##### Table of Contents

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-KSB



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|x | ANNUAL REPORT UNDER SECTION 13 or 15(d) of THE SECURITIES EXCHANGE ACT of 1934
|- | ------------------------------------------------------------------------------



For the fiscal year ended December 31, 2003



Commission File Number 0-25616



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FC BANC CORP.

(name of small business issuer in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Ohio                                                           |  | 34-1718070                          
|(State or other Jurisdiction of incorporation or organization) |  | (IRS Employer Identification Number)
|                                                               | 
|Farmers Citizens Bank Building, Box 567, Bucyrus, Ohio         |  | 44820                               
|(Address of principal executive offices)                       |  | (zip code)                          



Issuers
telephone number (419) 562-7040.



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Securities registered under Section 12(b) of the Exchange Act: N/A



Securities registered under Section 12(g) of the Exchange Act:



Common Shares (No Par Value)



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



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



State issuers revenues for the most recent fiscal year. $8,789,000.



State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold,
or the average bid and asked prices of such common equity, as of a specified date within the past 60 days: As of February 20, 2004, 575,299 shares of common shares of the Registrant were outstanding. The aggregate market value of the voting stock
held by non-affiliates was $16,683,671 based upon the trading price of $29.00 per share.



Documents Incorporated by References



Portions of the definitive Proxy Statement for the 2004 Annual Meeting of Shareholders of FC Banc Corp filed on March 29, 2003 with the Securities and Exchange Commission are incorporated by reference into Part III of this Form 10-KSB.



Transitional Small Business Disclosure
Format    YES ̈NO  x



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##### Table of Contents

FC Banc Corp.

Form 10-K

INDEX



|                                                                                                                                         |  |                                                                                       |  |      
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | -----
|                                                                                                                                         |  |                                                                                       |  | Page 
|                                                                                                                                         |  | PART I                                                                                |  |      
|                                                                                                                                         |  |                                                                                      
|ITEM 1                                                                                                                                  |  | DESCRIPTION OF BUSINESS                                                               |  | 3-8  
|                                                                                                                                         |  |                                                                                      
|ITEM 2                                                                                                                                  |  | DESCRIPTION OF PROPERTY                                                               |  | 9    
|                                                                                                                                         |  |                                                                                      
|ITEM 3                                                                                                                                  |  | LEGAL PROCEEDINGS                                                                     |  | 9    
|                                                                                                                                         |  |                                                                                      
|ITEM 4                                                                                                                                  |  | SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS                                       |  | 9    
|                                                                                                                                         |  |                                                                                      
|                                                                                                                                         |  | PART II                                                                               |  |      
|                                                                                                                                         |  |                                                                                      
|ITEM 5                                                                                                                                  |  | MARKET FOR REGISTRANTS COMMON STOCK AND RELATED SHAREHOLDER MATTERS                  |  | 9-10 
|                                                                                                                                         |  |                                                                                      
|ITEM 6                                                                                                                                  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 12-27
|                                                                                                                                         |  |                                                                                      
|ITEM 7-                                                                                                                                  |  | FINANCIAL STATEMENTS                                                                  |  | 28-57
|                                                                                                                                         |  |                                                                                      
|                                                                                                                                         |  | PART III                                                                              |  |      
|                                                                                                                                         |  |                                                                                      
|ITEM 8                                                                                                                                  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 58   
|                                                                                                                                         |  |                                                                                      
|ITEM 8A-                                                                                                                                 |  | CONTROLS AND PROCEDURES                                                               |  | 58   
|                                                                                                                                         |  |                                                                                      
|ITEM 9                                                                                                                                  |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |  | 58   
|                                                                                                                                         |  |                                                                                      
|ITEM 10                                                                                                                                 |  | EXECUTIVE COMPENSATION                                                                |  | 58   
|                                                                                                                                         |  |                                                                                      
|ITEM 11                                                                                                                                 |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 59   
|                                                                                                                                         |  |                                                                                      
|ITEM 12                                                                                                                                 |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 60   
|                                                                                                                                         |  |                                                                                      
|ITEM 13                                                                                                                                 |  | EXHIBITS AND REPORTS ON FORM 8-K                                                      |  | 60   
|                                                                                                                                         |  |                                                                                      
|ITEM 14                                                                                                                                 |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                |  | 60   
|                                                                                                                                         | 
|SIGNATURES                                                                                                                               |  | 61                                                                                   
|                                                                                                                                         |  |                                                                                      
|                                                                                                                                         |  | EXHIBITS                                                                              |  |      
|                                                                                                                                         |  |                                                                                      
|EXHIBIT 14                                                                                                                              |  | CODE OF ETHICS                                                                        |  | 62-71
|                                                                                                                                         |  |                                                                                      
|EXHIBIT 21                                                                                                                              |  | SUBSIDIARIES OF REGISTRANT                                                            |  | 72   
|                                                                                                                                         |  |                                                                                      
|EXHIBIT 23                                                                                                                              |  | CONSENT OF THE INDEPENDENT AUDITOR                                                    |  | 72   
|                                                                                                                                         | 
|EXHIBIT 31.1-CEO CERTIFICATION PURSUANT TO RULE 13A-14(a)/15d-14(a) AS ENACTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 |  | 73                                                                                   
|                                                                                                                                         | 
|EXHIBIT 31.2-CFO CERTIFICATION PURSUANT TO RULE 13A-14(a)/15d-14(a) AS ENACTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 |  | 74                                                                                   
|                                                                                                                                         | 
|EXHIBIT 32.1-CEO CERTIFICATION PURSUANT TO U.S.C. SECTION 1350 AS ENACTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002      |  | 75                                                                                   
|                                                                                                                                         | 
|EXHIBIT 32.2-CFO CERTIFICATION PURSUANT TO U.S.C. SECTION 1350 AS ENACTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002      |  | 76                                                                                   



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##### Table of Contents

PART I



ITEM 1. Description of Business



Business



FC Banc Corp was established on February 1, 1994 as a bank holding company whose
activities are primarily limited to holding the stock of The Farmers Citizens Bank, Bucyrus, Ohio (Bank). Farmers Citizens Bank was chartered on October 1, 1907, and officially opened for business on January 6, 1908. Farmers Citizens
Bank has provided continuous customer service to Crawford County for more than 90 years. The Bank conducts a general banking business in north central Ohio that consists of attracting deposits from the general public and applying those funds to the
origination of loans for residential, consumer and non-residential purposes. The Banks principal types of lending are in commercial real estate, residential real estate, and consumer. In both the commercial and residential real estate the bank
has minimal risk. The banks lending policies specify loan to value ratios low enough to minimize the risk. Another factor that minimizes the risk is our knowledge of the market area. Farmers Citizens Bank is a community bank and this helps us in
knowing our customers and market area. Also, the bank is continuously reviewing its underwriting procedures and policies. In the consumer loan area, the bank specializes in home equity loans and loans for late model cars. Usually, the collateral
held is sufficient to minimize risk. The Banks profitability is significantly dependent on net interest income. That is the difference between interest income generated from interest-earning assets (i.e., loans and investments) and the
interest expense paid on interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net interest income is affected by the relative amount of interest-earning assets and interest-bearing liabilities and interest received or paid on
these balances. The level of interest rates paid or received by the Bank can be significantly influenced by a number of environmental factors, such as governmental monetary policy, that are outside of management control.



The Company is subject to regulation by the Board of Governors of the Federal Reserve System,
which limits the activities in which the Company and the Bank may engage. The Bank is supervised by the State of Ohio, Division of Financial Institutions and its deposits are insured up to applicable limits under the Bank Insurance Fund
(BIF) of the Federal Deposit Insurance Corporation (FDIC). The Bank is a member of the Federal Reserve System and is subject to its supervision. The Company and the Bank must file with the U.S. Securities and Exchange
Commission, the Federal Reserve Board and Ohio Division of Financial Institutions the prescribed periodic reports containing full and accurate statements of its affairs.



Fiscal and Monetary Policies



The Banks business and earnings are affected significantly by the fiscal and monetary policies of the federal government and its agencies. The Bank is particularly
affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the United States. Among the instruments of monetary policy available to the Federal Reserve are (a) conducting open market operations in United
States government securities, (b) changing the discount rates of borrowings of depository institutions, and (c) imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying
degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the policies of the Federal Reserve Board have a material effect on
the earnings of the Holding Company.



Employees



As of December 31, 2003, the Bank had 49 full-time and 15 part-time employees. Currently the
Holding Company has no paid employees.



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Competition



The Bank has four banking offices located in Crawford, Morrow and Knox Counties, Ohio. The primary market area of the Bank is North Central Ohio, which includes Crawford,
Morrow, Knox and contiguous counties. The Banks main office is about 60 miles north of the state capital, Columbus, Ohio. Our Bank has various competition in all of the markets we serve. In Bucyrus there are five other commercial banks. In both
Cardington and Fredericktown there are one. All of our markets are within a short distance to other markets that present another dozen or so competitors. In addition, there are no less than ten mortgages companies in each and every market we serve.
In our direct markets, the Bank has approximately 23.5% market share of deposits. The economy of our markets is driven by several major components:



Manufacturing, retail trade, governmental service, general service, and agricultural. Census date indicates a positive trend in our Morrow and Knox counties areas and a
steady trend in Crawford County. The general economic conditions of all three of our markets is reflective of the State of Ohio and to a certain extent our national economy. Overall, the general outlook for the economy is cautiously optimistic.
Moderate growth to stable conditions is seen, but in general the economy has not shown positive signs of a robust economy. The financial services industry is highly competitive. The Bank competes with financial services providers, such as banks,
savings associations, credit unions, finance companies, mortgage banking companies, insurance companies, and money market and mutual fund companies. The Bank also faces increased competition from non-banking institutions such as brokerage houses and
insurance companies, as well as from financial service subsidiaries of commercial and manufacturing companies. Many of these competitors enjoy the benefits of advanced technology, fewer regulatory constraints and lower cost structures.



Prompt Corrective Regulatory Action



The federal banking agencies have established a system of prompt corrective action to
resolve certain problems of undercapitalized institutions. This system is based on five capital level categories for insured depository institutions: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. The federal banking agencies may (or in some cases must) take certain supervisory actions depending upon a banks capital level. For example, the banking
agencies must appoint a receiver or conservator for a bank within 90 days after it become critically undercapitalized unless the banks primary regulator determines, with the concurrence of the FDIC, that other action would better
achieve regulatory purposes. Banking operations otherwise may be significantly affected depending on a banks capital category. For example, a bank that is not well capitalized generally is prohibited from accepting brokered
deposits and offering interest rates on deposits higher than the prevailing rate in its market, and the holding company of any undercapitalized depository institution must guarantee, in part, specific aspects of the banks capital plan for the
plan to be acceptable.



Under the final rules implementing the prompt
corrective provisions:



| |  | A bank that has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio of 5% or greater is deemed to be
well capitalized;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A bank with a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater and a leverage ratio of 4% or greater (or a leverage ratio of 3% or
greater and a capital adequacy, asset quality, management administration, earnings and liquidity (or CAMEL 1 rating), is considered to be adequately capitalized;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A bank that has a total risk-based capital of less than 8%, a Tier 1 risk-based capital ratio of less than 4%, and a leverage ratio that is less than 4% (or a leverage ratio of less
than 3% and a CAMEL 1 rating), is considered undercapitalized;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  | A bank that has a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be
significantly undercapitalized; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | A bank that has tangible equity (Tier 1 capital minus intangible assets other than purchased mortgage servicing rights) to total assets ratio equal to or less than 2% is deemed to
be critically undercapitalized.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Companys
actual capital ratios are presented in the following table which shows the Company met all regulatory capital requirements.



|                                         |  |        |        |       |       |   |        |   |        |  |       |  
|---------------------------------------- |  | ------ | ------ | ----- | ----- | - | ------ | - | ------ |  | ----- | -
|                                         |  | 2003   |        |       | 2002  |  
|                                         |  | Amount |        | Ratio |       |   | Amount |   | Ratio  | 
|Total Capital (to Risk-weighted Assets)  |  |        |        |       |       |   |        |   |        |  |       |  
|Actual                                   |  | $      | 14,364 |       | 15.05 | % |        | $ | 13,304 |  | 16.00 | %
|For Capital Adequacy Purposes            |  |        | 7,636  |       | 8.00  |   |        |   | 6,652  |  | 8.00  |  
|To Be Well Capitalized                   |  |        | 9,545  |       | 10.00 |   |        |   | 8,315  |  | 10.00 |  
|Tier I Capital (to Risk-weighted Assets) |  |        |        |       |       |   |        |   |        |  |       |  
|Actual                                   |  | $      | 13,171 |       | 13.80 | % |        | $ | 12,263 |  | 14.75 | %
|For Capital Adequacy Purposes            |  |        | 3,818  |       | 4.00  |   |        |   | 3,326  |  | 4.00  |  
|To Be Well Capitalized                   |  |        | 5,727  |       | 6.00  |   |        |   | 4,988  |  | 6.00  |  
|Tier I Capital (to Average Assets)       |  |        |        |       |       |   |        |   |        |  |       |  
|Actual                                   |  | $      | 13,171 |       | 8.67  | % |        | $ | 12,263 |  | 9.38  | %
|For Capital Adequacy Purposes            |  |        | 6,080  |       | 4.00  |   |        |   | 5,229  |  | 4.00  |  
|To Be Well Capitalized                   |  |        | 7,600  |       | 5.00  |   |        |   | 6,537  |  | 5.00  |  



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##### Table of Contents

Limits on Dividends and Other Payments



There are various legal limitations on the extent to which subsidiary banks may finance or otherwise supply funds to their parent holding
companies. Under federal and Ohio law, subsidiary banks may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, their bank holding companies. Subsidiary banks are also subject to
collateral security requirements for any loans or extension of credit permitted by such exceptions. The Holding Companys banking subsidiary may not pay dividends out of its surplus if, after paying such dividends, it would fail to meet the
required minimum levels under certain risk-based capital guidelines and minimum leverage ratio requirements established by the FDIC. In addition, the Bank must have the approval of its regulatory authority if a dividend in any year would cause the
total dividends for that year to exceed the sum of the banks current years net profits (or net income, less dividends declared during the period based on regulatory accounting principles) and the retained net profits for the
preceding two years, less required transfers to surplus. Payment of dividends by The Farmers Citizens Bank may be restricted at any time at the discretion of its regulatory authorities, if such regulatory authorities deem such dividends to
constitute unsafe and/or unsound banking practices or if necessary to maintain adequate capital. The ability of a bank holding company to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of
dividends which may be declared by their subsidiary bank. However, the Federal Reserve Board expects bank holding companies to serve as a source of strength to their subsidiary bank(s), which may require them to retain capital for further investment
in their subsidiary bank(s), rather than for dividends for shareholders of the bank holding company. As stated previously, the subsidiary bank may not pay dividends to the Holding Company, if, after paying such dividends, the respective bank would
fail to meet the required minimum levels under the risk-based capital guidelines and the minimum leverage ratio requirements. Payment of dividends by the Bank may be restricted at any time at the discretion of its applicable regulatory authorities,
if they deem such dividends to constitute an unsafe and/or unsound banking practice. These provisions could have the effect of limiting the Holding Companys ability to pay dividends in future years.



