
                                       ---------                          --------                    ---------
Total assets                            $107,901                          $101,505                     $ 94,449
                                        ========                          ========                     ========

Liabilities and Shareholders' Equity
Noninterest-bearing deposits            $ 10,097                          $  9,969                     $  9,423
Interest-bearing deposits
NOW accounts                              14,839         540       3.64     13,477       484      3.59   13,766       461
Money market accounts                      1,151          27       2.31      1,384        35      2.53    1,785        45
Savings accounts                          16,086         326       2.03     15,584       379      2.43   16,148       391
Time deposits                             54,673       3,148       5.76     45,995     2,626      5.71   43,275     2,254
                                         ---------    -------             --------  --------            -------  --------
Total interest-bearing deposits           86,749       4,041       4.66     76,440     3,524      4.61   74,974     3,151
Borrowed funds.                              523          34       6.46      5,392       354      6.57      612        36
                                        ---------    --------             --------  --------            -------  --------
Total interest-bearing liabilities        87,272       4,075       4.67     81,832     3,878      4.74   75,586     3,187
                                         -------                           -------                      -------
Other liabilities                            541                               290                          424
Shareholders' equity                       9,991                             9,414                        9,016
                                         -------                           -------                       ---------

Total liabilities and shareholders' equity  $107,901                         $ 101,505                     $ 94,449
                                            ========                         =========                      ========

Net interest income (1)                              $  4,216                        $ 4,389                      $ 4,023
                                                      =========                      =========                    ========

Yield spread                                                       3.52 %                          3.98 %
Net interest income to earnings assets                             4.16 %                          4.63 %
Interest-bearing liabilities to earning assets.                   93.84 %                         86.31 %

(1)  tax-equivalent basis


In thousands, except ratios


Average
Yields/
Rates
-----
<S>                                              <C>

Assets
Cash and due from banks
Interest bearing deposits in banks               4.58 %
Federal funds sold                               4.92
Investment securities
Taxable debt securities                          5.79
Tax-exempt debt securities(1)                    6.83
Equity securities                                6.16

Total Investment securities                      5.83
Loans
Real Estate                                      8.27
Consumer                                        11.67
Commercial (1)                                   9.11

Total loans                                      9.03

Total earning assets                             8.22

Allowance for loan losses
Other assets

Total assets

Liabilities and Shareholders' Equity
Noninterest-bearing deposits
Interest-bearing deposits
NOW accounts                                     3.35
Money market accounts                            2.54
Savings accounts                                 2.42
Time deposits                                    5.21

Total interest-bearing deposits                  4.20
Borrowed funds                                   5.92

Total interest-bearing liabilities               4.22

Other liabilities
Shareholders' equity


Total liabilities and shareholders'     equity


Net interest income (1)

Yield spread                                     4.00%
Net interest income to earnings assets           4.59%
Interest-bearing liabilities to earning assets  84.26%

(1)  tax-equivalent basis
</TABLE>





<TABLE>
<CAPTION>


RATE/VOLUME  ANALYSIS


                                                   2001 OVER 2000                             2000 OVER 1999
                                                  ----------------                           --------------
                                                         Yield/                                    Yield/
In Thousands                                  Volume     Rate         Total              Volume    Rate        Total
                                              ------    ----          -----              ------    ----       -------

Changes in Tax Equivalent Interest Income *
<S>                                          <C>        <C>          <C>                <C>      <C>          <C>
Interest income
Interest-bearing deposits in banks            $    1     $  (1)       $   0              $   0    $  1         $    1
Federal funds sold                               160       (19)         141                (89)     47            (42)
Investment securities                            (55)        1          (54)              (114)     20            (94)
Loans                                            262      (325)         (63)               876     316          1,192
                                              -------    ------       ------            ------    ----         -------
Total                                            368      (344)          24                673     384          1,057
                                              -------    ------      ------             ------    ----         -------

Interest expense
Interest-bearing deposits                        302       215          517                 67     306            373
Borrowed funds                                  (314)       (6)        (320)               286      32            318
                                              -------    ------       ------            ------    ----         -------
Total                                            (12)      209          197                353     338            691
                                              -------    ------      ------             ------    ----         -------

Net interest income                           $  380     $(553)       $(173)             $ 320    $ 46         $   366
                                              =======    ======       ======            ======    ====         =======


*Changes in the average balance/rate are allocated entirely to the yield/rate changes
</TABLE>



<TABLE>
<CAPTION>


NON-INTEREST  EXPENSES


In Thousands, except ratios
                               2001           % Change       2000      % Change    1999      % Change
<S>                           <C>            <C>            <C>       <C>         <C>       <C>
Salaries and benefits
Salaries                       $     1,686    8.35 %         $1,556    6.65 %      $1,459    30.73 %
Benefits                               322   (5.01)             339   18.53           286    12.60
                               -----------                   ------                 ------
Total                          $     2,008    5.96           $1,895    8.60        $1,745    27.37
                             =============                   ======                ======

Occupancy and equipment
Depreciation                   $       277  (10.93)%         $  311   (1.27)%      $  315    45.83 %
Maintenance and repairs                192    4.92              183   27.08           144    (1.37)
Real estate taxes                       62    6.90               58   70.59            34    17.24
Insurance                               18    0.00               18   (5.25)           19    11.76
Utilities                               71   10.94               64   (9.86)           71    39.22
                             -------------                    ------               ------
Total                          $       620   (2.21)          $  634    8.75        $  583    27.02
                               ===========                   ======                ======

Other expenses
Advertising                    $       110   12.24 %         $   98  (23.44)%      $  128   236.84 %
Dues and subscriptions                  22   15.79               19   (5.00)           20    11.11
Telephone                               75    7.14               70   12.90            62    29.17
Organizational costs                     0    0.00                0       0             0  (100.00)
Insurance                               12   14.29               14  (54.84)           31    55.00
Loan                                    21    8.70               23   21.05            19   (13.64)
Education                               10  (28.75)              14   39.13            23   130.00
Travel and entertainment                25   (3.85)              26   23.81            21    10.53
FDIC insurance                          17    0.00               17   70.00            10    (9.09)
Legal                                   97   16.87               83  (27.19)          114   338.46
Overdrafts                               6  (25.00)               8  (33.33)           12    (7.69)
Examination and accounting.            150   (8.50)             160   (7.51)          173   (48.05)
Data processing           .            154   10.79              139   13.01           123    10.81
State and other taxes                  124    8.77              114    0.00           114    (4.20)
Other                                   17  (22.73)              22  (54.16)           48    50.00
                               -----------                   ------                ------
Total                          $       840    4.09           $  807  (10.13)       $  898     7.80
                               ===========                   ======                ======
</TABLE>


<PAGE>

     The  net  yield  on  interest-earning assets has decreased to 4.16% in 2001
from  4.63%  and  4.59%,  in  2000  and  1999, respectively. Net interest income
decreased  $173,000,  or 3.94%, in 2001 and had increased $366,000, or 9.10%, in
2000, while earnings decreased $84,000, or 12.24%, in 2001 from $686,000 in 2000
and  increased  $43,000,  or  6.69%,  in  2000  from  $643,000  in  1999.  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 increased by $6,437,000 and
average  interest-bearing  liabilities  increased  by  $5,440,000  in 2001 which
resulted in increased net interest income of $380,000 (due to volume); while the
overall  decrease in rates for earning assets did exceed the overall decrease in
rates  on  interest-bearing  liabilities  which  resulted  in  a net decrease of
$553,000 (due to rate) in net interest income.  The net effect of the changes in
volume  and  interest rates was to decrease interest earnings by $173,000 during
2001.

     Net loan income decreased $63,000 or 0.88% over the prior year primarily as
a  result of the decreases interest rates, the changes in the composition of the
portfolio,  increased  competition from financial and non-financial sources, and
Management's  adherence  to  strong  loan  underwriting  standards. Average loan
yields have decreased 28 basis points in 2001 after a 32 basis point increase in
2000.  As  of  year-end 2001 approximately $29.3 million, or 36.14%, 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.

     Interest  rates  on  tax-free investment securities have decreased 82 basis
points  in 2001, from an average portfolio yield of 7.58% to 6.76%, and interest
rates  on  equity  investment securities have increased 118 basis points from an
average  portfolio  yield  of  5.74%  to  6.92%,  and  interest rates on taxable
investment securities decreased 2 basis points from an average yield of 5.93% to
5.91%,  resulting  in  a  $55,000  decrease  in  taxable  income  due to volume.
Approximately  $6,100,000  of securities matured in 2001. Reinvestment yields on
approximately  $3,665,000  of  maturing  securities  in  2002  will  be  used to
determine  appropriate  maturities  or  alternative  investments.

     Federal  funds sold income increased by $141,000 or 112.80% in 2001 after a
$42,000 or 25.15% decrease in 2000. Volume increased earnings $160,000 and rates
decreased  earnings  $19,000  in  2001.  Federal  funds are primarily used as an
investment  mechanism  for  short-term  liquidity  purposes.

