<PAGE>
                                 FC  BANC CORP.

                             1996  ANNUAL  REPORT


INTRODUCTION

    FC Banc Corp. (the "Holding Company") was organized as an Ohio corporation
and incorporated by the board of directors of The Farmers Citizens Bank (the 
"Bank") under Ohio law on August 20, 1992, for the purpose of becoming a bank
holding company owning all the outstanding shares of the Bank.  The Holding 
Company acquired the Bank on January 31, 1994, and as of December 31, 1996 has
combined assets of $81,445,000, total shareholders' equity of $10,667,000, and
total deposits of $70,074,000.  The Bank is suject to supervision, examination
and regulation by the Division fo Financial Institutions of the State of Ohio.
The deposit accounts of the Bank are insured by the Federal Deposit Insurance 
Corporation (FDIC), and the Bank is a member of the Federal Reserve System.  
Both the Bank and the Holding Company are subject  to regulation of the Federal
Reserve System through the Federal Reserve Bank of Cleveland, Cleveland, Ohio.
Selected financial data on the Holding Company's condition and operations is 
filed with the United States Securities and Exchange Commission (Form 10-KSB 
and Form 10-QSB) and the Board of Governors of the Federal Reserve System
(Form FRY-9).  Selected financial data on the subsidiary Bank's condition and
operations is filed quarterly with the State of Ohio Division of Financial 
Institutions, FDIC and the Federal Reserve System.

    FC Banc Corp. is a bank holding company engaged in the business of 
commercial and retail banking through its subsidiary The Farmers Citizens Bank,
which accounts for substantially all of its revenues, operating income, and 
assets. The following discussion is intended to focus on and highlight 
certain financial information regarding FC Banc Corp. and should be read in 
conjunction with the financial statements and related notes which have been 
prepared by the management of FC Banc Corp. in conformity with generally
accepted accounting principles.  The Audit Committee of the Board of Directors
engaged Robb, Dixon, Francis, Davis, Oneson and Company, independent auditors,
to audit the financial statements.  The auditors' report is included as a 
part of the 1996 Annual Report.  To assist in understanding and evaluating 
major changes in the Holding Company's financial position and results of 
operations, two, three and five 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) share-
holders' equity including dividends and risk-based capital, and (c) 1996 results
of operations.

I  - FINANCIAL CONDITION

Loan Portfolio

    Loans, as a component of earning assets, represent a significant portion of
earning assets at December 31, 1996.  At December 31, 1996, the Bank's real 
estate loans secured by farmland and loans to finance agricultural production
and other loans to farmers were $10,983,000. As noted in Note D, of the Notes 
to Consolidated Financial Statements, the Bank also was a creditor for 
$3,746,000 of loans from related parties.

    Average loans increased 4.38% in 1996 to represent 50% of average earning
assets compared to 48% in 1995 and 46% in 1994.  Year-end total real estate 
loans of $22,596,000 represent approximately 55% of the total loans outstanding
compared to 43% for the previous year-end.  As the total dollars outstanding 
of loans fluctuated, decreasing from 1990 through 1993 and then increasing 
through 1996, real estate loans had remained relatively constant at 33% of the
loans outstanding until 1994, when they increased to 37% and 43% at year-end 
<PAGE>
1995.  Installment loans to individuals have continued to decline steadily
since 1990 from 27% of loans outstanding to 13% at December 31, 1996.  The 
dollar amounts of commercial loans increased from 38% of loans outstanding in
1990 to 45% of loans outstanding in 1992 and 1993, then declined to 43%, 39% 
and 31% of loans outstanding at December 31, 1994 , 1995, and 1996, 
respectively.  Table 3 provides a five year loan history.

    During 1996 the Bank decreased the interest rates on deposits while loan 
rates were relatively constant primarily due to competitive market conditions
electing to fund loans with the proceeds from maturing investment securities.
Total deposits at year-end 1996 compared to year-end 1995 were down $817,000, 
while the average deposit base decreased approximately $342,000.  The Bank has
the ability to obtain funds through Repurchase Agreements, the sale of 
securities under agreement to repurchase at a later date. At December 31,1996
there were no open and active repurchase agreements.  Total borrowed funds
decreased from $1,525,000 at December 31, 1995 to $119,000 at December 31, 
1996.  The average amount of borrowed funds was $405,000 in 1996 compared to 
$759,000 in 1995.
  