Financial Services Modernization Act of 2000



The Gramm-Leach-Bliley Act (better known as the Financial Services Modernization Act of
2000) permits bank holding companies to become financial holding companies and thereby affiliate with securities and insurance companies and engage in other activities that are financial in nature. A bank holding company may become a financial
holding company if each of its subsidiary banks is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 (prompt corrective action provisions), is well managed, and has at least a satisfactory rating under the Community
Reinvestment Act, by filing a declaration that the bank holding company wishes to become a financial holding company. No regulatory approval will be required for a financial holding company to acquire a company, other than a bank or savings
association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.



The Financial Services Modernization Act defines financial in nature to include:



| |  | Securities underwriting, dealing and market making
| | - | --------------------------------------------------



| |  | Sponsoring mutual funds and investment companies
| | - | ------------------------------------------------



| |  | Insurance underwriting and agency
| | - | ---------------------------------



| |  | Merchant banking activities
| | - | ---------------------------



| |  | And activities that the Federal Reserve Board has determined to be closely related to banking
| | - | ---------------------------------------------------------------------------------------------



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##### Table of Contents

A national bank also may engage, subject to limitations or investment, in activities that are financial in nature, other
than insurance underwriting, insurance company portfolio investment, real estate development and real estate investment, through a financial subsidiary of the bank, if the bank is well capitalized, well managed and has at least a satisfactory
Community Reinvestment Act rating. Subsidiary banks of a financial holding company or national banks with financial subsidiaries must continue to be well capitalized and well managed in order to continue to engage in activities that are financial in
nature without regulatory actions or restrictions, which could include divestiture of the financial in nature subsidiary or subsidiaries. In addition, a financial holding company or a bank may not acquire a company that is engaged in activities that
are financial in nature unless each of the subsidiary banks of the financial holding company or the bank has a Community Reinvestment Act rating of satisfactory or better.



Recent Accounting Pronouncements



In December 2003, the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards (FAS) No. 132,
Employers Disclosures about Pension and Other Postretirement Benefit.This statement retains the disclosures required by FAS No. 132, which standardized the disclosure requirements for pensions and other postretirement benefits to the
extent practicable and requires additional information on changes in the benefit obligations and fair value of plan assets. Additional disclosures include information describing the types of plan assets, investment strategy, measurement date(s),
plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. This statement retains reduced disclosure requirements for nonpublic entities from FAS No. 132, and it includes reduced disclosure for
certain of the new requirements. This statement is effective for financial statements with fiscal years ending after December 15, 2003. The interim disclosures required by this statement are effective for interim periods beginning after December 15,
2003.



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



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



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



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##### Table of Contents

In April, 2003, the FASB issued FAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FAS No. 133. The amendments set forth in FAS No. 149
improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, this statement clarifies under what circumstances a contract with an initial net investment meets the characteristic
of a derivative as discussed in FAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. FAS No.149 amends certain other existing pronouncements. Those
changes will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. This statement is effective for contracts entered into or modified after
September 30, 2003, except as stated below and for hedging relationships designated after September 30, 2003. The guidance should be applied prospectively. The provisions of this statement that relate to FAS No. 133 Implementation Issues that have
been effective for fiscal quarters that began prior to September 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued
securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after September 30, 2003. The adoption of this statement did not have a material effect on the Companys
financial position or results of operations.



In May 2003, the FASB issued FAS
No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Such instruments may have been previously classified as equity. This statement is
effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September 15, 2003. The adoption of this statement did not have a material
effect on the Companys reported equity.



In November, 2002, the FASB
issued Interpretation No. 45, Guarantors Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain guarantees that it has issued. This interpretation clarifies that a guarantor is required to disclose (a) the nature of the guarantee, including the approximate term of the
guarantee, how the guarantee arose, and the events or circumstances that would require the guarantor to perform under the guarantee; (b) the maximum potential amount of future payments under the guarantee; (c) the carrying amount of the liability,
if any, for the guarantors obligations under the guarantee; and (d) the nature and extent of any recourse provisions or available collateral that would enable the guarantor to recover the amounts paid under the guarantee. This interpretation
also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the
guarantee in the event that the specified triggering events or conditions occur. The objective of the initial measurement of that liability is the fair value of the guarantee at its inception. The initial recognition and initial measurement
provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantors fiscal year-end. The disclosure requirements in this interpretation are effective
for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this interpretation did not have a material effect on the Companys financial position or results of operations.



In December 2003, the FASB issued a revision to Interpretation 46, Consolidation of Variable
Interest Entities, which established standards for identifying a variable interest entity (VIE) and for determining under what circumstances a VIE should be consolidated with its primary beneficiary. Application of this Interpretation is required in
financial statements of public entities that have interests in special-purpose entities for periods ending after December 15, 2003. Application by public entities, other than small business issuers, for all other types of VIEs is required in
financial statements for periods ending after March 15, 2004. Small business issuers must apply this Interpretation to all other types of VIEs at the end of the first reporting period ending after December 15, 2004. The adoption of this
Interpretation has not and is not expected to have a material effect on the Companys financial position or results of operations.



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##### Table of Contents

ITEM 2. Description of Property



The Banks
principal office is located at 105 Washington Square, Bucyrus, Ohio 44820. The Banks three branches are located at 1605 Marion Road, Bucyrus, Ohio, 123 East Main Street, Cardington, Ohio, and 250 West Sandusky Street, Fredericktown, Ohio. The
Bank owns all of the properties. The Bank currently supplies the Holding Company minimal office space at no cost.



ITEM 3. Legal Proceedings



The nature of the
Companys business generates a certain amount of litigation involving matters arising in the ordinary course of business. However, in the opinion of Management of the Bank, there are no proceedings pending to which the Bank is a party or to
which its property is subject, which, if determined adversely to the Bank, would be material in relation to the Banks undivided profits or financial condition, nor are there any proceedings pending other than ordinary routine litigation
incident to the business of the Bank. In addition, no other material proceedings are pending or are known to be threatened or contemplated against the bank by government authorities or others.



ITEM 4. Submission of Matters to a Vote of Security Holders



Not Applicable



PART II



ITEM 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.



Market Prices and Dividends



At December 31, 2003, the Company had approximately 600 shareholders of record. There is no established public trading market for the outstanding shares of the Companys Common Stock, although there have been a
limited number of private transactions known to the management of the Company. Based solely on information made available to the Company from a limited number of buyers and sellers, shares of the Companys Common Stock that have actually been
traded in private transactions since December 31,1994 were all traded between $18.00 and $30.98. There may, however, have been other transactions at other prices not known to management of the Company.



Payment of dividends by the Bank is subject to regulatory limitations and Ohio banking law.
Because cash available for dividend distribution to shareholders of the Company will initially only come from dividends paid by the Bank to the Company, these regulatory limitations on dividends by the Bank will affect the amount of funds available
for dividends by the Company.



Dividends by the Bank may be declared by the
Bank by its Board of Directors out of surplus. An Ohio bank must generally maintain surplus in an amount which is at least equal to the amount of its capital. In addition to other limitations under Ohio law with respect to the payment of dividends,
the approval of the Division of Financial Institutions is required for the declaration of dividends by an Ohio bank if the total of all dividends declared by such bank in any year exceeds the total of its net profits (as defined in Section 1117.02
of the Ohio Revised Code) for that year combined with its retained net profits for the preceding two years, less any required transfers to surplus or a fund for the retirement of any preferred stock or capital securities.



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



9



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##### Table of Contents

and depreciation of the assets of the Holding Company. The following table discloses relevant stock information by
quarter for 2003 and 2002.



|                  |  |          |       |         |   |          |  |          |       |  |   |      
|----------------- |  | -------- | ----- | ------- | - | -------- |  | -------- | ----- |  | - | -----
|                  |  | 03/31/03 |       | 6/30/03 |   | 09/30/03 |  | 12/31/03
|High              |  | $        | 26.25 |         | $ | 27.00    |  | $        | 29.00 |  | $ | 30.98
|Low               |  | $        | 26.25 |         | $ | 26.25    |  | $        | 27.00 |  | $ | 29.00
|Dividend Declared |  | $        | 0.18  |         | $ | 0.18     |  | $        | 0.18  |  | $ | 0.19 
|                  |  |          |       |        
|                  |  | 03/31/02 |       | 6/30/02 |   | 09/30/02 |  | 12/31/02
|High              |  | $        | 18.00 |         | $ | 23.50    |  | $        | 24.50 |  | $ | 27.50
|Low               |  | $        | 18.00 |         | $ | 18.00    |  | $        | 20.62 |  | $ | 24.20
|Dividend Declared |  | $        | 0.16  |         | $ | 0.16     |  | $        | 0.16  |  | $ | 0.18 



If, in the opinion of the applicable
federal bank regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the bank, could include the payment of dividends), such authority
may require, after notice and hearing, that such bank cease and desist from such practice. The Federal Reserve Board has similar authority with respect to bank holding companies. In addition, the Federal Reserve Bank and the FDIC have issued policy
statements which provide that insured banks and bank holding companies should generally only pay dividends out of current operating earnings. Finally, the federal bank regulatory authorities have established guidelines with respect to the
maintenance of appropriate levels of capital by a bank or bank holding company under their jurisdiction. Compliance with the standards set forth in such policy statements and guidelines could limit the amounts which subsidiaries can pay as dividends
and the amount of dividends which the Company and its subsidiaries may pay.



10



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##### Table of Contents

Five Year Consolidated Summary





|                                                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|-------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | - |  | ---- | ----------- | - |  | - | ----------- | -
|In thousands, except per common shareamounts and ratios  |  | 2003 |             |   | 2002 |   |             | 2001 |  |   | 2000        |   |  | 1999 |            
|Years Ended December 31,                                 |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Statements of Income                                     |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Interest Income                                          |  | $    | 7,181       |   |      | $ | 7,006       |      |  | $ | 6,881       |   |  | $    | 6,908       |   |  | $ | 6,456       |  
|Interest Expense                                         |  |      | 2,743       |   |      |   | 2,332       |      |  |   | 2,883       |   |  |      | 2,943       |   |  |   | 2,592       |  
|                                                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Net interest income                                      |  |      | 4,438       |   |      |   | 4,674       |      |  |   | 3,998       |   |  |      | 3,965       |   |  |   | 3,864       |  
|Provision for loan losses                                |  |      | 50          |   |      |   | (275        | )    |  |   | 0           |   |  |      | (134        | ) |  |   | (130        | )
|                                                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Net interest income after provision for loan losses      |  |      | 4,388       |   |      |   | 4,949       |      |  |   | 3,998       |   |  |      | 4,099       |   |  |   | 3,994       |  
|Noninterest income (A)                                   |  |      | 1,608       |   |      |   | 884         |      |  |   | 778         |   |  |      | 686         |   |  |   | 650         |  
|Noninterest expenses                                     |  |      | 4,590       |   |      |   | 4,601       |      |  |   | 3,620       |   |  |      | 3,594       |   |  |   | 3,215       |  
|                                                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Income before income taxes                               |  |      | 1,406       |   |      |   | 1,232       |      |  |   | 1,156       |   |  |      | 1,191       |   |  |   | 1,429       |  
|Income tax expense                                       |  |      | 201         |   |      |   | 180         |      |  |   | 193         |   |  |      | 305         |   |  |   | 358         |  
|                                                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Net income                                               |  | $    | 1,205       |   |      | $ | 1,052       |      |  | $ | 963         |   |  | $    | 886         |   |  | $ | 1,071       |  
|                                                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Net Income                                               |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Basic                                                    |  | $    | 2.10        |   |      | $ | 1.82        |      |  | $ | 1.62        |   |  | $    | 1.44        |   |  | $ | 1.70        |  
|Diluted                                                  |  |      | 2.09        |   |      |   | 1.81        |      |  |   | 1.60        |   |  |      | 1.42        |   |  |   | 1.67        |  
|Dividends declared                                       |  |      | 0.73        |   |      |   | 0.66        |      |  |   | 0.64        |   |  |      | 0.64        |   |  |   | 0.61        |  
|Stockholders equity                                     |  |      | 23.08       |   |      |   | 22.47       |      |  |   | 20.64       |   |  |      | 19.47       |   |  |   | 18.32       |  
|Stock price range                                        |  |      | 26.25-30.98 |   |      |   | 18.00-27.50 |      |  |   | 18.00-29.00 |   |  |      | 28.25-29.00 |   |  |   | 27.00-28.25 |  
|Selected Consolidated Balance Sheet Data at December 31, |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Assets                                                   |  | $    | 149,064     |   |      | $ | 132,390     |      |  | $ | 109,561     |   |  | $    | 100,131     |   |  | $ | 99,261      |  
|Investment securities                                    |  |      | 47,668      |   |      |   | 45,164      |      |  |   | 33,989      |   |  |      | 27,545      |   |  |   | 34,795      |  
|Loans (B)                                                |  |      | 87,022      |   |      |   | 71,555      |      |  |   | 61,038      |   |  |      | 62,679      |   |  |   | 55,975      |  
|Deposits                                                 |  |      | 102,468     |   |      |   | 97,012      |      |  |   | 85,753      |   |  |      | 84,927      |   |  |   | 86,959      |  
|Borrowed funds                                           |  |      | 32,200      |   |      |   | 21,246      |      |  |   | 10,094      |   |  |      | 2,258       |   |  |   | 29          |  
|Shareholders equity                                     |  |      | 13,287      |   |      |   | 12,908      |      |  |   | 12,179      |   |  |      | 11,776      |   |  |   | 11,353      |  
|Ratios (C)                                               |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Per $100 of average assets                               |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Net Interest Income (tax-equivalent basis)               |  | $    | 3.29        |   |      | $ | 3.86        |      |  | $ | 3.76        |   |  | $    | 4.36        |   |  | $ | 4.41        |  
|Provision for loan losses                                |  |      | 0.03        |   |      |   | (0.23       | )    |  |   | 0           |   |  |      | (0.14       | ) |  |   | (0.13       | )
|                                                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Net interest income after provision for loan losses      |  |      | 3.26        |   |      |   | 4.09        |      |  |   | 3.76        |   |  |      | 4.50        |   |  |   | 4.54        |  
|Non-interest income                                      |  |      | 1.10        |   |      |   | .76         |      |  |   | .77         |   |  |      | 0.69        |   |  |   | 0.69        |  
|Non-interest expense                                     |  |      | 3.13        |   |      |   | 3.83        |      |  |   | 3.45        |   |  |      | 3.85        |   |  |   | 3.57        |  
|                                                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Income before income taxes                               |  |      | 1.23        |   |      |   | 1.02        |      |  |   | 1.08        |   |  |      | 1.34        |   |  |   | 1.66        |  
|Income tax expense                                       |  |      | .41         |   |      |   | .15         |      |  |   | .18         |   |  |      | 0.44        |   |  |   | 0.55        |  
|                                                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Net income                                               |  | $    | 0.82        |   |      | $ | 0.87        |      |  | $ | 0.90        |   |  | $    | 0.90        |   |  | $ | 1.11        |  
|                                                         |  |      |             |   |      |   |             |      |  |   |             |   |  |      |             |   |  |   |             |  
|Leverage (D)                                             |  |      | 11.28       | x |      |   | 9.82        | x    |  |   | 9.06        | x |  |      | 8.68        | x |  |   | 8.35        | x
|Return on average shareholders equity                   |  |      | 9.27        | % |      |   | 8.59        | %    |  |   | 8.21        | % |  |      | 7.75        | % |  |   | 9.27        | %
|Average shareholders equity to average assets           |  |      | 8.87        | % |      |   | 10.16       | %    |  |   | 11.04       | % |  |      | 11.52       | % |  |   | 11.97       | %
|Dividend payout ratio                                    |  |      | 34.85       | % |      |   | 38.59       | %    |  |   | 39.66       | % |  |      | 44.48       | % |  |   | 35.81       | %
|Tier 1 capital ratio at December 31                      |  |      | 13.80       | % |      |   | 14.75       | %    |  |   | 16.82       | % |  |      | 18.40       | % |  |   | 19.35       | %
|Tier 1 and Tier 2 capital ratio at December 31           |  |      | 15.05       | % |      |   | 16.00       | %    |  |   | 18.09       | % |  |      | 19.70       | % |  |   | 20.62       | %
|Leverage ratio                                           |  |      | 8.67        | % |      |   | 9.38        | %    |  |   | 10.77       | % |  |      | 11.50       | % |  |   | 11.98       | %