     Interest-bearing deposit expense increased $517,000 or approximately 14.67%
in  2001 after a $373,000 or 11.84% increase in 2000. The volume increase caused
interest  expense  to increase $302,000 while changes in rates caused a $215,000
increase  in  interest  expense  in  2000.  Rates paid on NOW accounts and money
market  accounts  increased  5  basis  points  and  decreased  22  basis  points
respectively  in  2001,  compared  to  an  increase  of  24 basis points for NOW
accounts  and  a  1  basis point decrease for money market accounts in 2000. The
yields  on  savings  accounts  decreased  40  basis points and the yield on time
deposits  increased  7  basis points in 2001. Market fluctuation and competition
from  non-financial  institutions  have  continued to be factors in the shift to
higher  yielding  time  deposits.

     In  summary,  the  "Changes  in  Tax Equivalent Income" 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 2001 coupled with
repricing  of  both  interest-earning  assets  and  interest-bearing liabilities
resulted  in  a  net  decrease  of  $173,000  in net interest income. Changes in
interest-earning  asset volume accounted for a $368,000 increase in net interest
income,  while  changes  in  interest-bearing  liability  volume  increased  net
interest  income  $12,000.

     The  decreases  in  interest  rates  on  both  interest-earning  assets and
interest-bearing  liabilities  in 2001 had more of an effect on the net interest
margin,  a  $344,000  decrease,  than  the  changes  in the yields on assets and
liabilities,  a  $209,000  decrease.

     OTHER  INCOME  AND  OTHER EXPENSE. Total other income consists of operating
income  attributed  to  providing deposit accounts for bank customers, secondary
market lending, 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.
The  "Non-Interest  Expenses"  table  contains  a summary of these items for the
years  ended  December  31,  2001,  2000,  and  1999.

     INCOME  TAXES.  Applicable  income  taxes  of  $259,000  in 2001 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 ($15,000 in 2001, $75,000 in
2000  and  $-0- in 1999) and the level of tax-exempt income on securities, which
was  $21,000,  $14,000, and $22,000 for the three years presented. The effective
income  tax  rates  for  tax  years  ended  December 31, 2001, 2000 and 1999 are
30.01%,  31.12%  and  30.49%,  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 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 $33.4 million of NOW, money market and savings
accounts  which can be adjusted nearly immediately to offset any positive gap in
a  declining  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>
<CAPTION>


INTEREST  RATE  SENSITIVITY
                                                                       REPRICING OR MATURING


                                                            Over          Over          Over
                                              Within        3 Months      1 Year        3 Years       After
                                              3 Months      to 1 Year     to 3 Years    To 5 Years    5 Years    Total
                                           -----------    -----------   ------------  ------------  ---------  -------
In thousands, except ratios
At December 31, 2001
<S>                                          <C>          <C>            <C>           <C>           <C>        <C>
Loans . . . . . . . . . . . . . . . . . . .  $   20,089    $     9,252    $    15,337   $ 21,404      $15,100    $ 81,182
Investment securities . . . . . . . . . . .       1,009          2,656          9,983        542          625      14,815
Other earning assets. . . . . . . . . . . .       2,834              0              0          0            0       2,834
Other assets. . . . . . . . . . . . . . . .           0              0              0          0        7,625       7,625
                                             -----------  ------------    ------------  ---------    --------    --------

Total assets. . . . . . . . . . . . . . . .  $   23,932   $    11,908     $    25,320   $ 21,946      $23,350    $106,456
                                             ===========  ============    ===========   ========     ========    ========

Noninterest-bearing deposits. . . . . . . .  $        0   $         0     $         0   $      0      $10,943    $ 10,943
Interest-bearing deposits . . . . . . . . .      46,730        21,837          14,669      1,052            0      84,288
Borrowed funds. . . . . . . . . . . . . . .           0             0               0          0          115         115
Other liabilities and equity. . . . . . . .           0             0               0          0       11,110      11,110
                                             -----------  ------------   ------------  ---------     --------    --------

Total liabilities and equity. . . . . . . .  $   46,730   $    21,837     $    14,669   $  1,052      $22,168    $106,456
                                             ===========  ============    ============  =========    ========    ========

Gap*. . . . . . . . . . . . . . . . . . . .  $  (22,798)  $    (9,929)    $    10,651   $ 20,894      $15,610
Cumulative gap. . . . . . . . . . . . . . .     (22,798)      (32,727)        (22,076)    (1,182)      14,428

Cumulative gap as a percent of total assets     (21.42%)      (30.74%)        (20.74%)    (1.11%)       13.55%
</TABLE>


<TABLE>
<CAPTION>


OTHER  BALANCE  SHEET  DATA
In  thousands,  except  ratios


MATURITY OF TOTAL INVESTMENT SECURITIES (A)
                                                                        Carrying
                             Within 1 Year          1-5 Years           After 10Years
                             Amount/Yield           Amount/Yield        Amount/Yield
                            --------------          ---------------     --------------

<S>                         <C>                    <C>                    <C>
At December 31, 2001
Investment securities
available-for-sale:
U.S. Treasury                $  1,009   6.25%       $  1,573   5.96%       0    0.00%
Federal agency                  2,656   6.23%          7,924   6.67%       0    0.00%
Corporate debt                      0   0.00%          1,028   7.16%       0    0.00%
Equity                              0   0.00%              0   0.00%       0    0.00%
                             --------               ---------            -----

Total securities
available-for-sale           $  3,665   6.24%         10,525   6.62%       0    0.00%
                            ---------              ---------           ------

Total investment             $  3,665   6.24%      $  10,525   6.62%   $   0    0.00%
                             ========              =========           ======
Securities


MATURITY OF TOTAL INVESTMENT SECURITIES (A)                                     Total
                                           No Fixed Maturity    Total           Market
                                           Amount/Yield         Amount/Yield    Value
                                           -----------------    ------------    ------
<S>                                       <C>                  <C>             <C>
At December 31, 2001
Investment securities
available-for-sale:
U.S. Treasury                              0   0.00%            $ 2,582  6.08%  $ 2,582
Federal agency.                            0   0.00%             10,580  6.56%   10,580
Corporate debt                             0   0.00%              1,028  7.16%    1,028
Equity                                   625   6.68%                625  6.68%      625
                                        ----                    -------         -------

Total securities
available-for-sale                       625   6.68%             14,815  6.52%   14,815
                                        ----                    -------         -------

Total investment                        $625   6.68%            $14,815  6.52%  $14,815
                                        ====                    =======         =======
Securities
</TABLE>



<TABLE>
<CAPTION>




MATURITY OF LOANS (B)                                              Within    1-5      After 5
                                                                   1 year    years    Years      Total
                                                                  --------  -------  -------
<S>                                                                <C>      <C>      <C>         <C>
Commercial.                                                        $ 4,913  $ 3,049  $  1,112    $ 9,074
Real Estate                                                         19,713   25,899    11,362     56,974
                                                                   -------  -------  --------    -------
Total                                                              $24,626  $28,948  $ 12,474    $66,048
                                                                   =======  =======  ========    =======

Fixed                                                              $ 3,695  $ 4,007  $  8,833    $16,535
Variable                                                            20,931   24,941     3,641     49,513
                                                                   -------  -------  --------     ------
Total                                                              $24,626  $28,948  $ 12,474    $66,048
                                                                   =======  =======  ========    =======

(a) Based upon contractual maturities.
(b) Excludes consumer and residential mortgage loans of $15,134.
</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, 2001
Time Deposits of $100,000 or more. . .             $   4,786  $ 1,687  $  2,384  $ 3,199  $12,056
                                                    =========  =======  ========  ======= =======


Certificates of deposit. . . . . . . .             $  12,687  $ 8,277  $ 22,564  $ 1,049  $44,577
                                                   =========  =======  ========  =======  =======


DEPOSITS AT DECEMBER 31, . . . . . .    2001       2000       1999     1998     1997       1996
                                        ---------  -------  --------  -------  -------   -------
Noninterest-bearing deposits . . . . .  $  10,943  $ 9,446    $ 9,587  $ 9,655  $ 6,371  $ 6,720
Interest-bearing deposits
NOW and money market accounts. . . . .     16,615   14,395     14,357   14,835    9,757    9,303
Savings accounts . . . . . . . . . . .     16,757   15,128     15,713   15,990   14,591   15,225
Certificates of deposit and individual
    retirement accounts. . . . . . . .     50,916   51,139     43,884   44,711   33,209   28,910
                                         ---------  -------  --------  -------  -------  -------
Total deposits . . . . . . . . . . . .  $  95,231  $90,108    $83,541  $85,191  $63,928  $60,158
                                        =========  =======    =======  =======  =======  =======
</TABLE>


RECENTLY  ISSUED  ACCOUNTING  PRONOUNCEMENTS

     In  June  1998,  Statement  of  Financial  Accounting  Standards  No.  133,
Accounting  for  Derivative  Instruments and Hedging Activities (SFAS 133) , was
issued.  SFAS  133 establishes accounting and reporting standards for derivative
instruments,  including  certain  derivative  instruments  embedded  in  other
contracts (collectively referred to as derivatives), and for hedging activities.
The  effective  date of this Statement was deferred by the issuance of Statement
of Financial Accounting Standards 137, Accounting for Derivative Instruments and
Hedging  Activities  -  Deferral of the Effective Date of FASB Statement No. 133
(SFAS  137).  SFAS  133  was  also  amended by Statement of Financial Accounting
Standards 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities  (SFAS  138).  The  adoption  of this Statement in is not expected to
have  a  material  impact  on  the  financial  statements  of  the  Bancorp.