    These factors, combined with the aforementioned changes in the composition
of the loan portfolio, contributed to the increase in the net interest margin
in 1996 (the difference between the yield on interest-earning assets and the 
yield on interest-bearing liabilities).  The yield on interest-earning assets
of 7.64% compared to the yield on interest-bearing liabilities of 3.76% 
produced an interest spread of 3.88% for 1996 as compared to an interest spread
of 3.58% for 1995 and 3.60% for 1994.  The net interest margin or net interest-
earning assets increased to 4.61% for 1996 compared to 4.37% and 4.40% for
1995 and 1994 respectively.  Table 1 provides a summary of average balances 
and interest rates for the years 1996, 1995, and 1994. Table 16 summarizes the
results of changes in both rates and volume for the years ended December 31, 
1996 and 1995.

    In addition to the loans reported in Table 3, 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.  Management
closely monitors the financial condition of potential creditors throughout the
term of the instruments to assure that they maintain credit standards.  Refer
to Note N and O for additional information on off-balance sheet financial 
instruments.

Non-Performing Assets

    While the Bank has experienced an increase in non-performing assets, loans
accounted for as non-accrual and accruing loans which are contractually past 
due 90 days more, Management believes that the Allowance for Loan Losses is 
adequate to cover any potential losses in the loan portfolio at December 31, 
1996.  Refer to the section entitled "Analysis of the Allowance/Provision for
Loan Loss" for additional detail.

    Table 4 provides a five year summary of non-performing assets which are 
defined as: loans accounted for on a non-accrual basis, accruing loans that are
contractually past due 90 days or more as to principal or interest payments, 
renegotiated troubled debt, and other real estate obtained through loan fore-
closure.

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

    A loan is considered restructured or renegotiated when either the rate is
<PAGE>
reduced below current market rate 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.  Property obtained from foreclosing on loans 
secured by real estate are adjusted to market value prior to being capitalized
in an "Other Real Estate" account for possible 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 increased $365,000 as of year-
end 1996.  Non-performing assets at December 31, 1996 totaled $1,119,000 or 
1.37% of total assets.  This represents an increase of $779,000 or 229% from 
December 31, 1995.  See Table 4 for a five year summary of non-performing loans.

    This increase is attributable to both the amount of loans charged-off in 
1996, 1995 and 1994, or $116,000, $574,000 and $139,000, respectively, coupled
with the amount of recoveries on charged-off loans which amounted to $82,000, 
$67,000 and $106,000 in 1996, 1995 and 1994, respectively.  Please refer to 
the following section entitled "Analysis of the Allowance/Provision for Loan 
Loss" for additional explanation.

Analysis of the Allowance/Provision for Loan 

    The allowance for loan losses was established and is maintained by periodic
charges to the provision for loan loss, an operating expense, in order to 
provide for losses inherent in the Bank's loan portfolio. Loan losses and 
recoveries are charged or credited respectively to the allowance for loan losses
as they occur.  See Table 5 for a five year summary.

    The allowance/provision for loan losses is determined by management by 
considering such factors as the size and character of the loan portfolio, loan
loss experience, problem loans, and economic conditions in the Bank's 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 borrower's financial standing and trends, (d) the market
value of the collateral involved, and (e) the down payment received.

    Management utilizes an internal loan review procedure to 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 Bank's examiners and 
independent auditors will periodically perform independent credit reviews of
the Bank's borrowers and evaluate the adequacy of the allowance for loan losses
account based upon the results of their review and other factors.

    The results of the quarterly credit reviews 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.