---

|(A) | Includes gains (losses) from securities transactions of $436 in 2003, $37 in 2002, $40 in 2001, $19 in 2000 and $(3) in 1999.
|--- | -----------------------------------------------------------------------------------------------------------------------------

|(B) | Net of unearned income and allowance for loan loss.
|--- | ---------------------------------------------------

|(C) | Based on average balances and net income for the periods.
|--- | ---------------------------------------------------------

|(D) | The ratio of average assets to average shareholders equity.
|--- | -----------------------------------------------------------



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##### Table of Contents

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



General



FC Banc Corp. (the Company) is a bank holding company engaged in the business of commercial and retail banking through its subsidiary The Farmers Citizens Bank (the Bank or Farmers
Citizens), 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 accordance with accounting principles generally accepted in the United States of America. The Audit Committee of the Board of
Directors engaged S.R. Snodgrass AC, independent auditors, to audit the financial statements. The auditors report is included as a part of the 2003 Annual Report. To assist in understanding and evaluating major changes in the Companys
financial position and results of operations, two-, three-, and five-year comparisons are provided in tabular form for ease of comparison.



Forward-Looking Statements



In addition to the historical information contained herein, the following discussion contains forward-looking statements that involve risks and
uncertainties. Economic circumstances, the operations of the Bank, and the Companys actual results could differ significantly from those discussed in the forward-looking statements. Some of the factors that could cause or contribute to such
differences are discussed herein, but also include changes in economic conditions in the Companys market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in Farmers Citizens market area
and competition, which could cause actual results to differ materially from historical earnings and those presently anticipated or projected.



| | 1. | Managements determination of the amount of the allowance for loan losses as set forth under the captions Financial Condition, Comparison of Results of
Operations for the Years Ended December 31, 2003 and 2002;
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | Managements discussion of the liquidity of Farmers Citizens assets and regulatory capital of Farmers Citizens as set forth under Effects of Inflation/Changing
Prices and Liquidity and Interest Rate Sensitivity Management; and
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Managements analysis of the interest rate risk of Farmers Citizens as set forth under Effects of Inflation/Changing Prices and Liquidity and Interest Rate
Sensitivity Management.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Critical Accounting Policies



The Companys accounting policies are integral to understanding the
results reported. The accounting policies are described in detail in Note 1 of the consolidated financial statements. Our most complex accounting policies require managements judgment to ascertain the valuation of assets, liabilities,
commitments and contingencies. We have established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures
are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of our current accounting policies involving significant management valuation judgments.



12



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Other Than Temporary Impairment of Equity Securities



Equity securities are evaluated periodically to determine whether a decline
in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term
other than temporary is not intended to indicate that the decline is permanent. It indicates that the prospects for a near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values
equal to, or greater than, the carrying value of the investment. Once a decline in value is determined to be other than temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.



Allowance for Loan Losses



Arriving at an appropriate level of allowance for loan losses involves a
high degree of judgment. The Companys allowance for loan losses provides for probable losses based upon evaluations of known, and inherent risks in the loan portfolio.



Management uses historical information to assess the adequacy of the allowance for loan losses as well as the prevailing
business environment; as it is affected by changing economic conditions and various external factors, which may impact the portfolio in ways currently unforeseen. The allowance is increased by provisions for loan losses and by recoveries of loans
previously charged-off and reduced by loans charged-off. For a full discussion of the Companys methodology of assessing the adequacy of the reserve for loan losses, refer to Note 1 of Notes to Consolidated Financial Statements
commencing on page 32 of this Form 10-KSB.



Deferred Tax
Assets



We use an estimate of future earnings to
support our position that the benefit of our deferred tax assets will be realized. If future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be
realized and our net income will be reduced. Our deferred tax assets are described further in Note 9 of the consolidated financial statements.



Financial Condition



The Companys consolidated total assets amounted to $149.1 million at December 31, 2003, an increase of 12.59% over the $132.4 million at December
31, 2002. Such increase in assets was funded by an increase of $5.5 million increase in deposits and the $11.0 million net increase in borrowings.



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##### Table of Contents

LoanPortfolioLoans, as a component of earning assets, represent a significant portion of earning assets.
At December 31, 2003, the Banks real estate loans secured by 1-to-4 family residential properties were $43,908,000. Loans secured by farmland and loans to finance agricultural production and other loans to farmers were $12,483,000. As noted in
Note 4 of the Notes to Consolidated Financial Statements, the Bank also was a creditor for $2,486,000 of loans to related parties.



|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -- |  | ---- | ------ | -- |  | - | ------ | --
|In thousands, except ratios                      |  | 2003 |        |   | 2002 |   |        | 2001 |  |   | 2000    |    |  | 1999 |       
|Loans at December 31,                            |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Loans secured by real estate:                    |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Construction                                     |  | $    | 2,021  |   |      | $ | 558    |      |  | $ | 1,087   |    |  | $    | 841    |    |  | $ | 416    |   
|Commercial                                       |  |      | 23,514 |   |      |   | 22,029 |      |  |   | 19,753  |    |  |      | 20,515 |    |  |   | 20,148 |   
|Residential                                      |  |      | 43,908 |   |      |   | 32,227 |      |  |   | 26,104  |    |  |      | 27,665 |    |  |   | 23,770 |   
|Commercial, Financial, Agricultural              |  |      | 11,045 |   |      |   | 7,802  |      |  |   | 5,940   |    |  |      | 5,781  |    |  |   | 6,720  |   
|Consumer                                         |  |      | 6,534  |   |      |   | 8,939  |      |  |   | 8,154   |    |  |      | 7,877  |    |  |   | 4,921  |   
|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Total                                            |  | $    | 87,022 |   |      | $ | 71,555 |      |  | $ | 61,038  |    |  | $    | 62,679 |    |  | $ | 55,975 |   
|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Allowance for Loan Losses                        |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Balance at beginning of year                     |  | $    | 1,213  |   |      | $ | 1,499  |      |  | $ | 1,496   |    |  | $    | 1,732  |    |  | $ | 1,725  |   
|Provision for loan losses                        |  |      | 50     |   |      |   | (275   | )    |  |   | 0       |    |  |      | (134   | )  |  |   | (130   | ) 
|Charge-offs                                      |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Commercial and agricultural                      |  |      | 46     |   |      |   | 2      |      |  |   | 35      |    |  |      | 64     |    |  |   | 20     |   
|Consumer                                         |  |      | 41     |   |      |   | 23     |      |  |   | 56      |    |  |      | 51     |    |  |   | 48     |   
|Real estate                                      |  |      | 0      |   |      |   | 0      |      |  |   | 0       |    |  |      | 68     |    |  |   | 0      |   
|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Total Charge-offs                                |  |      | 87     |   |      |   | 25     |      |  |   | 91      |    |  |      | 183    |    |  |   | 68     |   
|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Recoveries                                       |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Commercial and agricultural                      |  |      | 5      |   |      |   | 1      |      |  |   | 32      |    |  |      | 39     |    |  |   | 183    |   
|Consumer                                         |  |      | 13     |   |      |   | 13     |      |  |   | 18      |    |  |      | 42     |    |  |   | 22     |   
|Real estate                                      |  |      | 0      |   |      |   | 0      |      |  |   | 44      |    |  |      | 0      |    |  |   | 0      |   
|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Total recoveries                                 |  |      | 18     |   |      |   | 14     |      |  |   | 94      |    |  |      | 81     |    |  |   | 205    |   
|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Net charge-offs (recoveries)                     |  |      | 69     |   |      |   | 11     |      |  |   | (3      | )  |  |      | 102    |    |  |   | (137   | ) 
|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Balance at end of year                           |  | $    | 1,194  |   |      | $ | 1,213  |      |  | $ | 1,499   |    |  | $    | 1,496  |    |  | $ | 1,732  |   
|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Allocation of Allowance for Loan Losses          |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Commercial                                       |  | $    | 745    |   |      | $ | 861    |      |  | $ | 1,187   |    |  | $    | 1,044  |    |  | $ | 1,296  |   
|Consumer                                         |  |      | 71     |   |      |   | 130    |      |  |   | 113     |    |  |      | 108    |    |  |   | 69     |   
|Real estate                                      |  |      | 184    |   |      |   | 222    |      |  |   | 190     |    |  |      | 199    |    |  |   | 168    |   
|Unallocated                                      |  |      | 194    |   |      |   | 0      |      |  |   | 9       |    |  |      | 145    |    |  |   | 199    |   
|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Total                                            |  | $    | 1,194  |   |      | $ | 1,213  |      |  | $ | 1,499   |    |  | $    | 1,496  |    |  | $ | 1,732  |   
|                                                 |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Credit Quality Ratios                            |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Net charge-offs as a percentage of average loans |  |      | 0.09   | % |      |   | 0.01   | %    |  |   | (0.00   | )% |  |      | 0.17   | %  |  |   | (.27   | )%
|Allowance for loan losses to                     |  |      |        |   |      |   |        |      |  |   |         |    |  |      |        |    |  |   |        |   
|Total loans at year-end                          |  |      | 1.37   | % |      |   | 1.69   | %    |  |   | 2.45    | %  |  |      | 2.39   | %  |  |   | 3.09   | % 
|Net charge-offs                                  |  |      | 17.30  |   |      |   | 110.27 |      |  |   | 499.67  |    |  |      | 14.67  |    |  |   | (12.64 | ) 
|Provision for loan losses to average loans       |  |      | 0.06   | % |      |   | (0.41  | )%   |  |   | 0.00    | %  |  |      | (0.23  | )% |  |   | (0.26  | )%
|Earnings coverage of net charge-offs             |  |      | 17.46  |   |      |   | 95.64  |      |  |   | (385.33 | )  |  |      | 11.68  |    |  |   | (10.47 | ) 



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##### Table of Contents

Average loans increased 19.63% in 2003 to represent 59.30% of average earning assets compared with 61.02%
in 2002. Year end total residential real estate loans of $43,908,000 represent approximately 50.45% of the total loans outstanding compared with to 45.03% for the previous year end. Consumer loans decreased from $8,939,000 in 2002 to $6,534,000 in
2003. Commercial, financial, and agricultural loans increased 41.57%, from $7,802,000 on December 31, 2002, to $11,045,000 on December 31, 2003. The following table sets forth the maturity of our loan portfolio as of December 31, 2003, which have
pre-determined interest rates and which have floating or adjustable rates. The table does not include prepayments or scheduled principal repayments. All loans are shown as maturing based on contractual maturities.



|                                        |  |              |  |          |  |              |  |           
|--------------------------------------- |  | ------------ |  | -------- |  | ------------ |  | ----------
|                                        |  | Within1 Year |  | 1-5Years |  | After 5Years |  | TotalLoans
|Fixed Rate                              |  |              |  |          |  |              |  |           
|                                        |  |              |  |         
|Loans Secured by Real Estate            |  | 2,526        |  | 15,662   |  | 45,335       |  | 63,523    
|Commercial, Financial, and Agricultural |  | 1,868        |  | 2,094    |  | 3,759        |  | 7,721     
|Consumer                                |  | 382          |  | 5,948    |  | 108          |  | 6,438     
|                                        |  |              |  |          |  |              |  |           
|Total Fixed                             |  | 4,776        |  | 23,704   |  | 49,202       |  | 77,682    
|                                        |  |              |  |         
|Adjustable Rate                         |  |              |  |          |  |              |  |           
|                                        |  |              |  |         
|Loans Secured by Real Estate            |  | 2,017        |  | 3,903    |  | 0            |  | 5,920     
|Commercial, Financial, and Agricultural |  | 3,190        |  | 134      |  | 0            |  | 3,324     
|Consumer                                |  | 96           |  | 0        |  | 0            |  | 96        
|                                        |  |              |  |          |  |              |  |           
|Total Adjustable                        |  | 5,303        |  | 4,037    |  | 0            |  | 9,340     
|                                        |  |              |  |         
|Total Loans                             |  | 10,079       |  | 27,741   |  | 49,202       |  | 87,022    



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##### Table of Contents

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 that are offered under the same credit standards as the loan portfolio. Management closely monitors the financial condition of potential creditors throughout the term of the instruments to
ensure that they maintain credit standards. Refer to Note 11 for additional information on off-balance sheet financial instruments. These arrangements could have a current or future effect on changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures, or capital resources. The company has various financial obligations, including contractual obligations and commitments, that may require future cash payments. The following table shows possible
contractual obligations and commitments:



Contractual Obligations,
Commitments, Continget Liabilities, and Off-balance Sheet arrangements



Contractual Obligations:



The following table presents as of
December 31, 2003 significant contractual obligations to third parties by payment date. Discussion of the obligations can be found in the notes to the consolidated financial statements.