     In  July 2001, the Financial Accounting Standards Board 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). They also issued Statement of Financial Accounting
Standards  No. 143, Accounting for Obligations Associated with the Retirement of
Long-Lived  Assets (SFAS 143), and Statement Financial Accounting Standards 144,
Accounting  for  the Impairment or Disposal of Long-Lived Assets (SFAS No. 144),
in  August  and  October  2001,  respectively.

     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, 2002, 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  minimial amount of its intangible assets will no
longer  be  amortized.

     SFAS  143  establishes  accounting  standards  for  the  recognition  and
measurement  of  an  asset  retirement  obligation  and  its  associated  asset
retirement  cost.  It  also  provides  accounting guidance for legal obligations
associated  with  early  retirement  of  tangible  long-lived  assets.  SFAS  is
effective  in  fiscal  years  beginning after June 15, 2002, with early adoption
permitted.  The  company expects that the provisions of SFAS 143 will not have a
material impact on its consolidated results of operations and financial position
upon  adoption.  The  company plans to adopt SFAS 143 effective January 1, 2002.

     SFAS  144  establishes  a  single  accounting  model  for the impairment or
disposal  of  long-lived  assets,  including  discontinued  operations. SFAS 144
supersedes  Statement  of Financial Accounting Standards No. 121, Accounting for
the  Impairment of Long-Lives Assets and for Long-Lived Assets Disposed Of (SFAS
121),  and  APB  Opinion No. 30, Reporting the Results of Operations - Reporting
the  Effects  of  Disposal of a Segement of Business, and Extraordinary, Unusual
and  Infrequently  Occuring  Events and Transactions. The provisions of SFAS 144
are  effective  in  fiscal  years  beginning after December 15, 2001, with early
adoption  permitted, and in general are to be applied prospectively. The company
plans  to  adopt SFAS 144 effective January 1, 2002 and does not expect that the
adoption  will  have a material impact on its consolidated results of operations
and  financial  position.


<TABLE>
<CAPTION>


CONSOLIDATED  INCOME  SUMMARY


In thousands, except percentages         2001  % Change    2000  % Change    1999      1998      1997    1996
                                        ------  -------    ------  ------   ------    ------     -----   -----
<S>                                     <C>               <C>               <C>       <C>       <C>     <C>
Interest income (tax-equivalent basis)  $ 8,291   0.29%   $8,267  14.66%     $7,210    $6,618    $5,608  $5,250
Interest expense . . . . . . . . . . .    4,075   5.08%    3,878  21.68%      3,187     2,958     2,387   2,174
                                         -------          ------             ------    ------    ------  ------
Net interest income. . . . . . . . . .    4,216  (3.94%)   4,389   9.10%      4,023     3,660     3,221   3,076
Provision for loan losses. . . . . . .       15 (80.00%)      75 100.00%          0         0         0      75
                                        --------          ------              ------    ------   ------  ------
Net interest income after provision
for loan losses. . . . . . . . . . . .    4,201  (2.62%)   4,314   7.23%       4,023    3,660    3,221    3,001
Non-interest income. . . . . . . . .        680  23.19%      552 (13.88)%        641      420      320      314
Non-interest expense . . . . . . . .      4,016   3.93%    3,864   3.87%       3,720     3,125   2,288    2,195
                                        --------           -----               ------  ------   ------   ------
Income before income taxes . . . . . .      865 (13.67%)   1,002   6.14%         944      955    1,253    1,120
Income tax expense . . . . . . . . . .      259 (16.45%)     310   9.93%         282      301      375      334
Tax-equivalent adjustment. . . . . . .        4 (33.33%)       6 (68.42)%         19       31       43       39
                                        --------          ------               ------   ------   ------   -----
Net income . . . . . . . . . . . . . .  $   602 (12.24%)  $  686   6.69%      $  643   $  623   $  835   $  747
                                        =======           ======              ======   ======   ======   ======
</TABLE>


-22-

<TABLE>
<CAPTION>



<PAGE>

QUARTERLY  CONDENSED  CONSOLIDATED  FINANCIAL  INFORMATION


                                                              2001  Quarters                            2000  Quarters
                                                    ------------------------------------------     -----------------------------
In thousands, except per common
                                                    Fourth     Third         Second      First     Fourth      Third     Second
share amounts and ratios
<S>                                                <C>        <C>          <C>         <C>       <C>         <C>        <C>
Interest income . . . . . . . . . . . . . . .       $  2,026   $  2,041     $  2,117    $  2,103  $  2,168    $  2,132   $  2,017
Interest expense. . . . . . . . . . . . . .              900      1,055        1,069       1,051     1,063       1,017        920
                                                   ----------  ---------  ---------  ---------   ---------   ---------  ---------
Net interest income . . . . . . . . . . . . .          1,126        986        1,048       1,052     1,105       1,115      1,097
Provision for loan losses . . . . . . . . . .              0          0            0          15        75           0          0
                                                  ----------  ---------   ---------   ---------  ---------  ---------   ---------
Net interest income after
   provision for loan losses. . . . . . . . .          1,126        986        1,048       1,037     1,030       1,115      1,097

Non-interest income . . . . . . . . . . . . .            209        188          154         129       143         143        152
Non-interest expense. . . . . . . . . . . . .          1,017        986        1,023         990       971         979        983
                                                  ----------  ---------  ---------  ---------  ---------  ---------  ---------
Income before income taxes. . . . . . . . . .            318        188          179         176       202         279        266
Income tax expense. . . . . . . . . . . . . .            100         50           55          54        66          89         72
                                                  ----------   ---------   ---------   ---------   ---------  ---------  ---------
Net income. . . . . . . . . . . . . . . . . .       $    218   $    138     $    124    $    122   $    136   $    190   $    194
                                                    ========   ========     ========    ========   ========   ========   ========

Per Common Share
Net income
Basic . . . . . . . . . . . . . . . . . . . .  $        0.37    $  0.24     $   0.21    $   0.21    $   0.36   $  0.32   $   0.20
Diluted . . . . . . . . . . . . . . . . . . .           0.37       0.24         0.21        0.21        0.36      0.32       0.20
Dividends declared. . . . . . . . . . . . . .           0.30       0.00         0.20        0.00        0.30      0.00       0.19
Shareholders' equity. . . . . . . . . . . . .          17.88      17.91        17.51       17.46       17.10     16.67      16.17
Stock price range
High. . . . . . . . . . . . . . . . . . . . .          19.50      19.00        20.00       22.75       24.25     26.00      25.00
Low . . . . . . . . . . . . . . . . . . . . .          17.00      17.00        17.00       18.25       19.50     26.00      22.63

Tax-equivalent Yields and Rates
Interest-bearing deposits in banks. . . . .            2.36%      4.18%         4.87%      5.36%      5.67%      5.38%      5.35%
Federal funds sold. . . . . . . . . . . . .            2.33%      3.19%         4.26%      5.38%      6.64%      6.51%      6.32%
Investment securities . . . . . . . . . . .            5.96%      5.81%         6.36%      6.02%      6.08%      6.04%      5.69%
Loans . . . . . . . . . . . . . . . . . . .            8.81%      8.83%         9.35%      9.48%      9.61%      9.63%      9.41%
Total earning assets. . . . . . . . . . . .            7.86%      7.78%         8.44%      8.79%      8.98%      8.98%      8.73%
Interest-bearing deposits . . . . . . . . .            4.14%      4.67%         4.89%      5.01%      4.93%      4.71%      4.43%
Borrowed funds. . . . . . . . . . . . . . .            6.80%      6.60%         7.69%      6.32%      6.77%      6.88%      6.59%
Total interest-bearing liabilities. . . . .            4.14%      4.67%         4.89%      5.03%      5.04%      4.88%      4.57%
Yield spread. . . . . . . . . . . . . . . .            3.72%      3.11%         3.55%      3.76%      3.94%      4.10%      4.16%
Net interest income to earning
    assets. . . . . . . . . . . . . . . . .            4.30%      3.71%         4.16%      4.40%      4.61%      4.75%      4.79%
Ratios
Return on assets. . . . . . . . . . . . . . .          0.80%      0.71%         0.55%      0.47%      0.52%      0.73%      0.79%
Leverage. . . . . . . . . . . . . . . . . . .          8.97%      8.89%         8.88%      9.25%     10.77%     10.85%     10.77%
Return on average shareholders' equity. . . .          8.54%      7.71%         5.98%      5.00%      5.75%      8.14%      8.55%

Average Assets
Cash and due from banks . . . . . . . . . . .  $      2,480   $  2,642       $  2,621   $  2,937   $  2,806   $  2,788   $  2,800
Interest-bearing deposits in banks. . . . . .            24         28             43         46         18         31         27
Federal funds sold. . . . . . . . . . . . . .         7,818     10,959          8,623      2,998      2,048      2,213      1,961
Investment securities . . . . . . . . . . . .        14,974     14,160         15,044     15,315     15,665     15,307     15,388
Loans . . . . . . . . . . . . . . . . . . . .        79,122     77,246         77,206     78,568     79,541     78,622     76,033
Allowance for loan losses . . . . . . . . . .          (802)      (922)          (988)    (1,003)      (932)      (973)      (998)
Other assets. . . . . . . . . . . . . . . . .         5,590      5,747          5,690      5,383      5,049      5,176      5,077
                                               ----------------  ---------  ---------  ---------  ---------  ---------  ---------
Total average assets. . . . . . . . . . . . .  $    109,206   $109,860       $108,239   $104,246    104,195   $103,164   $100,258
                                               ============   =========     =========  =========  =========  =========  =========