    There were no provisions for possible loan losses during 1996 as compared
to the $204,000 provision recorded in 1995.  The absence of a provision was
based upon the results of the management's quarterly reviews of the loan
portfolio to identify problem loans and to determine appropriate courses of 
action on a loan by loan basis. Collection procedures are being activated when
a loan becomes past due.
                        
    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 type of loan for the last five
years.  The losses experienced combined with the type and market value of the
collateral securing the loan portfolio and the financial standing of certain
borrowers due to economic trends in their related businesses or farming 
operations is the primary criteria used to determine the percentage allocation.

    Approximately 90% of the Bank's total loans are secured by deeds of trust
on real property, security agreements on personal property, or through full 
faith and credit of government agencies. 
<PAGE>
    Management believes significant factors affecting the allowance are being
reviewed regularly and that the allowance is adequate to cover potentially 
uncollectible loans as of December 31, 1996.  The Bank has no exposure from 
troubled debt to lesser developed countries. 

    The average allowance to average loans outstanding ratio decreased to 3.46%
in 1996 from 4.60% and 2.54% in 1995 and 1994, respectively.  This decrease was
due primarily to the increase in the loan portfolio coupled with the absence 
of additional provisions in 1996.  Whereas, the increase in 1995 was due 
primarily to the additional provisions in 1994 as directed by the regulatory 
agencies.

    Net charge-offs in 1996 of $34,000 decreased $473,000 from $507,000 in 1995.
Net charge-offs in 1995 increased $474,000 from $33,000 in 1994.  The net charge
-offs in 1996 of $34,000 represent 2.80% of the total net charge-offs for the 
five years presented.  The yearly average net charge-offs for the same five 
year period were $243,000.  See Table 5 for a five year summary.

Investments

    Investments represent the second largest use of financial resources.  The
investment portfolio, shown in Table 6 includes United States securities, 
state and municipal obligations, other equity securities, and equity securities
of the Federal Reserve Bank.

    Investment debt securities are those securities which the Bank has the 
ability and intent to hold to maturity.  These securities are stated at cost 
adjusted for amortization of premium and accretion of discount, and computed 
by the interest method.  The investment marketable equity securities are carried
at the lower of cost or market value.  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
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 share-
holders' equity.  

    On January 1, 1994 the Bank adopted SFAS No. 115.  The effect of adopting
SFAS No. 115 was to increase shareholders' equity $189,000 at January 1, 1994
and decrease shareholders' equity $893,000 at December 31, 1994. Effective 
November 15, 1995, the FASB permitted a one-time opportunity for institutions
to reassess the appropriateness of the designations of all securities held upon
initial application of the Special Report.  Any resulting redesignations had 
to be made in conjunction with the implementation of the FASB's supplemental 
guidance (FASB Special Report, "A Guide to Implementation of Statement 115 on 
Accounting for Certain Investments in Debt and Equity Securities,") and had to
occur no later than December 31, 1995.  After a detailed assessment of the
Bank's investment portfolio management concluded that it was in the best  
interest to the institution to designate (i.e. reclassify) the entire portfolio
as "Available-For-Sale".  The effect of designating securities as "Available-
For-Sale"  was to decrease shareholders' equity by $95,000 at December 31, 1995.

    The net increase in shareholders' equity of $798,000 at December 31, 1995
is a direct result of the redesignation of securities as "Available-For-Sale"
and the change in the market value of those securities held as "available for 
sale" in the Bank's investment portfolio.  In general, the replacement of older
higher yielding maturing securities with those at current interest rates, the 
increase in market value (as a result of changing market rates) of those 
investments classified as "available for sale", and the designation of the
securities as "Available-For-Sale" are the several of the underlying reasons
reasons for the increase in shareholders' equity. 

    Investment securities by year-end 1996 had decreased by $1,675,000 or 4.96%
from year-end 1995.  Federal funds sold decreased by 73.81% to $1,100,000 during
fiscal 1996, and cash and due from banks balances decreased by $1,372,000 in 
the same period.  The decrease in cash balances was primarily attributable to
items in process of collection which were not investable as federal funds sold 
until January 2, 1996. Federal funds sold are consistently maintained at levels
<PAGE>
that will cover the short-term liquidity needs of the Bank.  Because of 
decreasing interest rates, the related decrease in local loan demand, the
the purchase of loans on the open market, and the relative stability of deposit 
liabilities, the excess available funds were invested primarily in federal 
funds.