|                                   |  |                 |        |                   |   |                    |  |                 |       |       |   |       |  |   |       
|---------------------------------- |  | --------------- | ------ | ----------------- | - | ------------------ |  | --------------- | ----- | ----- | - | ----- |  | - | ------
|                                   |  | Payments Due In
|(In thousands)                     |  | One Year orLess |        | One to ThreeYears |   | Three to FiveYears |  | Over Five Years |       | Total
|Deposits without a stated maturity |  | $               | 52,924 |                   | $ |                   |  | $               |      |       | $ |      |  | $ | 52,924
|Certificates of Deposit            |  |                 | 25,898 |                   |   | 20,435             |  |                 | 3,211 |       |   |      |  |   | 49,544
|Short-term Borrowings              |  |                 | 8,472  |                   |   |                   |  |                 |      |       |   |      |  |   | 8,472 
|Other Borrowings                   |  |                 | 2,773  |                   |   | 4,691              |  |                 | 8,174 |       |   | 8,090 |  |   | 23,728



Commitments



The following table presents as of December 31, 2003, the amounts and expected maturities of
significant commitments. Discussion of the obligations can be found in the notes to the consolidated financial statements.



|                             |  |                 |       |                   |   |                    |   |                 |   |       |   |      
|---------------------------- |  | --------------- | ----- | ----------------- | - | ------------------ | - | --------------- | - | ----- | - | -----
|(In thousands)               |  | One Year orLess |       | One to ThreeYears |   | Three to FiveYears |   | Over Five Years |   | Total
|Commitments to extend credit |  |                 |       |                   |   |                    |   |                 |   |       |   |      
|Commercial                   |  | $               | 2,217 |                   |  |                    |  |                 |  |       | $ | 2,217
|Residential real estate      |  |                 |      |                   |  |                    |  |                 |  |       |   |     
|Home Equity Lines            |  |                 | 2,551 |                   |  |                    |  |                 |  |       |   | 2,551
|Other                        |  |                 |      |                   |  |                    |  |                 |  |       |   |     
|Standby letters of credit    |  |                 | 85    |                   |  |                    |  |                 |  |       |   | 85   



Commitments to extend credit,
including loan commitments, and standby letters of credit do not necessarily represent future cash requirements, in that these commitments often expire without being drawn upon.



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##### Table of Contents

Nonperforming Assets Non-accrual loans as of December 31, 2003, were $191,000 compared with
$174,000 as of the previous year end. Loans which are contractually past due 90 days or more amounted to $8,000 as of December 31, 2003, and were $11,000 as of the previous year end. Management believes that the Allowance for Loan Losses is adequate
to cover any probable losses inherent in the loan portfolio at December 31, 2003. Refer to the section entitled Allowance for Loan Losses for additional detail. 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 past 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 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 is 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 as nonperforming (nonaccrual, restructured, past due 90-days or more, and
impaired) loans as of year-end 2003 and 2002 amounted to $199,000 and $185,000, respectively. Please refer to the following section entitled Allowance for Loan Losses for additional explanation.



Allowance for Loan Losses 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 probable 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. 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 market area of the Bank. 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. Management and the Board of
Directors, in determining the adequacy of the allowance for loan loss account on a quarterly basis, use the results of the quarterly credit reviews in conjunction with independent collateral evaluations.



A provision for loan losses of $50,000 was provided in 2003 as a result of
managements thorough analysis of the Banks portfolio and the factors surrounding the current market conditions. As of December 31, 2003, the reserve for loan losses was $1,194,000 which represents 1.37% of outstanding loans. The reserve
continues to exceed peer groups and both internal and external evaluations indicate that the levels of reserves are adequate given the risk within the loan portfolio. During 2002 management thoroughly reviewed the reserve for loan losses and
determined that a $275,000 negative provision was warranted and appropriate. In addition to the internal analysis, external reviews also indicated that the resulting reserve for loan losses was adequate as well as comparison to both peer groups and
industry standards. As of December 31, 2002, the reserve for loan losses was $1,213,000, which represents 1.69% of outstanding loans. This reserve, which is significantly higher than peer group, was increased in 1994 and 1995 specifically due to
loan concerns of the regulators. Current evaluations of our portfolio, both internally and through independent sources, indicate that that risk no longer exists. The negative provision was based upon our ongoing loan reviews and composites of the
loan portfolio which has a high concentration of loans secured by one to four family residential properties and other forms of collateral which are considered to have less risk. Current analysis indicates that this level of reserve is adequate given
the current economic trends, delinquency patterns and loan quality within the various portfolios.



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##### Table of Contents

The following table illustrates the allocation of the allowance for loan losses for each category of
loan. The allocation of the allowance to each category is not necessarily indicative of future loss in a particular category and does not restrict our use of the allowance to absorb losses in other loan categories.



|                        |  |                 |       |                                               |        |   |        |      |                                               |  |        |        |  |                                               |       |  |        |  
|----------------------- |  | --------------- | ----- | --------------------------------------------- | ------ | - | ------ | ---- | --------------------------------------------- |  | ------ | ------ |  | --------------------------------------------- | ----- |  | ------ | -
|                        |  | At December 31, |      
|                        |  | 2003            |       |                                               | 2002   |   |        | 2001 |                                              
|                        |  | Amount          |       | Percent ofLoans in EachCategory toTotal Loans |        |   | Amount |      | Percent ofLoans in EachCategory toTotal Loans |  |        | Amount |  | Percent ofLoans in EachCategory toTotal Loans |      
|Type of Loans:          |  |                 |       |                                               |        |   |        |      |                                               |  |        |        |  |                                               |       |  |        |  
|                        |  |                 |       |                                               |        |  
|Commercial & Commercial |  |                 |       |                                               |        |   |        |      |                                               |  |        |        |  |                                               |       |  |        |  
|Residential             |  | $               | 745   |                                               | 39.71  | % |        | $    | 861                                           |  | 41.69  | %      |  | $                                             | 1,187 |  | 42.09  | %
|Residential Real Estate |  |                 | 71    |                                               | 52.78  | % |        |      | 222                                           |  | 45.82  | %      |  |                                               | 190   |  | 44.55  | %
|Consumer                |  |                 | 184   |                                               | 7.51   | % |        |      | 130                                           |  | 12.49  | %      |  |                                               | 113   |  | 13.36  | %
|Unallocated             |  |                 | 194   |                                               | 0.00   | % |        |      | 0                                             |  | 0.00   | %      |  |                                               | 9     |  | 0.00   | %
|                        |  |                 |       |                                               |        |  
|Total                   |  | $               | 1,194 |                                               | 100.00 | % |        | $    | 1,213                                         |  | 100.00 | %      |  | $                                             | 1,499 |  | 100.00 | %



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##### Table of Contents

Investments The investment portfolio represents the second largest use of financial resources. The
investment portfolio of the Bank includes U.S. Government agency securities, obligations of states and political subdivisions, mortgage backed securities, and equity securities. 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, 2003 and 2002, the entire investment portfolio of the Bank was classified as available-for-sale.



The following table is a schedule of the maturity distributions and weighted average yield of investment securities as of December 31, 2003:



Available for Sale



|                                                 |  |                          |        |   |                          |   |        |                           |  |   |               |   |  |       |      |   |  |   |        |  
|------------------------------------------------ |  | ------------------------ | ------ | - | ------------------------ | - | ------ | ------------------------- |  | - | ------------- | - |  | ----- | ---- | - |  | - | ------ | -
|                                                 |  | Amortized Cost Maturing: |       
|                                                 |  | Within 1 Year            |        |   | After 1but within5 Years |   |        | After 5but within10 Years |  |   | After10 Years |   |  | Total |     
|                                                 |  | (Dollars in Thousands)   |       
|U. S. Government agency securities               |  | $                        | 3,500  |   |                          | $ | 2,770  |                           |  | $ | 1,500         |   |  | $     |     |   |  | $ | 7,770  |  
|Obligations of states and political Subdivisions |  |                          | 936    |   |                          |   | 5,831  |                           |  |   | 13,245        |   |  |       |     |   |  |   | 20,012 |  
|Other debt securities                            |  |                          | 8      |   |                          |   |       |                           |  |   |              |   |  |       |     |   |  |   | 8      |  
|Mortgage  backed securities (2)                 |  |                          | 7,649  |   |                          |   | 9,003  |                           |  |   | 2,526         |   |  |       | 524  |   |  |   | 19,702 |  
|                                                 |  |                          |        |   |                          |   |        |                           |  |   |               |   |  |       |      |   |  |   |        |  
|Total                                            |  | $                        | 12,093 |   |                          | $ | 17,604 |                           |  | $ | 17,271        |   |  | $     | 524  |   |  | $ | 47,492 |  
|                                                 |  |                          |        |   |                          |   |        |                           |  |   |               |   |  |       |      |   |  |   |        |  
|Weighted average yield (1)                       |  |                          | 4.67   | % |                          |   | 5.05   | %                         |  |   | 6.10          | % |  |       | 6.30 | % |  |   | 5.61   | %
|                                                 |  |                          |        |   |                          |   |        |                           |  |   |               |   |  |       |      |   |  |   |        |  

---

|(1) | Weighted average yields were computed on a tax equivalent basis using the federal income tax statutory rate and were determined on the basis of cost, adjusted for amortization of
premium or accretion of discount.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mortgage-backed securities provide for periodic principal repayments. It is anticipated that these securities will be repaid prior to their contractural maturity dates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Average investments increased by $12,128,000
from an average of $40,806,000 during 2002 to $52,934,000 during 2003, an increase of 29.72%. During the same period, the average balance of the federal funds sold decreased from $1,211,000 in 2002 to $888,000 in 2003. Federal funds sold are
consistently maintained at levels that will cover the short-term liquidity needs of the Bank. Because of changes in interest rates and the increases of borrowings, portions of the excess available funds were invested in investments. Average cash and
due from bank balances increased from $3,271,000 in 2002 to $3,956,000 in 2003. 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 to earnings is maintained.



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##### Table of Contents

DepositsThe Consolidated Average Balance Sheets and Related Yields and Rates table highlights
average deposits and interest rates during the last three years. Average deposits in 2003 have increased by approximately $11,549,000, or 14.91% from 2002 averages, which had increased $ 5,700,000, or 6.78% compared with 2001. The average cost of
deposits for the Bank was approximately 1.99% for the year ended December 31, 2003, compared with 2.34% and 3.52% for 2002 and 2001, respectively.



Short Term BorrowingsShort-term borrowings increased by $4.0 million, to $8.5 million at December 31, 2003, from $4.5 million at December 31,
2002. This was due to increases in repurchase agreement balances of $2.8 million and federal funds purchased of $1.2 million.



The outstanding balances and related information of short-term borrowings which includes securities sold under agreements to repurchase, are summarized as
follows:



|                                      |  |      |       |   |      |   |       |  
|------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                      |  | 2003 |       |   | 2002 |  
|Balance at year-end                   |  | $    | 8,472 |   |      | $ | 4,477 |  
|Average balance outstanding           |  |      | 6,019 |   |      |   | 5,136 |  
|Maximum month-end balance             |  |      | 9,971 |   |      |   | 6,697 |  
|Weighted-average rate at year-end     |  |      | 0.97  | % |      |   | 1.41  | %
|Weighted-average rate during the year |  |      | 1.08  | % |      |   | 1.71  | %



Average balances outstanding during
the year represent daily average balances, and average interest rates represent interest expense divided by the related average balance.



Other BorrowingsOther borrowings increased by $6.9 million, or 41.1%, to $23.7 million at December 31, 2003, from $16.8 million at December 31,
2002. Other borrowings have grown due to a return on equity enhancement strategy through the use of alternative sources of funds. In using this strategy, the bank borrows funds and invests that money in mortgage backed securities with a similar
average life. When entering into these transactions the bank earns an initial spread of at least 125 basis points. This spread was reduced significantly due to the historically high prepayment speeds of the mortgage backed securities during the
third quarter of 2003. .



The following table sets forth information concerning
other borrowings with the FHLB:



|                       |  |                |  |                                 |  |      |                           |  |      |                 |  |      |      |  |      |        |  |   |       
|---------------------- |  | -------------- |  | ------------------------------- |  | ---- | ------------------------- |  | ---- | --------------- |  | ---- | ---- |  | ---- | ------ |  | - | ------
|                       |  | Maturity range |  | Weighted- average Interest rate |  |      | Stated interestrate range |  |      | At December 31,
|Description            |  | from           |  | to                              |  |      | from                      |  |      | to              |  |      | 2003 |  | 2002
|Mortgage match         |  | 10/04/11       |  | 11/01/11                        |  | 4.99 | %                         |  | 4.99 | %               |  | 4.99 | %    |  | $    | 221    |  | $ | 914   
|Convertible            |  | 04/23/07       |  | 01/28/13                        |  | 4.15 |                           |  | 3.51 |                 |  | 4.57 |      |  |      | 13,000 |  |   | 10,500
|Convertible amortizing |  | 03/13/03       |  | 04/01/08                        |  | 2.38 |                           |  | 2.38 |                 |  | 2.38 |      |  |      | 4,367  |  |   |      
|Fixed rate             |  | 02/22/04       |  | 12/11/07                        |  | 4.83 |                           |  | 3.68 |                 |  | 5.47 |      |  |      | 3,000  |  |   | 3,000 
|CMP advances           |  | 08/01/07       |  | 02/01/08                        |  | 3.16 |                           |  | 2.69 |                 |  | 3.48 |      |  |      | 3,139  |  |   | 2,347 
|                       |  |                |  |                                 |  |      |                           |  |      |                 |  |      |      |  |      |        |  |   |       
|                       |  |                |  |                                 |  |      |                           |  |      |                 |  |      |      |  |      | 23,727 |  |   | 16,761
|Note payable           |  |                |  |                                 |  |      |                           |  |      |                 |  |      |      |  |      | 1      |  |   | 8     
|                       |  |                |  |                                 |  |      |                           |  |      |                 |  |      |      |  |      |        |  |   |       
|                       |  |                |  |                                 |  |      |                           |  |      |                 |  |      |      |  | $    | 23,728 |  | $ | 16,769
|                       |  |                |  |                                 |  |      |                           |  |      |                 |  |      |      |  |      |        |  |   |       



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##### Table of Contents

Maturities of other borrowings at December 31, 2003, are summarized as follows:



|                         |  |        |        |                       |      |  
|------------------------ |  | ------ | ------ | --------------------- | ---- | -
|Year Ending December 31, |  | Amount |        | Weighted-Average Rate |     
|2004                     |  | $      | 2,773  |                       | 3.74 | %
|2005                     |  |        | 1,820  |                       | 2.77 |  
|2006                     |  |        | 2,871  |                       | 3.67 |  
|2007                     |  |        | 7,740  |                       | 4.04 |  
|2008                     |  |        | 434    |                       | 2.59 |  
|2009 and after           |  |        | 8,091  |                       | 3.90 |  
|                         |  |        |        |                       |      |  
|                         |  | $      | 23,728 |                       | 3.79 | %
|                         |  |        |        |                       |      |  



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 five years are presented in the five-year
Consolidated Financial Summary. In 2003, the Average Shareholders Equity to Average Assets ratio decreased to 8.87%. The ratio of Return on Average Shareholders Equity increased to 9.27% in 2003 compared with 8.59% in 2002 and 8.21% in
2001. It should also be noted that the return on average assets for 2003 was .82% which was a decrease of 5 basis points from .87% in 2002 and a decrease of 3 basis points from .90% in 2001.