Total earning assets. . . . . . . . . . . . .  $    101,938   $102,393       $100,916   $ 96,927   $ 97,272   $ 96,173   $ 93,409
                                               ============  =========      =========  =========  =========  =========   =========

Average Liabilities and Shareholders'  Equity
Noninterest-bearing deposits. . . . . . . . .  $     10,971   $ 10,150       $  9,721   $  9,529   $  9,809   $ 10,005   $ 10,205
Interest-bearing deposits . . . . . . . . . .        87,008     88,990         88,003     82,927     79,483     77,066     75,146
Borrowed funds. . . . . . . . . . . . . . . .           116        117            129      1,754      4,965      6,341      5,292
Other liabilities . . . . . . . . . . . . . .           903        548            458        267        548        459        434
Shareholders' equity. . . . . . . . . . . . .        10,208     10,055          9,928      9,769      9,390      9,293      9,211
                                               ----------------  ---------     -------  ---------  ---------  ---------  ---------
Total average liabilities and
shareholders' equity. . . . . . . . . . . . .  $    109,206   $109,860       $108,239   $104,246   $104,195   $103,164   $100,288
                                               ============   =========      ========   =========  =========  =========  =========


                                         2000  Quarters
                                         --------------
In thousands, except per common
share amounts and ratios
                                                First
<S>                                            <C>
Interest income . . . . . . . . . . . . . . .  $ 1,944
Interest expense. . . . . . . . . . . . . . .      878
                                               -------
Net interest income . . . . . . . . . . . . .    1,066
Provision for loan losses . . . . . . . . . .        0
                                               -------
Net interest income after
   provision for loan losses. . . . . . . . .    1,066

Non-interest income . . . . . . . . . . . . .      114
Non-interest expense. . . . . . . . . . . . .      931
                                               -------
Income before income taxes. . . . . . . . . .      249
Income tax expense. . . . . . . . . . . . . .       83
                                               -------
Net income. . . . . . . . . . . . . . . . . .  $   166
                                               =======

Per Common Share
Net income
Basic . . . . . . . . . . . . . . . . . . . .  $  0.30
Diluted . . . . . . . . . . . . . . . . . . .     0.30
Dividends declared. . . . . . . . . . . . . .     0.00
Shareholders' equity. . . . . . . . . . . . .    16.21
Stock price range
High. . . . . . . . . . . . . . . . . . . . .    24.76
Low . . . . . . . . . . . . . . . . . . . . .    23.57

Tax-equivalent Yields and Rates
Interest-bearing deposits in banks. . . . . .     5.43%
Federal funds sold. . . . . . . . . . . . . .     5.57%
Investment securities . . . . . . . . . . . .     5.85%
Loans . . . . . . . . . . . . . . . . . . . .     9.19%
Total earning assets. . . . . . . . . . . . .     8.51%
Interest-bearing deposits . . . . . . . . . .     4.34%
Borrowed funds. . . . . . . . . . . . . . . .     5.97%
Total interest-bearing liabilities. . . . . .     4.45%
Yield spread. . . . . . . . . . . . . . . . .     4.06%
Net interest income to earning
    assets. . . . . . . . . . . . . . . . . .     4.67%
Ratios
Return on assets. . . . . . . . . . . . . . .     0.67%
Leverage. . . . . . . . . . . . . . . . . . .    10.74%
Return on average shareholders' equity. . . .     7.23%

Average Assets
Cash and due from banks . . . . . . . . . . .  $ 2,757
Interest-bearing deposits in banks. . . . . .        7
Federal funds sold. . . . . . . . . . . . . .    1,724
Investment securities . . . . . . . . . . . .   16,826
Loans . . . . . . . . . . . . . . . . . . . .   72,867
Allowance for loan losses . . . . . . . . . .   (1,005)
Other assets. . . . . . . . . . . . . . . . .    5,171
                                               -------
Total average assets. . . . . . . . . . . . .  $98,347
                                               =======


Total earning assets. . . . . . . . . . . . .  $91,424
                                               =======

Average Liabilities and Shareholders'  Equity
Noninterest-bearing deposits. . . . . . . . .  $ 9,855
Interest-bearing deposits . . . . . . . . . .   74,020
Borrowed funds. . . . . . . . . . . . . . . .    4,960
Other liabilities . . . . . . . . . . . . . .      383
Shareholders' equity. . . . . . . . . . . . .    9,129
                                               -------
Total average liabilities and
shareholders' equity. . . . . . . . . . . . .  $98,347
                                               =======
</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,  2001  and  2000,  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, 2001.
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, 2001 and 2000, and the
consolidated  results  of  their operations and their cash flows for each of the
years  in  the  three-year  period  ended  December 31, 2001, in conformity with
accounting  principles  generally  accepted  in  the  United  States of America.




                                           Dixon,  Francis,  Davis
                                           &  Company


Granville,  Ohio
February  7,  2002

<PAGE>


<TABLE>
<CAPTION>


EXCHANGE  BANCSHARES,  INC.  -  CONSOLIDATED  BALANCE  SHEETS
=============================================================
                                                      (Dollars in thousands)

                                                             December  31,
                                                      -----------------------

                                                           2001       2000
                                                       ---------  ---------
<S>                                                      <C>        <C>
ASSETS
Cash and cash equivalents
Cash and amounts due from depository institutions . . .  $  3,931   $  2,816
Interest-bearing demand deposits in banks . . . . . . .        23         67
Federal funds sold. . . . . . . . . . . . . . . . . . .     2,811      1,687
                                                         ---------  ---------
Total cash and cash equivalents . . . . . . . . . . . .     6,765      4,570

Investment securities
Securities available-for-sale . . . . . . . . . . . . .    14,815     15,335
Securities held-to-maturity, fair values of $0 and $101         0        100
                                                         ---------  ---------
Total investment securities . . . . . . . . . . . . . .    14,815     15,435

Loans . . . . . . . . . . . . . . . . . . . . . . . . .    81,182     79,279
Allowance for loan losses . . . . . . . . . . . . . . .      (844)      (756)
                                                         ---------  ---------
Net loans . . . . . . . . . . . . . . . . . . . . . . .    80,338     78,523

Premises and equipment, net . . . . . . . . . . . . . .     3,428      3,449
Accrued interest receivable . . . . . . . . . . . . . .       788        848
Intangible assets . . . . . . . . . . . . . . . . . . .        83         90
Deferred income taxes . . . . . . . . . . . . . . . . .         0        106
Other assets. . . . . . . . . . . . . . . . . . . . . .       239        134
                                                         ---------  ---------

TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . .  $106,456   $103,155
                                                         =========  =========

LIABILITIES
Deposits:
Noninterest-bearing . . . . . . . . . . . . . . . . . .  $ 10,943   $  9,446
Interest-bearing. . . . . . . . . . . . . . . . . . . .    84,288     80,662
                                                         ---------  ---------
Total deposits. . . . . . . . . . . . . . . . . . . . .    95,231     90,108

Borrowed funds. . . . . . . . . . . . . . . . . . . . .       115      2,632
Accrued interest payable. . . . . . . . . . . . . . . .       256        292
Deferred income taxes . . . . . . . . . . . . . . . . .        12          0
Other liabilities . . . . . . . . . . . . . . . . . . .       352        162
                                                         ---------  ---------

TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . .    95,966     93,194

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 and  585,503 issued . . . . . . . .     2,933      2,928
Additional paid-in capital. . . . . . . . . . . . . . .     5,071      5,055
Retained earnings . . . . . . . . . . . . . . . . . . .     2,206      1,897
Accumulated other comprehensive income. . . . . . . . .       280         81
                                                         ---------  ---------


TOTAL SHAREHOLDERS  EQUITY. . . . . . . . . . . . . . .    10,490      9,961
                                                         ---------  ---------

TOTAL LIABILITIES AND SHAREHOLDERS  EQUITY. . . . . . .  $106,456   $103,155
                                                         =========  =========
</TABLE>
----------------------------------------
See accompanying notes.