     Securities categorized as "available-for-sale" can and will be sold prior
to maturity to meet liquidity or other funding needs.  It is management's 
intent to hold those securities categorized as "held-to- maturity" until their
maturity unless they are subject to an earlier redemption via a "call feature".
At December 31, 1996 the Bank's entire investment portfolio was classified as 
available-for-sale.

    The Bank utilizes a number of outside sources to analyze, evaluate, and 
obtain advice relative to the management of its investment portfolio.  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.

    The Bank's investment portfolio includes approximately $2.7 million of 
agency structured notes (step-ups, dual-indexed bonds, and a p.s.a. indexed 
bond) which represents cash flows dependent on one or more indices in ways that
create risk characteristics similar to forwards or options.  The risks inherent
in these types of securities include secondary liquidity risk (that is, 
inability to resell the securities if needed for liquidity), price volatility
due to the uncertainty and unpredictability of the cash flow from the invest-
ment, and interest rate risk.  Specific goals and objectives for investments 
of this type, have been included in the investment policy of the Bank. 

Memorandum of Understanding

    On February 14, 1995, The Farmers Citizens Bank (the "Bank"), the wholly 
owned subsidiary of the Company, entered into a Memorandum of Understanding 
(the "MOU") with the Federal Reserve Bank of Cleveland (the "FRB") and the 
Superintendent of the Ohio Division of Banks (the "Superintendent").  The MOU
required the Bank, among other things, to:

         (i)  retain an independent bank management consultant to conduct a 
              complete management review to aid in the development of a 
              management structure suitable to the Bank's needs that is 
              adequately staffed by qualified and trained personnel, and upon 
              the conclusion of such review, to submit to the FRB and the
              Superintendent a written management plan describing specific 
              actions to be taken by the Bank to strengthen Bank management 
              and improve the Board of Directors' supervision over the officers;

        (ii)  submit a written business plan to the FRB and the Superintendent;

       (iii)  eliminate from its books, by charge-off or collection, all assets
              classified as "loss" in the joint report of examination of the 
              FRB and the Superintendent, dated September 30, 1994, and to 
              maintain an adequate valuation reserve for loan losses;

        (iv)  develop an amended loan policy, written loan review procedures 
              and a written plan to  improve the Bank's position on past due 
              loans in excess of $100,000; and

         (v)  develop an amended investment policy, including specific 
              objectives and goals for investments in structured note securities
              and collateralized-mortgage obligations.

    On December 12, 1996, the Bank was officially notified that based upon the
improved overall condition of the organization, the existing Memorandum of 
Understanding was terminated.
<PAGE>
Deposits

    Table 9 highlights average deposits and interest rates during the last 
three years.  Average deposits in 1996 have decreased by approximately $342,000
or 0.49% over 1995 which had decreased $378,000 or 0.54% over 1994.  The average
cost of deposits for the bank was approximately 3.23% for the year ended 
December 31, 1996 compared to 3.43% and 3.81% for 1995 and 1994, respectively.

Shareholders' Equity

    Maintaining a strong capital position in order to absorb inherent risk is
one of management's top priorities.  Selected capital ratios for the last three
years, presented in Table 10, "Capital Resources", reveals that the Bank has 
been able to maintain an average equity to average asset ratio of greater than
12% for the past three years.  It should be noted that this ratio has increased
by 19 basis points in 1996 to 13.03% and decreased by 9 basis points in 1995.
It should also be noted that the return on average assets increased in 1996
and 1995.  This is due primarily to the decrease in provision for possible loan
losses in both 1996 and 1995, and the increase in interest margin in 1996.