Banking regulations in 1989 established minimum capital ratios for banks. The
primary purpose of these requirements is to assess the risk 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, 2003,
the Companys risk-based capital ratio for Tier I and Tier II capital is 13.67% and 14.92%, respectively, thus meeting the required 4% and 8% for Tier I and Tier II capital. The five-year Consolidated Financial Summary table and Note 13 to the
Consolidated Financial Statements summarizes the risk-based capital of the Bank, leverage components, and ratios.



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##### Table of Contents

Consolidated Average Balance Sheets and Related Yields and Rates*



|                                               |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|---------------------------------------------- |  | --------------- | ------- | - | ------------------------ | - | --------------------- | ---- | ----- | --------------- |  | - | ------------------------ | - | --------------------- | - | ----- | --------------- | ----- | - | ------------------------ | - | --------------------- | - |  | - | ----- |  | ----- | -
|                                               |  | 2003            |         |   | 2002                     |   |                       | 2001 |      
|In thousands, except ratios                    |  | Average Balance |         |   | Interest Income/ Expense |   | Average Yields/ Rates |      |       | Average Balance |  |   | Interest Income/ Expense |   | Average Yields/ Rates |   |       | Average Balance |       |   | Interest Income/ Expense |   | Average Yields/ Rates |  
|Assets                                         |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Cash and due from banks                        |  | $               | 3,956   |   |                          |   |                       |      |       |                 |  | $ | 3,271                    |   |                       |   |       |                 |       |   |                          | $ | 3,045                 |   |  |   |       |  |       |  
|Federal Funds sold                             |  |                 | 888     |   |                          |   | 8                     |      | 0.99  | %               |  |   | 1,211                    |   |                       |   | 19    |                 | 1.57  | % |                          |   | 5,421                 |   |  |   | 194   |  | 3.58  | %
|Investment securities                          |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Taxable securities                             |  |                 | 36,425  |   |                          |   | 1,254                 |      | 3.44  | %               |  |   | 29,378                   |   |                       |   | 1,411 |                 | 4.80  | % |                          |   | 22,635                |   |  |   | 1,228 |  | 5.43  | %
|Tax-exempt securities                          |  |                 | 16,509  |   |                          |   | 1,065                 |      | 6.45  | %               |  |   | 11,428                   |   |                       |   | 755   |                 | 6.60  | % |                          |   | 6,454                 |   |  |   | 442   |  | 6.85  | %
|                                               |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Total Investment securities                    |  |                 | 52,934  |   |                          |   | 2,319                 |      | 4.38  | %               |  |   | 40,806                   |   |                       |   | 2,166 |                 | 5.31  | % |                          |   | 29,089                |   |  |   | 1,670 |  | 5.74  | %
|Loans                                          |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Real Estate                                    |  |                 | 46,068  |   |                          |   | 2,995                 |      | 6.50  | %               |  |   | 34.017                   |   |                       |   | 2,593 |                 | 7.62  | % |                          |   | 34,017                |   |  |   | 2,555 |  | 7.51  | %
|Consumer                                       |  |                 | 7,237   |   |                          |   | 538                   |      | 7.43  | %               |  |   | 8,603                    |   |                       |   | 751   |                 | 8.73  | % |                          |   | 7,897                 |   |  |   | 788   |  | 9.98  | %
|Commercial (includes real estate)              |  |                 | 25,263  |   |                          |   | 1,708                 |      | 6.76  | %               |  |   | 22,999                   |   |                       |   | 1,738 |                 | 7.56  | % |                          |   | 21,169                |   |  |   | 1,884 |  | 8.90  | %
|                                               |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Total loans                                    |  |                 | 78,502  |   |                          |   | 5,241                 |      | 6.67  | %               |  |   | 65,619                   |   |                       |   | 5,050 |                 | 7.74  | % |                          |   | 63,083                |   |  |   | 5,227 |  | 8.29  | %
|                                               |  |                 |         |   |                          |   |                       |      |      
|Total earning assets                           |  |                 | 132,390 |   |                          |   | 7,568                 |      | 5.72  | %               |  |   | 107,536                  |   |                       |   | 7,267 |                 | 6.75  | % |                          |   | 97,593                |   |  |   | 7,091 |  | 7.27  | %
|Allowance for loan losses                      |  |                 | (1,223  | ) |                          |   |                       |      |       |                 |  |   | (1,287                   | ) |                       |   |       |                 |       |   |                          |   | (1,487                | ) |  |   |       |  |       |  
|Other assets                                   |  |                 | 11,423  |   |                          |   |                       |      |       |                 |  |   | 10,824                   |   |                       |   |       |                 |       |   |                          |   | 7,047                 |   |  |   |       |  |       |  
|                                               |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Total assets                                   |  | $               | 146,546 |   |                          |   |                       |      |       |                 |  | $ | 120,444                  |   |                       |   |       |                 |       |   |                          | $ | 106,198               |   |  |   |       |  |       |  
|                                               |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Liabilities and Shareholders Equity           |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Non-interest-bearing deposits                  |  | $               | 13,172  |   |                          |   |                       |      |       |                 |  | $ | 12,262                   |   |                       |   |       |                 |       |   |                          |   | 11,970                |   |  |   |       |  |       |  
|Interest-bearing deposits                      |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|NOW accounts                                   |  |                 | 14,163  |   |                          |   | 33                    |      | 0.23  | %               |  |   | 12,682                   |   |                       |   | 89    |                 | 0.70  | % |                          |   | 11,723                |   |  |   | 158   |  | 1.35  | %
|Money market accounts                          |  |                 | 5,975   |   |                          |   | 71                    |      | 1.19  | %               |  |   | 5,306                    |   |                       |   | 130   |                 | 2.45  | % |                          |   | 5,827                 |   |  |   | 200   |  | 3.43  | %
|Savings accounts                               |  |                 | 15,585  |   |                          |   | 55                    |      | 0.35  | %               |  |   | 15,421                   |   |                       |   | 205   |                 | 1.33  | % |                          |   | 15,507                |   |  |   | 266   |  | 1.72  | %
|Time deposits                                  |  |                 | 53,302  |   |                          |   | 1,609                 |      | 3.02  | %               |  |   | 44,067                   |   |                       |   | 1,391 |                 | 3.16  | % |                          |   | 39,011                |   |  |   | 1,912 |  | 4.90  | %
|                                               |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Total interest-bearing deposits                |  |                 | 89,025  |   |                          |   | 1,768                 |      | 1.99  | %               |  |   | 77,476                   |   |                       |   | 1,815 |                 | 2.34  | % |                          |   | 72,068                |   |  |   | 2,536 |  | 3.52  | %
|Borrowed funds                                 |  |                 | 29,769  |   |                          |   | 975                   |      | 3.28  | %               |  |   | 16,777                   |   |                       |   | 517   |                 | 3.08  | % |                          |   | 9,094                 |   |  |   | 347   |  | 3.82  | %
|                                               |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Total interest-bearing liabilities             |  |                 | 118,794 |   |                          |   | 2,743                 |      | 2.31  | %               |  |   | 94,253                   |   |                       |   | 2,332 |                 | 2.47  | % |                          |   | 81,162                |   |  |   | 2,883 |  | 3.55  | %
|Other liabilities                              |  |                 | 1,585   |   |                          |   |                       |      |       |                 |  |   | 1,688                    |   |                       |   |       |                 |       |   |                          |   | 1,338                 |   |  |   |       |  |       |  
|                                               |  |                 |         |   |                          |   |                       |      |      
|Shareholders equity                           |  |                 | 12,995  |   |                          |   |                       |      |       |                 |  |   | 12,241                   |   |                       |   |       |                 |       |   |                          |   | 11,728                |   |  |   |       |  |       |  
|                                               |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Total liabilities and shareholders equity     |  | $               | 146,546 |   |                          |   |                       |      |       |                 |  | $ | 120,444                  |   |                       |   |       |                 |       |   |                          | $ | 106,198               |   |  |   |       |  |       |  
|                                               |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Net interest income (tax-equivalent basis)     |  |                 |         |   |                          | $ | 4,825                 |      |       |                 |  |   |                          |   |                       | $ | 4,935 |                 |       |   |                          |   |                       |   |  | $ | 4,208 |  |       |  
|                                               |  |                 |         |   |                          |   |                       |      |       |                 |  |   |                          |   |                       |   |       |                 |       |   |                          |   |                       |   |  |   |       |  |       |  
|Yield spread                                   |  |                 |         |   |                          |   |                       |      | 3.41  | %               |  |   |                          |   |                       |   |       |                 | 4.28  | % |                          |   |                       |   |  |   |       |  | 3.71  | %
|Net interest income to earnings assets         |  |                 |         |   |                          |   |                       |      | 3.64  | %               |  |   |                          |   |                       |   |       |                 | 4.58  | % |                          |   |                       |   |  |   |       |  | 4.31  | %
|Interest-bearing liabilities to earning assets |  |                 |         |   |                          |   |                       |      | 89.73 | %               |  |   |                          |   |                       |   |       |                 | 87.57 | % |                          |   |                       |   |  |   |       |  | 83.16 | %

---

|* | Interest income/expense and yield/rates are calculated on a tax-equivalent basis utilizing a federal incremental tax rate of 35% in 2003, 2002 and 2001. Non-accrual loans and the
related negative income effect have been included in the calculation of average rates.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|                                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|------------------------------------- |  | ------------------------------------------------------------------------ | ----- | - | ------------- | - | ------ | ----------- |  | - | --------------- | - |  | ------------- | - |  | ----------- | ------ | - |  | - | ---- | -
|                                      |  | Analysis of Changes in Net Interest Income on a Tax-Equivalent Basis (1) |      
|                                      |  | Change inVolume                                                          |       |   | Change inRate |   |        | TotalChange |  |   | Change inVolume |   |  | Change inRate |   |  | TotalChange |       
|Interest Income:                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Short-term investments:               |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Fed Funds Sold                        |  | $                                                                        | (8    | ) |               | $ | (3     | )           |  | $ | (11             | ) |  | $   155       |   |  | $           | (330   | ) |  | $ | (175 | )
|Investment securities:                |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Taxable                               |  |                                                                          | 295   |   |               |   | (452   | )           |  |   | (157            | ) |  | 336           |   |  |             | (153   | ) |  |   | 183  |  
|Tax-exempt (3)                        |  |                                                                          | 328   |   |               |   | (18    | )           |  |   | 310             |   |  | 330           |   |  |             | (17    | ) |  |   | 313  |  
|                                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Total investments                     |  |                                                                          | 623   |   |               |   | (470   | )           |  |   | 153             |   |  | 666           |   |  |             | (170   | ) |  |   | 496  |  
|                                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Loans:                                |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Residential mortgage loans            |  |                                                                          | 823   |   |               |   | (421   | )           |  |   | 402             |   |  |              |   |  |             | 38     |   |  |   | 38   |  
|Consumer                              |  |                                                                          | 148   |   |               |   | (361   | )           |  |   | (213            | ) |  | 67            |   |  |             | (104   | ) |  |   | (37  | )
|Commercial and Commercial Real Estate |  |                                                                          | 162   |   |               |   | (192   | )           |  |   | (30             | ) |  | 154           |   |  |             | (300   | ) |  |   | (146 | )
|                                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Total loans, net of discount          |  |                                                                          | 1,133 |   |               |   | (974   | )           |  |   | 159             |   |  | 221           |   |  |             | (366   | ) |  |   | (145 | )
|                                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Total Interest Income                 |  |                                                                          | 1,748 |   |               |   | (1,447 | )           |  |   | 301             |   |  | 1,042         |   |  |             | (866   | ) |  |   | 176  |  
|                                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Interest Expense:                     |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Interest-bearing deposits:            |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|NOW accounts                          |  |                                                                          | 9     |   |               |   | (65    | )           |  |   | (56             | ) |  | 12            |   |  |             | (81    | ) |  |   | (69  | )
|Money market accounts                 |  |                                                                          | 14    |   |               |   | (73    | )           |  |   | (59             | ) |  | (20           | ) |  |             | (50    | ) |  |   | (70  | )
|Savings accounts                      |  |                                                                          | 3     |   |               |   | (153   | )           |  |   | (150            | ) |  | (1            | ) |  |             | (60    | ) |  |   | (61  | )
|Certificates of deposit               |  |                                                                          | 281   |   |               |   | (63    | )           |  |   | 218             |   |  | 225           |   |  |             | (746   | ) |  |   | (521 | )
|                                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Total interest-bearing deposits       |  |                                                                          | 307   |   |               |   | (354   | )           |  |   | (47             | ) |  | 216           |   |  |             | (937   | ) |  |   | (721 | )
|Other borrowed funds                  |  |                                                                          | 428   |   |               |   | 30     |             |  |   | 458             |   |  | 247           |   |  |             | (77    | ) |  |   | 170  |  
|                                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Total interest expense                |  |                                                                          | 735   |   |               |   | (324   | )           |  |   | 411             |   |  | 463           |   |  |             | (1,014 | ) |  |   | (551 | )
|                                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  
|Net interest income                   |  | $                                                                        | 1,013 |   |               | $ | (1,123 | )           |  | $ | (110            | ) |  | $   579       |   |  | $           | 148    |   |  | $ | 727  |  
|                                      |  |                                                                          |       |   |               |   |        |             |  |   |                 |   |  |               |   |  |             |        |   |  |   |      |  

---

|(1) | The portion of the total change attributable to both volume and rate changes during the year has been allocated to volume and rate components based upon the absolute dollar amount
of the change in each component prior to allocation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Comparison of Results of Operations for the Years Ended December 31, 2003 and 2002



General Net income for the year-ended December 31, 2003, was
$1,205,000, an increase of $153,000, or 14.54%, over the $1,052,000 net income in 2002. The increase in net income resulted primarily from a decrease in noninterest expenses of $11,000 and an increase of $724,000 in noninterest income (an increase
in service charges on deposit accounts of $123,000, an increase in investment securities gain, net of $399,000, and the gain on the disposition of premises and equipment of $88,000). These increases were offset by a decrease in the net interest
margin of $236,000, and an increase in income taxes of $21,000. Also affecting net income in 2003 was a provision for loan losses of $50,000 which represents an increase of $325,000 over the negative provision in 2002.