<TABLE>
<CAPTION>


          EXCHANGE BANCSHARES, INC. - CONSOLIDATED STATEMENTS OF INCOME
          =============================================================
                                   (Dollars in thousands, except per share data)
                                                  Year Ended December 31,
                                                  -----------------------
                                                   2001    2000    1999
                                                  ------  ------  ------
<S>                                               <C>     <C>     <C>
INTEREST INCOME
Interest and fees on loans . . . . . . . . . . .  $7,134  $7,200  $5,995
Interest and dividends on investment securities.     885     934   1,028
Interest on federal funds sold . . . . . . . . .     266     125     167
Interest on due from bank deposits . . . . . . .       2       2       1
                                                  ------  ------  ------

TOTAL INTEREST INCOME. . . . . . . . . . . . . .   8,287   8,261   7,191

INTEREST EXPENSE
Interest on deposits . . . . . . . . . . . . . .   4,041   3,524   3,151
Interest on advances from Federal Home Loan Bank      34     354      36
                                                  ------  ------  ------

TOTAL INTEREST EXPENSE . . . . . . . . . . . . .   4,075   3,878   3,187
                                                  ------  ------  ------

NET INTEREST INCOME. . . . . . . . . . . . . . .   4,212   4,383   4,004

Provision for loan losses. . . . . . . . . . . .      15      75       0
                                                  ------  ------  ------

NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES. . . . . . . . . . . . . . . . .   4,197   4,308   4,004

NON-INTEREST INCOME
Service charges on deposits. . . . . . . . . . .     328     291     276
Secondary market loan fees . . . . . . . . . . .     188      75      29
Other income . . . . . . . . . . . . . . . . . .     164     186     336
                                                  ------  ------  ------

TOTAL NON-INTEREST INCOME. . . . . . . . . . . .     680     552     641

NON-INTEREST EXPENSES
Salaries and employee benefits . . . . . . . . .   2,008   1,895   1,745
Occupancy and equipment, net . . . . . . . . . .     620     634     583
Bank and ATM charges . . . . . . . . . . . . . .     124     110     100
Credit card. . . . . . . . . . . . . . . . . . .      59      60      80
Data processing. . . . . . . . . . . . . . . . .     154     139     123
Directors fees . . . . . . . . . . . . . . . . .      70      64      62
Examination and accounting fees. . . . . . . . .     150     160     173
State and other taxes. . . . . . . . . . . . . .     124     114     114
Postage and courier. . . . . . . . . . . . . . .     119     122     117
Supplies and printing. . . . . . . . . . . . . .     119     124     131
Advertising. . . . . . . . . . . . . . . . . . .      97      98     128
Legal. . . . . . . . . . . . . . . . . . . . . .     110      83     114
Other expenses . . . . . . . . . . . . . . . . .     262     261     250
                                                  ------  ------  ------

TOTAL NON-INTEREST EXPENSES. . . . . . . . . . .   4,016   3,864   3,720
                                                  ------  ------  ------

INCOME BEFORE FEDERAL INCOME
TAX EXPENSE. . . . . . . . . . . . . . . . . . .     861     996     925

Federal income tax expense . . . . . . . . . . .     259     310     282
                                                  ------  ------  ------

NET INCOME . . . . . . . . . . . . . . . . . . .  $  602  $  686  $  643
                                                  ======  ======  ======


EARNINGS PER SHARE:
Basic. . . . . . . . . . . . . . . . . . . . . .  $ 1.03  $ 1.18  $ 1.12
Diluted. . . . . . . . . . . . . . . . . . . . .  $ 1.03  $ 1.18  $ 1.12
</TABLE>
------------------------------------------
See accompanying notes.


<TABLE>
<CAPTION>
                                 Exchange Bancshares, Inc.
                Consolidated Statements of Changes in Shareholders' Equity

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

                                                                 Additional
                                  Common     Treasury   Common   paid-in
                                   Stock     Stock      Stock    Capital
                                -----------  ---------  -------  --------
<S>                              <C>        <C>        <C>      <C>

Balances at December 31, 1998.    524,620   (3,525)     $ 2,623  $ 3,786

Net income
Other comprehensive income-
Change in unrealized
gain (loss) on securities
available-for-sale,
net of tax of $102
Comprehensive income
Cash dividends declared
($.47 per share)
5% stock dividend declared . .     26,231                   131      525
Issuance of common stock . . .      1,388                     7       28
Purchase of treasury stock . .               (374)
Sale of treasury stock . . . .              3,899                     43
                                ---------   ------         -----    ----

Balances at December 31, 1999.    552,239       0         2,761    4,382

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

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

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

Balances at December 31, 2001.    586,644       0      $ 2,933  $  5,071
                                ===========  =========  =======  ========
</TABLE>


<PAGE>
<TABLE>
<CAPTION>


                                               (Dollars  in  thousands)

                                                            Accumulated
                                                            Other            Compre-
                                 Retained       Treasury    Comprehensive    Hensive
                                 Earnings       Stock       Income           Income
                                -------------  ----------  ---------------  -------

<S>                             <C>            <C>         <C>              <C>
Balances at December 31, 1998.   $  2,488       $  (50)     $  109

Net income . . . . . . . . . .        643                                    $  643
Other comprehensive income-
Change in unrealized
gain (loss) on securities
available-for-sale,
net of tax of $102 . . . . . .                               (198)             (198)
                                                                            --------
Comprehensive income . . . . .                                               $  445
                                                                            ========
Cash dividends declared
($.47 per share) . . . . . . .       (269)
5% stock dividend declared . .       (656)
Issuance of common stock
Purchase of treasury stock . .                      (9)
Sale of treasury stock . . . .                      59
                                   --------        -----    -----

Balances at December 31, 1999.      2,206            0        (89)

Net income . . . . . . . . . .        686                                     $  686
Other comprehensive income-
Change in unrealized
gain (loss) on securities
available-for-sale,
net of tax of $88. . . . . . .                                170                170
                                                                              ------
Comprehensive income . . . . .                                                $  856
                                                                              =======
Cash dividends declared
($.49 per share) . . . . . . .       (285)
5% stock dividend declared . .       (704)
Issuance of common stock . . .         (6)
                                   --------        -----    -----

Balances at December 31, 2000.      1,897            0         81

Net income . . . . . . . . . .        602                                     $  602
Other comprehensive income-
Change in unrealized
gain (loss) on securities
available-for-sale,
net of tax of $102 . . . . . .                                199                199
                                                           -------             -----
Comprehensive income . . . . .                                                $  801
                                                                              =======
Cash dividends declared
($.50 per share) . . . . . . .       (293)
Issuance of common stock

Balances at December 31, 2001.      2,206       $   0      $  280
                                =============  ========     ======
</TABLE>
---------------------------------------
See accompanying notes.

<TABLE>
<CAPTION>


                         EXCHANGE BANCHSARES, INC. - CONSOLIDATED STATEMENTS OF CASH FLOWS
                         =================================================================
                                                                               (Dollars  in  thousands)
                                                                                Year ended December 31,
                                                                     --------------------------------------------
                                                                                    2001       2000       1999
                                                                                   ------      ------     ------
<S>                                                                                <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  $    602   $    686   $   643
Adjustments to reconcile net income to net cash
Provided by operating activities:
Provision for loan losses. . . . . . . . . . . . . . . . . . . . .                        15         75         0
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .                       276        311       316
Goodwill amortization. . . . . . . . . . . . . . . . . . . . . . .                         7          7         8
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . .                        17         71       116
Investment securities amortization (accretion), net. . . . . . . .                        55         55        97
Originations of loans held-for-sale. . . . . . . . . . . . . . . .                         0          0      (757)
Proceeds from loans held-for-sale. . . . . . . . . . . . . . . . .                         0         34     1,325
Changes in operating assets and liabilities:
Accrued interest receivable. . . . . . . . . . . . . . . . . . . .                        60       (127)      (32)
Accrued interest payable . . . . . . . . . . . . . . . . . . . . .                       (37)       103        18
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .                      (106)       493      (360)
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . .                       190       (296)      307
                                                                                     --------  ---------  --------
Net cash provided by operating activities. . . . . . . . . . . . .                     1,079      1,412     1,681

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of held-to-maturity securities. . . . . .                       100        175       737
Purchases of available-for-sale securities . . . . . . . . . . . .                    (5,234)    (4,542)   (5,706)
Proceeds from maturities of available-for-sale securities. . . . .                     6,000      6,277     6,900
Net increase in loans. . . . . . . . . . . . . . . . . . . . . . .                    (1,830)    (7,650)   (9,615)
Purchases of premises and equipment. . . . . . . . . . . . . . . .                      (255)       (97)      (69)
                                                                                     --------  ---------  --------
Net cash used in investing activities. . . . . . . . . . . . . . .                    (1,219)    (5,837)   (7,753)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Noninterest-bearing, interest-bearing demand, and savings deposits                     5,347       (689)     (823)
Certificates of deposit. . . . . . . . . . . . . . . . . . . . . .                      (223)     7,255      (827)
Proceeds from short-term Federal Home Loan Bank advances . . . . .                         0     21,000     5,000
Payments on short-term Federal Home Loan Bank advances . . . . . .                    (2,500)   (23,500)        0
Payments on long-term Federal Home Loan Bank advances. . . . . . .                       (17)       (19)      (21)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . .                        21        130        35
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . .                         0          0        (9)
Sale of treasury stock . . . . . . . . . . . . . . . . . . . . . .                         0          0       102
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . .                      (293)      (285)     (269)
                                                                                     --------  ---------  --------
Net cash provided by financing activities. . . . . . . . . . . . .                     2,335      3,892     3,188
                                                                                     --------  ---------  --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . .                     2,195       (533)   (2,884)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . .                     4,570      5,103     7,987
                                                                                    ---------  ---------  --------

CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . .                $    6,765   $  4,570   $ 5,103
                                                                                    =========  =========  ========

SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest . . . . . . . . . . . . . .                $    4,111   $  3,775   $ 3,169
Cash paid during the year for income taxes . . . . . . . . . . . .                       146        287       271
</TABLE>
------------------------------------------
See Accompanying notes.


<PAGE>
                            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 2000 and 1999 have been reclassified to conform with the 2001
presentation.



NOTE  B  -  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,  2001  and  2000  was  $709,000  and  $639,000,  respectively.