    The yield (interest expense) on interest earning liabilities decreased more
rapidly than the yield (interest income) on interest earning assets, resulting
in an improvement in the bank's interest margin in 1996, thus offsetting the 
decline experienced in 1995.  As indicated earlier, the average allowance to 
average loans outstanding decreased to 3.46% in 1996 compared to 4.60% in 1995
and increased compared to 2.54% in 1994, respectively.  Management believes 
that the overall quality of the loan portfolio has improved significantly in
1996. In late 1994 and early 1995, management noted that the status of 
collateral securing the loans within the portfolio and less favorable financial
standing of certain borrowers (due to economic trends in their related 
businesses or farming operations), were the primary cause for a significant 
increase in the bank's provision for possible loan losses in 1994 and 1995.

    Banking regulations in 1989 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. A minimum total qualifying capital
ratio of at least 8% with at least 4% of capital composed of Tier I (core) 
capital had to be maintained.  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, 1996 the Bank's risk-
based capital ratio for Tier I and Tier II capital is 21.87% and 23.14%, 
respectively, thus meeting the required 4% and 8% for Tier I and Tier II 
capital.  Table 11 is a summary of both the Bank's risk-based capital and 
leverage components and ratios.


II - RESULTS OF OPERATIONS

    Consolidated net income was $681,000 or $2.09 per share, for the year ended
December 31, 1996 as compared to $533,000 or $1.61 per share for 1995 and 
$335,000 or $1.01 per share for 1994.  Return on average assets (ROA) was 0.84%,
0.65% and 0.41% in 1996, 1995, and 1994, 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 Table 1, "Average Balances and Interest Rates", 
Table 15, "Net Interest Income", Table 16, "Rate/Volume Analysis of Changes 
in Interest Income and Interest Expense", and on Table 19, "Interest Sensitive
Assets and Liabilities" for all years presented using the Federal statutory
rate of 34%.  Tables 1, 15 and 16 have been prepared on a tax-equivalent basis.
The stated (pre-tax) yield on tax-exempt loans and securities is lower than 
<PAGE>
yield on taxable assets of similar risk and maturity. The average balances 
were calculated on a monthly basis.

    The net yield on interest-earning assets has increased to 4.61% in 1996 
from 4.37% and 4.40% in 1995 and 1994, respectively.  Net interest earnings 
(on a fully tax equivalent basis) increased $196,000 or 5.97% in 1996 while 
net income increased $148,000 or 27.77% in 1996 (See Table 13) and $198,000 or
59.10% in 1995 from $335,000 in 1994.  Table 16 analyzes the reason for the 
changes in interest income by applying either volume or rate changes to 
interest sensitive assets and liabilities.  The volume of both assets and
liabilities increased in 1996 and resulted in increased net interest income of
$40,000.  Rates decreased for all categories of assets and liabilities which 
resulted in a net increase of $156,000 in net interest income due to a change 
in rates. 

    Net loan income increased $146,000 or 4.35% over the prior year primarily
as a result of the increased volume resulting from the increased credit demand,
competition from financial and non-financial sources, and management's 
strengthening of loan underwriting standards.  Average loan yields have 
remained unchanged in 1996 after a 19 basis point decline in 1995.  As of year-
end 1996 approximately $15,082,000 or 37% of the loan portfolio was 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.

    Weighted average interest rates on investments and interest-bearing balances
with banks have decreased 10 basis points in 1996 resulting in a $36,000 
decrease in taxable-equivalent income due to rates.  An additional $1,000 
increase in income due to the decreased volume accounts for the $35,000 total
decrease in investment income.  Approximately $8,280,000 of securities matured
in 1996.  Reinvestment yields on approximately $6,638,000 of maturing securities
in 1997 will be used to determine appropriate maturities or alternative 
investments.

    Federal funds sold income decreased $71,000 or 39.66% in 1996 after a 
$48,000 or 36.64% increase in 1995.  Volume decreased earnings $66,000 and 
rates decreased earnings $5,000 in 1996.  Federal funds are primarily used as
an investment mechanism for short-term liquidity purposes.

    Interest-bearing deposit income decreased $9,000 or 100% in 1996 after an
$8,000 or 47.06% decrease in 1995.  The decrease in earnings is attributed to
the decreased volume in 1996.