Net Interest Income Interest income totaled $7,181,000 for the year
ended December 31, 2003, an increase of $175,000 or 2.50% from the $7,006,000 recorded in 2002. The average rate earned (taxable equivalent) on earning assets decreased from 6.75% in 2002 to 5.72% in 2003. Interest income on investment securities
increased by $20,000, or 1.03%, due to the increase in the size of the investment portfolio coupled with a decrease of 93 basis points in the weighted-average yield (taxable equivalent) year-to-year, from 5.31% in 2002 to 4.38% in 2003. Interest
income on federal funds sold decreased by $11,000 for the year ended December 31, 2003. The average balance invested in federal funds sold decreased by $323,000 compared with 2002. The yield on federal funds sold decreased from 1.57% in 2002 to
0.99% in 2003. Interest income on loans increased $166,000, or 3.29%, during 2003. The average yield on loans decreased from 7.74% in 2002 to 6.67% in 2003. Declining interest rate and historically high refinance levels all contributed to the
decrease in the yield on loans in 2003.



Interest expense
increased by $411,000, or 17.62%, during 2003, due primarily to the increased cost of borrowed funds and a modest decrease in the cost of deposits. The average cost of deposits decreased from 2.34% in 2002 to 1.99% in 2003. Interest expense on
borrowings increased by $458,000 due to the increase in average balance outstanding from $16,777,000 in 2002 to $29,769,000 in 2003. The yield on borrowed funds also increased from 3.08% in 2002 to 3.28% in 2003.



As a result of the forgoing changes in interest income and interest expense,
net interest income decreased by $236,000, or 5.05%, during 2003, as compared with 2002. This decrease was due mostly to overall growth of the Bank as interest rates earned on assets were decreasing, while the cost of funds (deposits and borrowings)
reduction was modest. The interest rate spread decreased by 87 basis points to 3.41% for 2003 as compared with 4.28% for 2003, while the net interest margin decreased by 94 basis points to 3.64% for year 2003 compared with 4.58% in 2002. The decline
in net interest income was the result of three continuing factors impacting 2003. First, the Federal Reserve continued to reduce rates in 2003. In general, a reduction of rates compresses the Banks interest margin. This has been a factor in
the Companys performance since 2002, but the impact was more pronounced in 2003. Many of the Companys deposit rates reached practical rate floors and could not be lowered further. The second factor impacting the net interest margin was
the decline in the Companys yield on its earning assets (investments and loans). Substantial prepayments in the Banks mortgage backed investment securities and significant refinancing activity of the Banks loan portfolio
contributed significantly to the decline in the earning asset yields. The third factor impacting the net interest margin in 2003 was the growth in the Real Estate Loan category. Average balances grew from $34,017 in 2002 to $46,068 in 2003, while
the average yield on the portfolio decreased from 7.62% in 2002 to 6.50% in 2003, a decrease of 112 basis points. The majority of the new loans in the mortgage category are 15- to 30- year 1-4 family mortgage loans. Should rates fall in 2004, the
inability to lower deposit rates further combined with competitive loan pricing pressure will be major factors in further net interest margin compression. Should the Board of Governors of the Federal Reserve System begin to increase interest rates,
the Company will experience deposit pricing pressure on its cost of deposits and must endeavor to reposition maturities on its earning assets to take advantage of a rising rate environment. The Banks sensitivity to interest rates is further
illustrated in the Interest rate Sensitivity Table presented immediately following the discussion of Liquidity and Interest Rate Sensitivity Management.



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Provision for Loan Losses Farmers Citizens maintains an allowance for loan losses in an amount,
which, in managements judgment, is adequate to absorb probable losses inherent in the loan portfolio. The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses, after net charge-offs
have been deducted, to bring the allowance to a level which is considered adequate to absorb potential losses inherent in the loan portfolio in accordance with generally accepted accounting principles (GAAP). The amount of the provision
is based on managements regular review of the loan portfolio and consideration of such factors as historical loss experience, generally prevailing economic conditions, changes in size and composition of the loan portfolio and considerations
relating to specific loans, including the ability of the borrower to repay the loan and the estimated value of the underlying collateral. Other factors include the performance of Banks loan portfolio, the economy, changes in real estate
values, interest rates and regulatory requirements regarding asset classifications. As a result of its analysis, management concluded that the allowance was adequate as of December 31, 2003. There can be no assurance that the allowance will be
adequate to cover future losses on nonperforming assets.



The
Bank experienced net charge-offs of $69,000 in 2003 compared with $11,000 in 2002. Farmers Citizens charge-off history is a product of a variety of factors, including Farmers Citizens underwriting guidelines and the composition of its
loan portfolio. An analysis of the Allowance for Loan Losses is presented in the Loan Information table.



Management provided an additional $50,000 to the Reserve for Loan Losses in 2003 to reflect the additional credit risk associated with the growth of the
Banks loan portfolio and the overall credit quality of the portfolio. There was a negative provision of $275,000 for possible loan losses in 2002. There was no provision for possible loan losses during 2001 and a negative provision of $134,000 in
2000. The negative provision in 2002 was based upon the results of managements quarterly reviews of the loan portfolio to identify problem and potential problem loans and to determine appropriate courses of action on a loan-by-loan basis.
Collection procedures are activated when a loan becomes past due.



The entire allowance for loan losses is available to absorb any particular loan loss. For analytical purposes, the allowance could be allocated based upon net historical charge-offs of each type of loan for the last five years. However, the
primary criteria used to determine the percentage allocation is based upon the losses experienced, 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. Please refer to the Loan Information table for the allocation of the allowance.



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, 2003. The Bank has no exposure from troubled debt to lesser-developed countries.



The allowance for loan losses to total loans at year-end ratio decreased to 1.37% in 2003 from 1.69% in 2002 and 2.45% in 2001. The decrease
was due primarily to the increase in the loan portfolio. An analysis of the Allowance for Loan Losses is presented in the Loan Information table.



Noninterest Income Noninterest income increased 81.90% from $884,000 in 2002 to $1,608,000 in 2003. This increase was due primarily to increases in
service charge income of $123,000, investment security gains, net of $399,000, and the gain on disposal of premises and equipment of $88,000. Noninterest income consists of service fee income from deposit accounts, loan fees, and increases in the
cash surrender values of life insurance policies.



NonInterest Expense Noninterest expense decreased slightly from $4,601,000 in 2002 to $4,590,000 in 2003. Salaries and employee benefits decreased by 6.97% or $163,000 in 2003. 2002 expense included the increase in salaries and
employee benefits attributable to the termination of the employment contract of the former President of the Company. Professional fees also increased in 2003 by 28.51% or $71,000 as a result of



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increased legal and professional costs. The increase in legal and professional fees was due mostly to research of
possible diversification of product lines. Net occupancy increased $103,000 or 15.37%, in 2003 to $773,000 from $670,000 in 2002. Non-interest expense consists of operating expense attributed to staffing (personnel costs), operation and maintenance
of bank buildings and equipment, banking service promotion, state franchise taxes and assessments, and other operating expenses.



Income Taxes The provision for federal income taxes totaled $201,000 for the fiscal year ended December 31, 2003, an increase of $21,000, or
11.67%, over the provision in 2002. The effective tax rates were 14.3% and 14.6% for the years ended December 31, 2003 and 2002. Impacting the tax provisions for the five years covered in the five-year consolidated financial summary is the level of
net income of the Bank and Holding Company, and the level of tax-exempt income on securities, which was $703,000, $498,000, $291,000, $269,000, and $318,000 for the years 2003, 2002, 2001, 2000, and 1999, respectively.



The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 109, Accounting for Income Taxes requiring 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 re-priced 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.



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Liquidity and Interest Rate Sensitivity Management Management utilizes several tools currently available to
monitor and ensure that liquid funds are available to satisfy the normal loan and deposit needs of its customers while taking advantage of investment opportunities as they arise in order to maintain consistent growth and interest income. Cash and
due from banks, marketable investment securities with maximum one-year maturities, and federal funds sold are the principal components of asset liquidity. The Interest Rate Sensitivity table indicates that the Bank has increased its
liability sensitive position in 2003. This is more beneficial in a period of declining interest rates since liabilities can be repriced at lower rates, should the bank have the ability to lower its liability costs. 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.



Interest Rate Sensitivity



|                                            |  |                                         |        |    |                        |   |        |                        |  |   |               |    |  |       |        |   |  |   |        
|------------------------------------------- |  | --------------------------------------- | ------ | -- | ---------------------- | - | ------ | ---------------------- |  | - | ------------- | -- |  | ----- | ------ | - |  | - | -------
|                                            |  | December 31, 2003 Repricing or Maturing
|In thousands, except ratios                 |  | Within 3 Months                         |        |    | Over 3 Monthsto 1 Year |   |        | Over 1 Year to 2 Years |  |   | After 2 Years |    |  | Total
|Loans                                       |  | $                                       | 9,419  |    |                        | $ | 14,474 |                        |  | $ | 8,384         |    |  | $     | 54,745 |   |  | $ | 87,022 
|Investment securities                       |  |                                         | 4,597  |    |                        |   | 7,717  |                        |  |   | 6,005         |    |  |       | 29,349 |   |  |   | 47,668 
|Other earning assets                        |  |                                         |       |    |                        |   |       |                        |  |   |              |    |  |       |       |   |  |   |       
|Other assets                                |  |                                         |       |    |                        |   |       |                        |  |   |              |    |  |       | 14,374 |   |  |   | 14,374 
|                                            |  |                                         |        |    |                        |   |        |                        |  |   |               |    |  |       |        |   |  |   |        
|Total assets                                |  | $                                       | 14,016 |    |                        | $ | 22,191 |                        |  | $ | 14,389        |    |  | $     | 98,468 |   |  |   | 149,064
|                                            |  |                                         |        |    |                        |   |        |                        |  |   |               |    |  |       |        |   |  |   |        
|Noninterest-bearing deposits                |  | $                                       |       |    |                        | $ |       |                        |  | $ |              |    |  | $     | 13,116 |   |  | $ | 13,116 
|Interest-bearing deposits                   |  |                                         | 13,036 |    |                        |   | 22,843 |                        |  |   | 19,713        |    |  |       | 33,760 |   |  |   | 89,352 
|Borrowed funds                              |  |                                         | 9,472  |    |                        |   |       |                        |  |   | 0             |    |  |       | 22,728 |   |  |   | 32,200 
|Other liabilities and equity                |  |                                         |       |    |                        |   |       |                        |  |   |              |    |  |       | 14,396 |   |  |   | 14,396 
|                                            |  |                                         |        |    |                        |   |        |                        |  |   |               |    |  |       |        |   |  |   |        
|Total liabilities and equity                |  | $                                       | 22,508 |    |                        | $ | 22,843 |                        |  | $ | 19,713        |    |  | $     | 84,000 |   |  | $ | 149,064
|                                            |  |                                         |        |    |                        |   |        |                        |  |   |               |    |  |       |        |   |  |   |        
|Gap*                                        |  | $                                       | (8,492 | )  |                        | $ | (652   | )                      |  | $ | (5,324        | )  |  | $     | 14,468 |   |  |   |        
|Cumulative gap                              |  |                                         | (8,492 | )  |                        |   | (9,144 | )                      |  |   | (14,468       | )  |  |       |        |   |  |   |        
|Cumulative gap as a percent of total assets |  |                                         | (5.70  | )% |                        |   | (6.13  | )%                     |  |   | (9.71         | )% |  |       | 0.00   | % |  |   |        
|                                            | 
|                                            |  | December 31, 2002 Repricing or Maturing
|In thousands, except ratios                 |  | Within 3 Months                         |        |    | Over 3 Monthsto 1 Year |   |        | Over 1 Year to 2 Years |  |   | After 2 Years |    |  | Total
|Loans                                       |  | $                                       | 8,792  |    |                        | $ | 16,304 |                        |  | $ | 11,360        |    |  | $     | 35,099 |   |  | $ | 71,555 
|Investment securities                       |  |                                         | 4,080  |    |                        |   | 9,823  |                        |  |   | 4,985         |    |  |       | 26,276 |   |  |   | 45,164 
|Other earning assets                        |  |                                         |       |    |                        |   |       |                        |  |   |              |    |  |       |       |   |  |   |       
|Other assets                                |  |                                         |       |    |                        |   |       |                        |  |   |              |    |  |       | 15,671 |   |  |   | 15,671 
|                                            |  |                                         |        |    |                        |   |        |                        |  |   |               |    |  |       |        |   |  |   |        
|Total assets                                |  | $                                       | 12,878 |    |                        | $ | 26,127 |                        |  | $ | 16,345        |    |  | $     | 77,046 |   |  |   | 132,390
|                                            |  |                                         |        |    |                        |   |        |                        |  |   |               |    |  |       |        |   |  |   |        
|Noninterest-bearing deposits                |  | $                                       |       |    |                        | $ |       |                        |  | $ |              |    |  | $     | 13,403 |   |  | $ | 13,403 
|Interest-bearing deposits                   |  |                                         | 14,539 |    |                        |   | 23,648 |                        |  |   | 12,084        |    |  |       | 33,338 |   |  |   | 83,609 
|Borrowed funds                              |  |                                         | 4,477  |    |                        |   |       |                        |  |   | 1,000         |    |  |       | 15,769 |   |  |   | 21,246 
|Other liabilities and equity                |  |                                         |       |    |                        |   |       |                        |  |   |              |    |  |       | 14,132 |   |  |   | 14,132 
|                                            |  |                                         |        |    |                        |   |        |                        |  |   |               |    |  |       |        |   |  |   |        
|Total liabilities and equity                |  | $                                       | 19,016 |    |                        | $ | 23,648 |                        |  | $ | 13,084        |    |  | $     | 76,642 |   |  | $ | 132,390
|                                            |  |                                         |        |    |                        |   |        |                        |  |   |               |    |  |       |        |   |  |   |        
|Gap*                                        |  | $                                       | (6,144 | )  |                        | $ | 2,479  |                        |  | $ | 3,261         |    |  | $     | 404    |   |  |   |        
|Cumulative gap                              |  |                                         | (6,144 | )  |                        |   | (3,665 | )                      |  |   | (404          | )  |  |       |        |   |  |   |        
|Cumulative gap as a percent of total assets |  |                                         | (4.63  | )% |                        |   | (2.76  | )%                     |  |   | (0.30         | )% |  |       | 0.00   | % |  |   |        



27



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##### Table of Contents

ITEM 7. FINANCIAL STATEMENTS.



REPORT OF INDEPENDENT AUDITORS



Board of Directors
and Stockholders

FC Banc Corp.