NOTE  C  -  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, 2001                               December 31, 2000
                                  ------------------                               ------------------
<S>                    <C>                 <C>                 <C>           <C>      <C>         <C>          <C>
                                           Gross               Gross                               Gross        Gross
                       Amortized           unrealized          unrealized    Fair     Amortized    unrealized   unrealized
                       cost                gains               losses        value    cost         gains        losses
                       ------------------  ------------------  ------------  -------  ----------  -----------  ------------
U.S.
 Government . . . . .  $  2,524            $   58               $   0        $ 2,582  $ 4,008      $   27       $   (6)

Federal agency. . .      10,210               375                  (5)        10,580    9,617         123          (14)

Corporate
 debt securities. . .     1,032                 4                  (8)         1,028    1,000           0           (7)

Equity
 securities . . . . .       625                 0                   0            625      587           0            0
                       ----------          ----------          ----------     -------  -------    -------      --------

Total
 Available-for-sale .    14,391               437                 (13)        14,815   15,212         150          (27)


Held-to-maturity
---------------------

State &
 municipal securities         0                 0                  0               0      100          1             0
                        --------            ------            -------        -------    -------    --------   --------

Total
 held-to-maturity . .         0                 0                  0               0      100          1             0
                       --------           --------             ------           -----    ------     -------      ------

Total . . . . . . . .  $ 14,391            $  437             $  (13)        $14,815  $15,312      $ 151        $  (27)
                       ========            =======            =======        =======  =======      ======       =======

<S>                    <C>

                       Fair
                       value
                       -------
U.S.
 Government . . . . .  $ 4,029

Federal agency. . . .    9,726

Corporate
 debt securities. . .      993

Equity
 securities . . . . .      587
                       -------

Total
 Available-for-sale .   15,335


Held-to-maturity
---------------------

State &
 municipal securities      101
                       -------

Total
 held-to-maturity . .      101
                       -------

Total . . . . . . . .  $15,436
                       =======

</TABLE>
The amortized cost and estimated fair value of securities available-for-sale and
held-to-maturity  at December 31, 2001, by contractual maturity, are as follows:


<TABLE>
<CAPTION>


                                      (Dollars in thousands)

                                        AVAILABLE-FOR-SALE                  HELD-TO-MATURITY
                                   Amortized             Fair              Amortized    Fair
Amounts maturing in :              Cost                  Value             Cost         Value
                                   -------------------  -----------------  ----------  ------
<S>                                <C>                  <C>                <C>         <C>
One year or less. . . . . . . . .   $  3,599             $  3,665           $  0        $  0
After one year through five years     10,167               10,525              0           0
Equity securities . . . . . . . .        625                  625              0           0
                                   -------------------  -----------------  ----------  ------

Total . . . . . . . . . . . . . .  $  14,391             $ 14,815           $  0        $  0
                                   =========             =========          ======      ====
</TABLE>


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

The  Bank  did  not  sell  any  securities  in  2001,  2000,  or  in  1999.

<PAGE>

Investment  securities  with  a  carrying value of approximately $10,746,000 and
$10,420,000  were  pledged  at  December  31,  2001  and  2000 to secure certain
deposits.



NOTE  D  -  LOANS  AND  ALLOWANCE  FOR  LOAN  LOSSES

Loans  at  December  31,  2001  and  2000  are  summarized  as  follows:
<TABLE>
<CAPTION>

                                               (Dollars in thousands)
                                                  2001      2000
                                               --------  --------
<S>                                             <C>       <C>
Loans secured by real estate:
Construction . . . . . . . . . . . . . . . . .  $ 1,694   $   833
Farmland . . . . . . . . . . . . . . . . . . .    2,711     3,065
One-to four-family residential properties. . .   32,994    37,854
Multifamily (5 or more) residential properties    1,203       928
Nonfarm nonresidential properties. . . . . . .   24,227    20,164
Agricultural production. . . . . . . . . . . .      852       816
Commercial and industrial. . . . . . . . . . .    3,596     2,544
Consumer . . . . . . . . . . . . . . . . . . .   13,696    13,027
Municipal. . . . . . . . . . . . . . . . . . .      268       140
Other loans. . . . . . . . . . . . . . . . . .        9         7
                                                --------  --------
                                                 81,250    79,378
Unearned income. . . . . . . . . . . . . . . .      (68)      (99)
                                                --------  --------

Total. . . . . . . . . . . . . . . . . . . . .  $81,182   $79,279
                                                ========  ========
</TABLE>


<TABLE>
<CAPTION>

<PAGE>
                             2001    2000     1999
                            ------  -------  -------
<S>                         <C>     <C>      <C>
Allowance for loan losses:

Balance, beginning of year  $ 756   $1,008   $1,542
Provision for loan losses.     15       75        0
Recoveries on loans. . . .    333       79       60
Loans charged off. . . . .   (260)    (406)    (594)
                            ------  -------  -------

Balance, end of year . . .  $ 844   $  756   $1,008
                            ======  =======  =======
</TABLE>


At  December 31, 2001 and 2000, 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 $130,000 and $80,000, respectively.  The average
recorded  investment  in  impaired  loans amounted to approximately $135,000 and
$79,000  for  the  years  ended  December  31, 2001 and 2000, respectively.  The
allowance  for  loan  losses related to impaired loans amounted to approximately
$82,000  and  $43,000  at  December  31,  2001 and 2000, respectively.  Interest
income  on impaired loans of $14,000, $8,000 and $20,000 was recognized for cash
payments  received  in  2001,  2000  and  1999,  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, 2001 was $633,000.  During the year
ended  December  31,  2001,  new  loans made to such related parties amounted to
$191,000  and  payments  amounted  to  $194,000.

One  loan totaling $92,000 was transferred from loans to other real estate owned
during  2001.  No  loans  were  transferred  to other real estate owned in 2000.




NOTE  E  -  PREMISES  AND  EQUIPMENT

A  summary  of  premises  and  equipment  at December 31, 2001 and 2000 follows:
<TABLE>
<CAPTION>


                      (Dollars in thousands)


                            2001      2000
                          --------  --------
<S>                       <C>       <C>
Land . . . . . . . . . .  $   738   $   738
Buildings. . . . . . . .    3,254     3,236
Equipment. . . . . . . .    1,918     1,681
                          --------  --------

                            5,910     5,655
Accumulated depreciation   (2,482)   (2,206)
                          --------  --------

Total. . . . . . . . . .  $ 3,428   $ 3,449
                          ========  ========
</TABLE>

NOTE  F  -  DEPOSITS

Deposit  account  balances  at  December  31,  2001  and 2000, are summarized as
follows:
<TABLE>
<CAPTION>


                           (Dollars in thousands)


                                 2001     2000
                                -------  -------
<S>                             <C>      <C>
Noninterest-bearing. . . . . .  $10,943  $ 9,446
Interest-bearing demand. . . .   16,615   14,395
Savings accounts . . . . . . .   16,757   15,128
Individual retirement accounts    6,339    6,062
Certificates of deposit. . . .   44,577   45,077
                                -------  -------

Total. . . . . . . . . . . . .  $95,231  $90,108
                                =======  =======
</TABLE>


The  aggregate  amount  of  jumbo  certificates  of  deposit  with  a  minimum
denomination  of  $100,000  was  approximately  $12,056,000  and  $12,101,000 at
December  31,  2001  and  2000.

<PAGE>

Certificates  maturing  in  years  ending  December 31, as of December 31, 2001:
<TABLE>
<CAPTION>




                 (Dollars in thousands)
<S>                     <C>
2002 . . . . . . . . .  $31,699
2003 . . . . . . . . .    9,429
2004 . . . . . . . . .    2,400
2005 . . . . . . . . .      914
After 2005 . . . . . .      135
                        -------

Total. . . . . . . . .  $44,577
                        =======
</TABLE>


The  Bank  held related party deposits of approximately $952,000 and $858,000 at
December  31,  2001  and  2000,  respectively.

Overdrawn  demand  deposits  reclassified  as loans totaled $9,000 and $7,000 at
December  31,  2001  and  2000,  respectively.



NOTE  G  -  BORROWED  FUNDS

Borrowed  funds  are  comprised  of  the  following  at  December  31:


<TABLE>
<CAPTION>


                                                          (Dollars in thousands)

                                                Current
                                                Interest         BALANCE
                                                Rate        2001        2000
                                                --------   -------    -------
<S>                                            <C>         <C>         <C>
Fixed rate advances, with monthly principal
  and interest payments due July 1, 2017. . .       6.85%  $    115     $  132

Variable rate advances, with monthly interest
  payments and principal due:
Advance due February 1, 2000. . . . . . . . .                     0          0
Advance due February 18, 2000 . . . . . . . .                     0          0
Advance due March 27, 2000. . . . . . . . . .                     0          0
Advance due February 12, 2001 . . . . . . . .                     0      1,000
Advance due February 14, 2001 . . . . . . . .                     0        500
Advance due February 27, 2001 . . . . . . . .                     0      1,000
                                                             -------  --------

Total advances. . . . . . . . . . . . . . . .               $   115   $  2,632
                                                            ========  ========
</TABLE>

Federal  Home  Loan  Bank  ( FHLB ) advances are collateralized by all shares of
FHLB  stock  owned  by  the  Bank  (totaling $460,000) and by 100% of the Bank s
qualified mortgage loan portfolio (totaling approximately $32,994,000). Based on
the carrying amount of "FHLB" stock owned by the Bank, total "FHLB" advances are
limited  to  approximately  $9,200,000.