    Interest-bearing deposit expense declined $147,000 or approximately 6.12% 
in 1996 after a $150,000 or 11.97% increase in 1995.  The volume increase caused
interest expense to increase $51,000 while decreasing rates caused a $198,000 
decrease in interest expense in 1996.  Rates paid on Savings / NOW / insured 
earnings and time deposits decreased 53 and 7 basis points respectively, in 
1996 which had decreased 32 and increased 96 basis points respectively, in 
1995.  An increase in average time deposit accounts coupled with a similar
decrease in Savings / NOW / insured earnings has occurred as a result of the
restructuring of interest rates in an effort to improve the bank's interest 
margins.  Also, competition from non-financial institutions has resulted in a 
shifting of depositors resources.

    Short-term borrowing expense, consisting primarily of securities sold 
under agreement to repurchase expense, decreased in 1996 by $18,000.  This 
decrease is attributable to the decline in volume of  $354,000.

    In summary, Table 16, "Rate Volume Analysis of Changes in Interest Income
and Interest Expense", discloses the reasons for changes in interest income 
and interest expense.  It should be noted that the changes, or restructuring, 
in the Bank's interest earning assets (loans and investments) and the interest-
bearing liabilities (deposits and borrowed funds) combined with the repricing
of each resulted in an increase in interest margins.

    The increase in interest-earning asset volumes and the increase in interest-
bearing liability volumes in 1996, coupled with repricing of both interest-
earning assets and interest-bearing liabilities, resulted in a net increase of
$196,000 in net interest income.  Changes in volume accounted for a $40,000 
<PAGE>
increase in net interest income while changes in rates increased net interest
income $156,000.

    The increases in both asset volume and interest rates in 1995 had less of
an effect on the net interest margin ($125,000 increase) than the increase in 
liability interest rates ($139,000 increase).  The increase in liability volumes
had less of an effect ($22,000) on the net interest margin in 1995.

Other Income and Other Expense

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

    Total other expense is comprised of operating expense attributed to staffing
(personnel costs), operation and maintenance of bank buildings and equipment,
banking service promotion, taxes and assessments, and other operating expenses.
Table 18, "Other Income and Other Expenses", contains a summary of these items
for the years ended December 31, 1996, 1995, and 1994.

Income Taxes

    Applicable income taxes of $140,000 in 1996 consist of federal taxes only.
For the previous two years the federal tax rate was 34%.

    Impacting the tax provisions for the three years covered in this report is
the level of the provision for possible loan losses ($ 0 in 1996, $204,000 in
1995, and $1,015,000 in 1994) and the level of tax-exempt income on securities
which was $398,000, $468,000 and $552,000 for the years 1996, 1995, and 1994,
respectively.  Due to the general decline in values of collateral securing the
loan portfolio and less favorable financial standing of certain borrowers due
to economic trends in their related businesses or farming operations, manage-
ment chose to increase significantly the Bank's provision for possible loan
losses during the fiscal year 1994.

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

Effects of Inflation/Changing Prices

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

Liquidity and Interest Rate Sensitivity Management

    Management utilizes several tools currently available to monitor and ensure
that liquid funds are available to satisfy the normal loan and deposit needs 
of its customers while taking advantage of investment opportunities as they 
arise in order to maintain consistent growth and interest income.  Cash and 
<PAGE>
due from banks, marketable investment securities with maximum one year 
maturities, and federal funds sold are the principal components of asset 
liquidity.  Referring to Table 19, the Bank is in a liabiity sensitive position 
up to one year which ismore beneficial in a period of declining interest rates
since liabilities can be repriced at lower rates.  In periods of rising interest
rates, interest sensitive assets are more favorable since they allow adjustment
of interest sensitive assets prior to maturing interest sensitive liabilities.
The three month category of interest sensitive liabilities includes approx-
imately $32,605,000 consisting of Savings, NOW accounts, and insured earnings 
which can be adjusted in any one category at any time to offset any positive 
gap in a declining rate environment.

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