We have audited the accompanying consolidated balance sheet of FC Banc Corp. and subsidiary as of December 31, 2003 and 2002, and the related consolidated statements of
income, changes in stockholders equity, and cash flows for each of the three years in the period ended December 31, 2003. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of FC Banc Corp. and subsidiary
as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of
America.



/s/    S.R. Snodgrass, A.C.

Wexford, PA

January 30, 2004



28



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FC BANC CORP.

CONSOLIDATED BALANCE SHEET



|                                                                                          |  |                        |         |   |      |   |         |  
|----------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                                                                          |  | December 31,           |        
|                                                                                          |  | 2003                   |         |   | 2002 |  
|                                                                                          |  | (Dollars in thousands) |        
|ASSETS                                                                                    |  |                        |         |   |      |   |         |  
|Cash and due from banks                                                                   |  | $                      | 3,936   |   |      | $ | 4,825   |  
|Investment securities available for sale                                                  |  |                        | 47,668  |   |      |   | 45,164  |  
|Loans                                                                                     |  |                        | 87,022  |   |      |   | 71,555  |  
|Less allowance for loan losses                                                            |  |                        | 1,194   |   |      |   | 1,213   |  
|                                                                                          |  |                        |         |   |      |   |         |  
|Net loans                                                                                 |  |                        | 85,828  |   |      |   | 70,342  |  
|Premises and equipment                                                                    |  |                        | 6,746   |   |      |   | 7,023   |  
|Bank-owned life insurance                                                                 |  |                        | 2,874   |   |      |   | 2,757   |  
|Accrued interest and other assets                                                         |  |                        | 2,012   |   |      |   | 2,279   |  
|                                                                                          |  |                        |         |   |      |   |         |  
|TOTAL ASSETS                                                                              |  | $                      | 149,064 |   |      | $ | 132,390 |  
|                                                                                          |  |                        |         |   |      |   |         |  
|LIABILITIES                                                                               |  |                        |         |   |      |   |         |  
|Deposits:                                                                                 |  |                        |         |   |      |   |         |  
|Noninterest-bearing                                                                       |  | $                      | 13,116  |   |      | $ | 13,403  |  
|Interest-bearing demand                                                                   |  |                        | 15,388  |   |      |   | 13,058  |  
|Savings                                                                                   |  |                        | 15,031  |   |      |   | 15,223  |  
|Money Market                                                                              |  |                        | 9,389   |   |      |   | 5,134   |  
|Time                                                                                      |  |                        | 49,544  |   |      |   | 50,189  |  
|                                                                                          |  |                        |         |   |      |   |         |  
|Total deposits                                                                            |  |                        | 102,468 |   |      |   | 97,012  |  
|                                                                                          |  |                       
|Short-term borrowings                                                                     |  |                        | 8,472   |   |      |   | 4,477   |  
|Other borrowings                                                                          |  |                        | 23,728  |   |      |   | 16,769  |  
|Accrued interest and other liabilities                                                    |  |                        | 1,109   |   |      |   | 1,224   |  
|                                                                                          |  |                        |         |   |      |   |         |  
|TOTAL LIABILITIES                                                                         |  |                        | 135,777 |   |      |   | 119,482 |  
|                                                                                          |  |                        |         |   |      |   |         |  
|STOCKHOLDERS EQUITY                                                                      |  |                        |         |   |      |   |         |  
|Preferred stock of $25 par value; 750 shares authorized, no shares issued and outstanding |  |                        |        |   |      |   |        |  
|Common stock, no par value; 4,000,000 shares authorized, 665,632 shares issued            |  |                        | 832     |   |      |   | 832     |  
|Additional paid-in capital                                                                |  |                        | 1,361   |   |      |   | 1,364   |  
|Retained earnings                                                                         |  |                        | 13,248  |   |      |   | 12,463  |  
|Accumulated other comprehensive income                                                    |  |                        | 116     |   |      |   | 536     |  
|Treasury stock, at cost (89,983 and 91,205 shares)                                        |  |                        | (2,270  | ) |      |   | (2,287  | )
|                                                                                          |  |                        |         |   |      |   |         |  
|TOTAL STOCKHOLDERS EQUITY                                                                |  |                        | 13,287  |   |      |   | 12,908  |  
|                                                                                          |  |                        |         |   |      |   |         |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                |  | $                      | 149,064 |   |      | $ | 132,390 |  
|                                                                                          |  |                        |         |   |      |   |         |  



See
accompanying notes to consolidated financial statements.



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FC BANC CORP.

CONSOLIDATED STATEMENT OF INCOME



|                                                    |  |                         |       |      |   |       |      |  |   |      
|--------------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- | ---- |  | - | -----
|                                                    |  | Year Ended December 31,
|                                                    |  | 2003                    |       | 2002 |   |       | 2001
|                                                    |  | (Dollars in thousands) 
|INTEREST INCOME                                     |  |                         |       |      |   |       |      |  |   |      
|Interest and fees on loans                          |  | $                       | 5,216 |      | $ | 5,050 |      |  | $ | 5,192
|Federal funds sold                                  |  |                         | 8     |      |   | 19    |      |  |   | 193  
|Investment securities:                              |  |                         |       |      |   |       |      |  |   |      
|Taxable                                             |  |                         | 1,254 |      |   | 1,439 |      |  |   | 1,205
|Exempt from federal income tax                      |  |                         | 703   |      |   | 498   |      |  |   | 291  
|                                                    |  |                         |       |      |   |       |      |  |   |      
|Total interest income                               |  |                         | 7,181 |      |   | 7,006 |      |  |   | 6,881
|                                                    |  |                         |       |      |   |       |      |  |   |      
|INTEREST EXPENSE                                    |  |                         |       |      |   |       |      |  |   |      
|Deposits                                            |  |                         | 1,768 |      |   | 1,815 |      |  |   | 2,536
|Short-term borrowings                               |  |                         | 64    |      |   | 87    |      |  |   | 203  
|Other borrowings                                    |  |                         | 911   |      |   | 430   |      |  |   | 144  
|                                                    |  |                         |       |      |   |       |      |  |   |      
|Total interest expense                              |  |                         | 2,743 |      |   | 2,332 |      |  |   | 2,883
|                                                    |  |                         |       |      |   |       |      |  |   |      
|NET INTEREST INCOME                                 |  |                         | 4,438 |      |   | 4,674 |      |  |   | 3,998
|                                                    |  |                         |      
|Provision for loan losses                           |  |                         | 50    |      |   | (275  | )    |  |   |     
|                                                    |  |                         |       |      |   |       |      |  |   |      
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                         | 4,388 |      |   | 4,949 |      |  |   | 3,998
|                                                    |  |                         |       |      |   |       |      |  |   |      
|NONINTEREST INCOME                                  |  |                         |       |      |   |       |      |  |   |      
|Service charges on deposit accounts                 |  |                         | 655   |      |   | 532   |      |  |   | 470  
|Investment securities gains, net                    |  |                         | 436   |      |   | 37    |      |  |   | 40   
|Bank-owned life insurance earnings                  |  |                         | 117   |      |   | 161   |      |  |   | 128  
|Gain on sale of premises and equipment              |  |                         | 88    |      |   |      |      |  |   |     
|Other income                                        |  |                         | 312   |      |   | 154   |      |  |   | 140  
|                                                    |  |                         |       |      |   |       |      |  |   |      
|Total noninterest income                            |  |                         | 1,608 |      |   | 884   |      |  |   | 778  
|                                                    |  |                         |       |      |   |       |      |  |   |      
|NONINTEREST EXPENSE                                 |  |                         |       |      |   |       |      |  |   |      
|Salaries and employee benefits                      |  |                         | 2,175 |      |   | 2,338 |      |  |   | 1,691
|Net occupancy and equipment expenses                |  |                         | 773   |      |   | 670   |      |  |   | 659  
|Professional fees                                   |  |                         | 320   |      |   | 249   |      |  |   | 194  
|State franchise tax                                 |  |                         | 166   |      |   | 155   |      |  |   | 144  
|Data processing                                     |  |                         | 264   |      |   | 214   |      |  |   | 173  
|Other expense                                       |  |                         | 892   |      |   | 975   |      |  |   | 759  
|                                                    |  |                         |       |      |   |       |      |  |   |      
|Total noninterest expense                           |  |                         | 4,590 |      |   | 4,601 |      |  |   | 3,620
|                                                    |  |                         |       |      |   |       |      |  |   |      
|Income before income taxes                          |  |                         | 1,406 |      |   | 1,232 |      |  |   | 1,156
|Income taxes                                        |  |                         | 201   |      |   | 180   |      |  |   | 193  
|                                                    |  |                         |       |      |   |       |      |  |   |      
|NET INCOME                                          |  | $                       | 1,205 |      | $ | 1,052 |      |  | $ | 963  
|                                                    |  |                         |       |      |   |       |      |  |   |      
|EARNINGS PER SHARE                                  |  |                         |       |      |   |       |      |  |   |      
|Basic                                               |  | $                       | 2.10  |      | $ | 1.82  |      |  | $ | 1.62 
|Diluted                                             |  |                         | 2.09  |      |   | 1.81  |      |  |   | 1.60 



See accompanying notes to consolidated
financial statements.



30



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FC BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY



|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|---------------------------------------------------------------------------------------------------------------- |  | ---------------------- | --- | ------------------------ | - | ----- | ---------------- |  | - | ------------------------------------------ | - |  | ------------- | ---- | - | ------------------------ | - | ------ | ------------------- |  | - | ------ | - |  | - | ----- | -
|                                                                                                                 |  | CommonStock            |     | AdditionalPaid-inCapital |   |       | RetainedEarnings |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | TreasuryStock |      |   | TotalStockholdersEquity |   |        | ComprehensiveIncome | 
|                                                                                                                 |  | (Dollars in thousands) |    
|Balance, December 31, 2000                                                                                       |  | $                      | 832 |                          | $ | 1,366 |                  |  | $ | 11,212                                     |   |  | $             | (74  | ) |                          | $ | (1,560 | )                   |  | $ | 11,776 |   |  |   |       |  
|Net income                                                                                                       |  |                        |     |                          |   |       |                  |  |   | 963                                        |   |  |               |      |   |                          |   |        |                     |  |   | 963    |   |  | $ | 963   |  
|Other comprehensive income:                                                                                      |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Unrealized gain on available-for-sale securities, net of reclassification adjustment, net of taxes of $95        |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               | 183  |   |                          |   |        |                     |  |   | 183    |   |  |   | 183   |  
|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Comprehensive income                                                                                             |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  | $ | 1,146 |  
|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Cash dividends ($.64 per share)                                                                                  |  |                        |     |                          |   |       |                  |  |   | (382                                       | ) |  |               |      |   |                          |   |        |                     |  |   | (382   | ) |  |   |       |  
|Purchase of treasury stock                                                                                       |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   | (361   | )                   |  |   | (361   | ) |  |   |       |  
|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Balance, December 31, 2001                                                                                       |  |                        | 832 |                          |   | 1,366 |                  |  |   | 11,793                                     |   |  |               | 109  |   |                          |   | (1,921 | )                   |  |   | 12,179 |   |  |   |       |  
|Net income                                                                                                       |  |                        |     |                          |   |       |                  |  |   | 1,052                                      |   |  |               |      |   |                          |   |        |                     |  |   | 1,052  |   |  | $ | 1,052 |  
|Other comprehensive income:                                                                                      |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Unrealized gain on available-for-sale securities, net of reclassification adjustment, net of taxes of $220       |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               | 427  |   |                          |   |        |                     |  |   | 427    |   |  |   | 427   |  
|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Comprehensive income                                                                                             |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  | $ | 1,479 |  
|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Cash dividends ($.66 per share)                                                                                  |  |                        |     |                          |   |       |                  |  |   | (382                                       | ) |  |               |      |   |                          |   |        |                     |  |   | (382   | ) |  |   |       |  
|Purchase of treasury stock                                                                                       |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   | (406   | )                   |  |   | (406   | ) |  |   |       |  
|Exercise of stock options (1,600 shares)                                                                         |  |                        |     |                          |   | (2    | )                |  |   |                                            |   |  |               |      |   |                          |   | 40     |                     |  |   | 38     |   |  |   |       |  
|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Balance, December 31, 2002                                                                                       |  |                        | 832 |                          |   | 1,364 |                  |  |   | 12,463                                     |   |  |               | 536  |   |                          |   | (2,287 | )                   |  |   | 12,908 |   |  |   |       |  
|Net income                                                                                                       |  |                        |     |                          |   |       |                  |  |   | 1,205                                      |   |  |               |      |   |                          |   |        |                     |  |   | 1,205  |   |  | $ | 1,205 |  
|Other comprehensive loss:                                                                                        |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Unrealized loss on available-for-sale securities, net of reclassification adjustment, net of tax benefit of $216 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               | (420 | ) |                          |   |        |                     |  |   | (420   | ) |  |   | (420  | )
|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Comprehensive income                                                                                             |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  | $ | 785   |  
|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Cash dividends ($.73 per share)                                                                                  |  |                        |     |                          |   |       |                  |  |   | (420                                       | ) |  |               |      |   |                          |   |        |                     |  |   | (420   | ) |  |   |       |  
|Purchase of treasury stock                                                                                       |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   | (108   | )                   |  |   | (108   | ) |  |   |       |  
|Exercise of stock options (4,940 shares)                                                                         |  |                        |     |                          |   | (3    | )                |  |   |                                            |   |  |               |      |   |                          |   | 125    |                     |  |   | 122    |   |  |   |       |  
|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  
|Balance, December 31, 2003                                                                                       |  | $                      | 832 |                          | $ | 1,361 |                  |  | $ | 13,248                                     |   |  | $             | 116  |   |                          | $ | (2,270 | )                   |  | $ | 13,287 |   |  |   |       |  
|                                                                                                                 |  |                        |     |                          |   |       |                  |  |   |                                            |   |  |               |      |   |                          |   |        |                     |  |   |        |   |  |   |       |  



|                                                                          |  |      |      |   |      |   |     |      |  |   |     |  
|------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | --- | ---- |  | - | --- | -
|                                                                          |  | 2003 |      |   | 2002 |   |     | 2001 | 
|Components of comprehensive income (loss):                                |  |      |      |   |      |   |     |      |  |   |     |  
|Change in net unrealized gain (loss) on investments available for sale    |  | $    | (132 | ) |      | $ | 451 |      |  | $ | 209 |  
|Realized gains included in net income, net of taxes of $148, $13, and $14 |  |      | (288 | ) |      |   | (24 | )    |  |   | (26 | )
|                                                                          |  |      |      |   |      |   |     |      |  |   |     |  
|Total                                                                     |  | $    | (420 | ) |      | $ | 427 |      |  | $ | 183 |  
|                                                                          |  |      |      |   |      |   |     |      |  |   |     |  



See
accompanying notes to consolidated financial statements.