<PAGE>

The  aggregate  minimum  future  annual  principal payments on FHLB advances are
$15,000  in 2002, $14,000 in 2003, $12,000 in 2004, $11,000 in 2005, and $63,000
after  2005.



NOTE  H  -  FEDERAL  INCOME  TAXES

THE COMPONENTS OF INCOME TAX EXPENSE FOR THE YEARS ENDED DECEMBER 31, 2001, 2000
AND  1999  ARE  AS  FOLLOWS:



<TABLE>
<CAPTION>


                    (Dollars in thousands)


                      2001   2000   1999
                      -----  -----  -----
<S>                   <C>    <C>    <C>
Income tax expense
Current tax expense.  $ 242  $ 239  $ 166
Deferred tax expense     17     71    116
                      -----  -----  -----

Total. . . . . . . .  $ 259  $ 310  $ 282
                      =====  =====  =====
</TABLE>


A  reconciliation  of  the federal statutory tax rate to the Bancorp's effective
tax  rate  for  the years ended December 31, 2001, 2000, and 1999 is as follows:
<TABLE>
<CAPTION>


                                    (Dollars in thousands)

                                      2001    2000    1999
                                     ------  ------  ------
<S>                                 <C>     <C>     <C>
Federal statutory income tax at 34%  $ 293   $ 338   $ 315
Tax exempt income . . . . . . . . .     (7)     (7)    (24)
Net operating loss carryforward . .    (19)    (19)    (19)
Non-deductible expenses . . . . . .      6       3       0
Other . . . . . . . . . . . . . . .    (14)     (5)     10
                                     ------  ------  ------

Total . . . . . . . . . . . . . . .  $ 259   $ 310   $ 282
                                     ======  ======  ======
</TABLE>


<PAGE>

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,  2001  and  2000  are  as  follows:
<TABLE>
<CAPTION>


                                          (Dollars in thousands)

                                               2001    2000
                                              ------  ------
<S>                                           <C>     <C>
Deferred tax assets:
  Allowance for loan losses. . . . . . . . .  $ 190   $ 185
  Investment securities. . . . . . . . . . .      0       0
  Net operating loss carryforward. . . . . .    309     328
  Nonaccrual loans . . . . . . . . . . . . .     29       3
  Other. . . . . . . . . . . . . . . . . . .      0       4
                                              ------  ------

                                                528     520

Deferred tax liabilities:
  Loan fees. . . . . . . . . . . . . . . . .    (10)    (18)
  Depreciation . . . . . . . . . . . . . . .    (33)    (26)
  Investment securities. . . . . . . . . . .   (144)    (42)
  Other. . . . . . . . . . . . . . . . . . .    (44)      0
                                              ------  ------

                                               (231)    (86)

Valuation allowance for deferred tax assets.   (309)   (328)
                                              ------  ------

  Net deferred tax asset (liability) . . . .  $ (12)  $ 106
                                              ======  ======
</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  $19,000 per year.  The net operating loss carryforward expires in
2018.  Because of the Section 382 limitation, the portion of the Company's total
net  operating  loss  carryforward  that  may  be utilized through expiration is
estimated  to  be  approximately  $309,000.


NOTE  I  -  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.

<PAGE>


Financial  instruments  whose  contract  amount  represents  credit risk were as
follows:

<TABLE>
<CAPTION>


                    (Dollars in thousands)


                         2001    2000
                        ------  ------
<S>                     <C>     <C>
Home equity lines. . .  $1,608  $1,142
Credit card lines. . .   2,838   2,814
Other loan commitments   3,753   5,517
Letter of credit . . .     138       0
                        ------  ------

Total. . . . . . . . .  $8,337  $9,473
                        ======  ======
</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  $2,453,000.



NOTE  J  -  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  K  -  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, 2001, $1,136,000 in retained
earnings  were  available  for  the  payment of dividends to the holding company
without  prior  regulatory  approval.



<PAGE>

NOTE  L  -  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 2001, 2000 and 1999 were $33,000,
$30,000,  $30,000,  respectively.  Forty-six  employees participated in the plan
during 2001, thirty-eight in 2000, and thirty-five employees participated in the
plan  during  1999.



NOTE  M  -  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)


                                                 2001        2000        1999
                                              ----------  ----------  ----------
<S>                                           <C>         <C>         <C>
Numerator:
Net income, earnings per share and
  earnings per share - assuming dilution . .  $      602  $      686  $      643

Denominator:
Weighted average shares outstanding,
  earnings per share and earnings per share-
  assuming dilution. . . . . . . . . . . . .   585,553.2   583,870.0   575,725.9

Earnings per share . . . . . . . . . . . . .  $     1.03  $     1.18  $     1.12
                                              ==========  ==========  ==========
Earnings per share - assuming dilution . . .  $     1.03  $     1.18  $     1.12
                                              ==========  ==========  ==========
</TABLE>


<PAGE>

NOTE  N  -  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,  2001,  that  the Bank meets all of the capital
adequacy  requirements  to  which  it  is  subject.

As  of  December  31, 2001, 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
                          ------------------                 ------------------          ------------------
<S>                        <C>           <C>                 <C>         <C>              <C>      <C>
                           Amount         Ratio               Amount       Ratio           Amount   Ratio
                           -------       -------           ---------    ------            -------   ------
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%

As of December 31, 2000:
Total Risk-Based Capital
(to Risk-Weighted Assets)  $  10,276      14.6%              $ 5,643      8.0%             $ 7,054  10.0%
Tier I Capital
(to Risk-Weighted Assets)      9,520      13.5%                2,822      4.0%               4,233   6.0%
Tier I Capital
(to Average Assets) . . .      9,520       9.1%                3,123      3.0%               5,205   5.0%
</TABLE>


NOTE  O  -  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.

<PAGE>

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


<TABLE>
<CAPTION>


                                      (Dollars in thousands)

                                     2001                   2000
                                    -------                ------
                              Carrying    Fair       Carrying    Fair
                              Amount      Value      Amount      Value
                              --------    -------    ---------   -----
<S>                          <C>         <C>        <C>         <C>
Financial assets:
Cash and cash equivalents .  $ 6,765      $ 6,765    $ 4,570     $ 4,570
Investments securities. . .   14,815       14,815     15,435      15,436
Loans . . . . . . . . . . .   80,338       81,083     78,523      77,634
Accrued interest receivable      788          788        848         848

Financial liabilities:
Deposits. . . . . . . . . .   95,231       93,929     90,108      90,119
Borrowed funds. . . . . . .      115          115      2,632       2,648
Accrued interest payable. .      256          256        292         292
</TABLE>


<PAGE>

NOTE  P  -  PARENT  COMPANY  FINANCIAL  INFORMATION

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

                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>

                                               (Dollars in thousands)

                                                  At December 31,

                                                 2001         2000
                                                 --------  -------
<S>                                               <C>        <C>
Assets
Noninterest-bearing deposit with subsidiary bank $    66      $  181
Interest-bearing deposit in subsidiary bank. . .     175         175
Investment in subsidiary bank. . . . . . . . . .  10,155       9,691
Other assets . . . . . . . . . . . . . . . . . .     198          43
                                                  ------     -------

Total assets . . . . . . . . . . . . . . . . . . $10,594      $10,090
                                                  ======      =======

Other liabilities. . . . . . . . . . . . . . . . $   104      $   129
Shareholders' Equity . . . . . . . . . .          10,490        9,961
                                                 -------      -------

Total liabilities and shareholders' equity . . . $10,594      $10,090
                                                 =======      =======
</TABLE>


                         CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>


                                               (Dollars in thousands)

                                               Year ended December 31,
                                              -------------------------
                                               2001       2000      1999
                                              ------      -----    -----
<S>                                           <C>        <C>       <C>
Income
Interest on deposits in subsidiary bank. . . . $  11      $  5     $   0
Dividends from subsidiary bank . . . . . . .     400       300       300
                                               -----      ----     -----
Total income . . . . . . . . . . . . . . . . .   411       305       300

Expenses
Salaries . . . . . . . . . . . . . . . . . .      26        26        24
Accounting and consulting fees . . . . . . .      34        29        42
Other expenses . . . . . . . . . . . . . . . .    48        65        34
                                               ------     -----    -----
Total expenses . . . . . . . . . . . .           108       120       100
                                               -------    -----    -----

Income before income taxes and equity in undistributed
 Earnings of subsidiary. . . . . . . . . . . .   303       185       200
Income tax benefit . . . . . . . . . . . . . . .  33        40        34
                                                -----     ----     -----
Income before undistributed earnings of
 subsidiary . .                                  336       225       234
Equity in undistributed earnings of subsidiary . 266       461       409
                                                -----     -----    -----
  Net income . . . . . . . . . . . . . . .     $ 602      $ 686    $ 643
                                               =====      =====    =====
</TABLE>




<PAGE>


                       CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                           (Dollars in thousands)

                                                           Year ended December 31,
                                                        2001         2000         1999
                                                     ---------      ------      ------

<S>                                                    <C>          <C>          <C>
Cash Flows from Operating Activities
Net income. . . . . . . . . . . . . . . . . . . . .     $  602       $  686       $  643
 Adjustments to reconcile net income to net cash
      flows provided by operating activities:

 Deferred income taxes. . . . . . . . . . . . . . .          0            0            0
 Change in other assets . . . . . . . . . . . . . .       (155)         269            5
 Change in other liabilities. . . . . . . . . . . .        (25)        (146)           0
 Equity in undistributed earnings of subsidiary . .       (266)        (461)        (409)
                                                     ----------       ------       ------
Net cash from operating activities. . . . . . . . .        156          348          239

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

Cash Flows from Financing Activities
 Proceeds from sale of common stock . . . . . . . .         22          131           35
 Purchase of treasury stock . . . . . . . . . . . .          0            0           (9)
 Sale of treasury stock . . . . . . . . . . . . . .          0            0          102
 Cash dividends paid. . . . . . . . . . . . . . . .       (293)        (285)        (269)
                                                        --------      ------       ------

Net cash used in financing activities . . . . . . .       (271)        (154)        (141)
                                                      --------        ------       ------

Net increase (decrease) in cash
and cash equivalents. . . . . . . . . . . . . . . .       (115)          19           98

Cash and cash equivalents
Beginning of year . . . . . . . . . . . . . . . . .        181          162           64
                                                     ----------       ------       ------
End of year . . . . . . . . . . . . . . . . . . . .     $   66        $ 181        $ 162
                                                        ======        ======       ======
</TABLE>




DIRECTORS  OF  EXCHANGE  BANCSHARES,  INC.
CECIL  R.  ADKINS,  Manufactured  Housing,  Developer
Walbridge,  Ohio
NORMA  J.  CHRISTEN,  Restaurant  Owner
Bowling  Green,  Ohio
MARK  S.  DERKIN,  Specialized  Industrial  Distributor
Maumee,  Ohio
THOMAS  J.  ELDER,  Banker
Elmore,  Ohio
DONALD  P.  GERKE,  Educator
Pemberville,  Ohio
JOSEPH  R.  HIRZEL,  Food  Processing
Pemberville,  Ohio
ROLLAND  I.  HUSS,  Farmer
Luckey,  Ohio
MARION  LAYMAN,  Banker
Luckey,  Ohio
DONALD  H.  LUSHER,  Manager  -  Real  Estate
Walbridge,  Ohio
DAVID  G.  MARSH,  Funeral  Director  /  Embalmer
Luckey,  Ohio
EDMUND  J.  MILLER,  Television  Broadcasting,  Engineer
Luckey,  Ohio

EXECUTIVE  OFFICERS  OF  EXCHANGE
BANCSHARES,  INC.
MARION  LAYMAN,  Chairman  and  President
ROLLAND  I.  HUSS,  Vice  Chairman
JOSEPH  R.  HIRZEL,  Secretary  and  Treasurer
THOMAS  E.  FUNK,  Vice  President  &  CFO

ANNUAL  MEETING
Wednesday,  May  1,  2002,  following  the
     6:30  p.m.  dinner  for  shareholders
4900  Sugar  Ridge  Road
Pemberville,  Ohio  43450

INDEPENDENT  AUDITORS
Dixon,  Francis,  Davis  &  Company
1205  Weaver  Road
Granville,  Ohio  43023
(740)  321-1000
Fax  (740)  321-1100

COUNSEL
Dinsmore  &  Shohl  LLP
Attorneys  at  Law
1900  Chemed  Center,  255  East  Fifth  Street
Cincinnati,  Ohio  45202
(513)  977-8200

TRANSFER  AGENT
Illinois  Stock  Transfer  Company
209  West  Jackson  Blvd.,  Suite  903
Chicago,  Illinois  60606
(312)  427-2953  or  1(800)  757-5755
Fax  (312)  427-2879



There were 586,644 common shares of Exchange Bancshares outstanding on March 15,
2002,  held of record by approximately 805 shareholders.  Since January 1, 1994,
Exchange  Bancshares'  common  shares  have  been traded on the over-the-counter
market.  Two brokerage firms serve as limited market makers:  McDonald & Company
and  Sweeny  Cartwright  &  Co.  The  following  represents high and low trading
prices  and  dividends  declared  during each respective quarter during 2000 and
2001.  Trading  prices  reflect  inter-dealer  prices,  without  retail mark-up,
mark-down  or  commission.



                                          DIVIDEND
2000               HIGH        LOW        DECLARED
First  Quarter     $24.762     $23.571    $0.00
Second  Quarter    $25.000     $22.625    $0.19
Third  Quarter     $26.000     $26.000    $0.00
Fourth  Quarter    $24.250     $19.500    $0.30

                                          DIVIDEND
2001               HIGH        LOW        DECLARED
First  Quarter     $22.750     $18.250    $0.00
Second  Quarter    $20.000     $17.000    $0.20
Third  Quarter     $19.000     $17.000    $0.00
Fourth  Quarter    $19.500     $17.000    $0.30


A  copy  of Exchange Bancshares' Annual Report on Form 10-KSB, as filed with the
Securities  and  Exchange  Commission, is available at no charge to shareholders
upon  request  to:


Joseph  R.  Hirzel,  Secretary
Exchange  Bancshare,  Inc.
237  Main  Street,  P.  O.  Box  177
Luckey,  OH  43443-0177
(419)  833-3401

INVESTOR  INFORMATION
Investors,  analysts  and  others  seeking  financial  information  may contact:

Marion  Layman,  Chairman  and  President
Thomas  E.  Funk,  Vice  President  &  CFO
Exchange  Bancshare,  Inc.
237  Main  Street,  P.  O.  Box  177
Luckey,  OH  43443-0177
(419)  833-3401

MARKET  MAKERS
Sweeny  Cartwright  &  Company
17  South  High  Street,  Suite  300
Columbus,  Ohio  43215
(614)  228-5391  or  1(800)  334-7481

McDonald  and  Company
One  Seagate  Square
Toledo,  Ohio  43604
(419)  977-8200



<TABLE>
<CAPTION>


                                            THE EXCHANGE BANK
                                                DIRECTORS


<S>                         <C>                  <C>                        <C>

CECIL R. ADKINS. . . . . .  JEROME A. CARPENTER  NORMA J. CHRISTEN          MARK S. DERKIN
Manufactured Housing . . .  Banker               Restaurant Owner           Specialized Industrial
Developer, Walbridge,       Stoney Ridge, 1977   Bowling Green, 1999        Distributor, Maumee,
1989                                                                        1994

THOMAS J. ELDER. . . . . .  DONALD P. GERKE      JOSEPH R. HIRZEL           ROLLAND I. HUSS
Banker . . . . . . . . . .  Educator             Food Processing            Farmer
Elmore, 1994 . . . . . . .  Pemberville, 1994    Pemberville, 1989          Luckey, 1977

MARION LAYMAN. . . . . . .  DONALD H. LUSHER     DAVID G. MARSH             EDMUND J. MILLER
Banker . . . . . . . . . .  Manager-Real Estate  Funeral Director/Embalmer  Television Broadcasting
Luckey, 1962 . . . . . . .  Walbridge, 1970      Luckey, 1993               Luckey, 1996
</TABLE>


<TABLE>
<CAPTION>


                                       OFFICERS
<S>         <C>                       <C>                       <C>
            -----------------------------------------------------------------
             MARION LAYMAN. . . . . .  ROLLAND I. HUSS           THOMAS J. ELDER
             Chairman . . . . . . . .  Vice Chairman             President & CEO
             Board of Directors, 1990  Board of Directors, 1994  Senior Lending Officer, 1994

             A. JOHN MOORE. . . . . .  THOMAS E. FUNK            JEFFREY CROSS
             Vice President . . . . .  Vice President            Vice President
             Chief Operations Officer  Chief Financial Officer   Loan Officer
             Cashier-Secretary, 1977.  2002                      1989

             CHARLES M. BAILEY. . . .  JOHN D. KANTNER           DOUGLAS L. TUSSING
             Vice President . . . . .  Vice President            Vice President
             Branch Administrator,. .  Commercial Lending,       Loan Officer
             1995                      1998                      Branch Manager, 2001
</TABLE>


<TABLE>
<CAPTION>


<S>          <C>                     <C>                    <C>                    <C>
              LINDA BINIKER. . . . .  ROBERT E. WALKER       MARY ANN THOMPSON      KATHY L. MEYER
              Vice President . . . .  Mortgage Loan Officer  Security Officer       Mortgage Loan
              Compliance Officer . .  Officer                Bank Secrecy Officer   Administration Officer
              CRA Officer, 1990. . .  1999                   1991                   1997

              SHELLY M. WHEELER       PATRICIA CRAWFORD      BRENDA MOSSING         KIRK STONEROCK
              Mortgage Loan.          Retail Banking Officer Retail Banking Officer Assistant Vice
              Administration Officer  Branch Manager         Branch Manager         President
              1999                    1995                   1999                   1998

              KEITH RANDALL CLINE     SUSAN BEYER            PAMELA MASLAK          JEROME CARPENTER**
              Retail Banking Officer  Operations Officer     Bank Training Office   Vice President
              Branch Manager          2001                   2001                   Loan Officer
              1999


Date Denotes when elected or
Appointed

** Retired 12-31-01
</TABLE>