31



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##### Table of Contents

FC BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS



|                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                  |  | Year Ended December 31, |        
|                                                                                  |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|                                                                                  |  | (Dollars in thousands)  |        
|OPERATING ACTIVITIES                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income                                                                        |  | $                       | 1,205   |   |      | $ | 1,052   |      |  | $ | 963     |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |         |   |      |   |         |      |  |   |         |  
|Provision for loan losses                                                         |  |                         | 50      |   |      |   | (275    | )    |  |   |        |  
|Investment securities gains, net                                                  |  |                         | (436    | ) |      |   | (37     | )    |  |   | (40     | )
|Gain on sale of premises and equipment                                            |  |                         | (88     | ) |      |   |        |      |  |   |        |  
|Depreciation, amortization and accretion                                          |  |                         | 1,093   |   |      |   | 477     |      |  |   | 448     |  
|Deferred income taxes                                                             |  |                         | (48     | ) |      |   | 63      |      |  |   | 31      |  
|Decrease (increase) in accrued interest receivable                                |  |                         | (43     | ) |      |   | 5       |      |  |   | (51     | )
|Increase (decrease) in accrued interest payable                                   |  |                         | (11     | ) |      |   | 3       |      |  |   | (91     | )
|Earnings on bank-owned life insurance                                             |  |                         | (117    | ) |      |   | (161    | )    |  |   | (128    | )
|Other, net                                                                        |  |                         | 505     |   |      |   | (218    | )    |  |   | (167    | )
|                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                         |  |                         | 2,110   |   |      |   | 909     |      |  |   | 1,302   |  
|                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|INVESTING ACTIVITIES                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Investment securities available for sale:                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Proceeds from repayments and maturities                                           |  |                         | 19,637  |   |      |   | 16,177  |      |  |   | 15,566  |  
|Purchases                                                                         |  |                         | (41,296 | ) |      |   | (36,749 | )    |  |   | (21,952 | )
|Proceeds from sales                                                               |  |                         | 18,146  |   |      |   | 10,045  |      |  |   | 130     |  
|Decrease (increase) in loans, net                                                 |  |                         | (15,413 | ) |      |   | (10,660 | )    |  |   | 1,644   |  
|Purchases of premises and equipment                                               |  |                         | (176    | ) |      |   | (2,755  | )    |  |   | (2,835  | )
|Sale of premises and equipment                                                    |  |                         | 133     |   |      |   |        |      |  |   |        |  
|Purchase of regulatory stock                                                      |  |                         | (34     | ) |      |   | (462    | )    |  |   | (19     | )
|                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash used for investing activities                                            |  |                         | (19,003 | ) |      |   | (24,404 | )    |  |   | (7,447  | )
|                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|FINANCING ACTIVITIES                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Increase (decrease) in deposits, net                                              |  |                         | 5,456   |   |      |   | 11,259  |      |  |   | 826     |  
|Increase in short-term borrowings, net                                            |  |                         | 3,995   |   |      |   | 392     |      |  |   | 1,850   |  
|Proceeds from other borrowings                                                    |  |                         | 9,000   |   |      |   | 10,847  |      |  |   | 5,993   |  
|Repayments of other borrowings                                                    |  |                         | (2,041  | ) |      |   | (87     | )    |  |   | (7      | )
|Purchases of treasury stock                                                       |  |                         | (108    | ) |      |   | (406    | )    |  |   | (361    | )
|Proceeds from stock option exercises                                              |  |                         | 122     |   |      |   | 38      |      |  |   |        |  
|Cash dividends                                                                    |  |                         | (420    | ) |      |   | (382    | )    |  |   | (382    | )
|                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                                         |  |                         | 16,004  |   |      |   | 21,661  |      |  |   | 7,919   |  
|                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Increase (decrease) in cash and cash equivalents                                  |  |                         | (889    | ) |      |   | (1,834  | )    |  |   | 1,774   |  
|                                                                                  |  |                         |        
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    |  |                         | 4,825   |   |      |   | 6,659   |      |  |   | 4,885   |  
|                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                          |  | $                       | 3,936   |   |      | $ | 4,825   |      |  | $ | 6,659   |  
|                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|SUPPLEMENTAL INFORMATION                                                          |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash paid during the year for:                                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest on deposits and borrowings                                               |  | $                       | 2,754   |   |      | $ | 2,329   |      |  | $ | 2,974   |  
|Income taxes                                                                      |  |                         |        |   |      |   | 184     |      |  |   | 100     |  



See
accompanying notes to consolidated financial statements.





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##### Table of Contents

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



A summary of the significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows:



Nature of Operations and Basis of Presentation



FC Banc Corp. (the Company) is a bank holding company whose
principal activity is the ownership and management of its wholly owned subsidiary, Farmers Citizens Bank (the Bank). The Bank generates commercial (including agricultural), mortgage, and consumer loans and receives deposits from
customers located primarily in Crawford, Knox, and Morrow counties in Ohio and the surrounding areas. 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.



The consolidated financial statements include the accounts of FC Banc Corp. and its wholly owned subsidiary, Farmers Citizens Bank, after elimination of
all material intercompany transactions and balances.



The
accounting principles followed by the Company and the methods of applying these principles conform with accounting principles generally accepted in the United States of America and with general practice within the banking industry. Management is
required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the balance sheet date and revenues and expenses for that period. Actual results could
differ from those estimates.



Investment Securities



Currently, the Companys investment securities
portfolio is classified as available for sale. The portfolio serves principally as a source of liquidity and is carried at fair value with unrealized holding gains and losses for available-for-sale securities reported as a separate component of
stockholders equity, net of tax, until realized. Debt securities acquired with the intent to hold to maturity would be classified as held to maturity and carried at cost adjusted for amortization of premium and accretion of discount, which are
computed using the interest method and recognized as adjustments of interest income. Realized security gains and losses are computed using the specific identification method. Interest and dividends on investment securities are recognized as income
when earned.



Common stock of the Federal Home Loan Bank (the
FHLB), Federal Reserve Bank, and Great Lakes Bankers Bank represents ownership in institutions which are wholly owned by other financial institutions. These equity securities are accounted for at cost and are included in other assets.



33



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##### Table of Contents

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Loans



Loans are reported at their principal amount net of the allowance for loan losses. Interest income is recognized as income when earned on
the accrual method. The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrowers financial condition is such that collection of interest is doubtful. Loans are
returned to accrual status when past due interest is collected and the collection of principal probable.



Loan origination fees and certain direct loan origination costs are being differed and the net amount amortized as an adjustment of the
related loans yield. Management is amortizing these amounts over the contractual life of the related loans.



Allowance for Loan Losses



The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio.
The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses which is
charged to operations. The provision is based on managements periodic evaluation of the adequacy of the allowance for loan losses which encompasses the overall risk characteristics of the various portfolio segments, past experience with
losses, the impact of economic conditions on borrowers, and other relevant factors. The estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans,
are particularly susceptible to significant change in the near term.



A loan is considered impaired when it is probable the borrower will not repay the loan according to the original contractual terms of the loan agreement. Management has determined that first mortgage loans on
one-to-four family properties and all consumer loans represent large groups of smaller-balance homogeneous loans that are to be collectively evaluated. Loans that experience insignificant payment delays, which are defined as 90 days or less,
generally are not classified as impaired. A loan is not impaired during a period of delay in payment if the Company expects to collect all amounts due, including interest accrued at the contractual interest rate for the period of delay. All loans
identified as impaired are evaluated independently by management. The Company estimates credit losses on impaired loans based on the present value of expected cash flows or the fair value of the underlying collateral if the loan repayment is
expected to come from the sale or operation of such collateral.



Impaired loans, or portions thereof, are charged off when it is determined a realized loss has occurred. Until such time, an allowance for loan losses is maintained for estimated losses. Cash receipts on impaired
loans are applied first to accrued interest receivable unless otherwise required by the loan terms, except when an impaired loan is also a nonaccrual loan. Payments received on nonaccrual loans are recorded as income or applied against principal
according to managements judgment as to the collectibility of such principal.



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##### Table of Contents

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Premises and Equipment



Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is principally computed on the straight-line method over the
estimated useful lives of the related assets, which range from three to ten years for furniture, fixtures, and equipment and twenty-five to fifty years for building premises. Leasehold improvements are amortized over the shorter of their estimated
useful lives or their respective lease terms, which range from seven to fifteen years. Expenditures for maintenance and repairs are charged against income as incurred. Costs of major additions and improvements are capitalized.



Postretirement Benefits



The Company maintains a noncontributory defined post-retirement plan
covering all employees. The plan provides a level of life and health insurance to retirees which is based on their annual compensation prior to retirement.



Income Taxes



The Company and the Bank file a consolidated federal income tax return. Deferred tax assets and liabilities are reflected at currently enacted income tax
rates applicable to the period in which the deferred tax assets or 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.



Earnings Per Share



The Company provides dual presentation of basic and diluted earnings per
share. Basic earnings per share is calculated utilizing net income as reported in the numerator and average shares outstanding in the denominator. The computation of diluted earnings per share differs in that the dilutive effects of any stock
options, warrants, and convertible securities are adjusted in the denominator.



Stock Options



The Company maintains a stock option plan for key officers, employees, and non-employee directors. The Company accounts for the plan under provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Under this opinion, no compensation expense has been recognized with respect to the plan because the exercise price of the Companys employee stock options equals the market price of the underlying stock on the grant
date.



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##### Table of Contents

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Stock Options (Continued)



Had compensation expense for the stock option plans been recognized in accordance with the fair value accounting provisions of FAS No. 123, Accounting
for Stock-Based Compensation, net income applicable to common stock and basic and diluted net income per common share for the year ended December 31 would have been as follows:



|                                         |  |      |       |      |   |       |  |   |     
|---------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | ----
|                                         |  | 2003 |       | 2002 |   | 2001 
|Net income as reported                   |  | $    | 1,205 |      | $ | 1,052 |  | $ | 963 
|Less pro forma expense related to option |  |      | 39    |      |   | 39    |  |   | 52  
|                                         |  |      |       |      |   |       |  |   |     
|Pro forma net income                     |  | $    | 1,166 |      | $ | 1,013 |  | $ | 911 
|                                         |  |      |       |      |   |       |  |   |     
|Basic net income per common share:       |  |      |       |      |   |       |  |   |     
|As reported                              |  | $    | 2.10  |      | $ | 1.82  |  | $ | 1.62
|Pro forma                                |  |      | 2.03  |      |   | 1.75  |  |   | 1.53
|Diluted net income per common share:     |  |      |       |      |   |       |  |   |     
|As reported                              |  | $    | 2.09  |      | $ | 1.81  |  | $ | 1.60
|Pro forma                                |  |      | 2.02  |      |   | 1.75  |  |   | 1.52



For purposes of
computing pro forma results, the Company estimated the fair values of stock options using the Black-Scholes option pricing model. The model requires the use of subjective assumptions which can materially affect fair value estimates. Therefore, the
pro forma results are estimates of results of operations as if compensation expense had been recognized for the stock option plans. The fair value of each stock option granted was estimated using the following weighted-average assumptions:



|           |  |                       |   |  |                        |   |  |                    |   |  |                                 
|---------- |  | --------------------- | - |  | ---------------------- | - |  | ------------------ | - |  | --------------------------------
|Grant Year |  | ExpectedDividendYield |   |  | Risk-FreeInterest Rate |   |  | ExpectedVolatility |   |  | RemainingExpectedLife (in years)
|1997       |  | 1.10                  | % |  | 6.89                   | % |  | 6.41               | % |  | 9.32                            
|1998       |  | 1.05                  | % |  | 5.77                   | % |  | 27.00              | % |  | 9.18                            
|1999       |  | 1.02                  | % |  | 5.17                   | % |  | 15.25              | % |  | 9.24                            
|2000       |  | 1.02                  | % |  | 6.75                   | % |  | 5.56               | % |  | 9.05                            
|2001       |  | 1.03                  | % |  | 5.37                   | % |  | 3.59               | % |  | 9.51                            
|2002       |  | 1.03                  | % |  | 4.05                   | % |  | 16.50              | % |  | 9.89                            



Cash Flow
Information



The Company has defined cash and cash
equivalents as those amounts included in the balance sheet captions Cash and due from banks.



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|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Recent Accounting Pronouncements



In December 2003, the Financial Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards (FAS) No.
132, Employers Disclosures about Pension and Other Postretirement Benefit.This statement retains the disclosures required by FAS No. 132, which standardized the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, and requires additional information on changes in the benefit obligations and fair value of plan assets. Additional disclosures include information describing the types of plan assets, investment strategy, measurement
date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. This statement retains reduced disclosure requirements for nonpublic entities from FAS No. 132, and it includes reduced disclosure
for certain of the new requirements. This statement is effective for financial statements with fiscal years ending after December 15, 2003. The interim disclosures required by this statement are effective for interim periods beginning after December
15, 2003.



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



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



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



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##### Table of Contents

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Recent Accounting Pronouncements (Continued)



In April 2003, the FASB issued FAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and
clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FAS No. 133. The amendments set forth in FAS No. 149 improve financial reporting by requiring
that contracts with comparable characteristics be accounted for similarly. In particular, this statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in FAS No.
133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. FAS No.149 amends certain other existing pronouncements. Those changes will result in more consistent
reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. This statement is effective for contracts entered into or modified after September 30, 2003, except as stated below
and for hedging relationships designated after September 30, 2003. The guidance should be applied prospectively. The provisions of this statement that relate to FAS No. 133, Implementation Issues, that have been effective for fiscal quarters
that began prior to September 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do
not yet exist, should be applied to existing contracts as well as new contracts entered into after September 30, 2003. The adoption of this statement did not have a material effect on the Companys financial position or results of operations.



In May 2003, the FASB issued FAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.
It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Such instruments may have been previously classified as equity. This statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September 15, 2003. The adoption of this statement did not have a material effect on the Companys
reported equity.



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



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##### Table of Contents

|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Recent Accounting Pronouncements (Continued)



liability is the fair value of the guarantee at its inception. The initial recognition and initial measurement provisions of this interpretation are
applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantors fiscal year-end. The disclosure requirements in this interpretation are effective for financial statements of interim or
annual periods ending after December 15, 2002. The adoption of this interpretation did not have a material effect on the Companys financial position or results of operations.



In December 2003, the FASB issued a revision to Interpretation 46, Consolidation of Variable Interest Entities, which
established standards for identifying a variable interest entity (VIE) and for determining under what circumstances a VIE should be consolidated with its primary beneficiary. Application of this interpretation is required in financial statements of
public entities that have interests in special-purpose entities for periods ending after December 15, 2003. Application by public entities, other than small business issuers, for all other types of VIEs is required in financial statements for
periods ending after March 15, 2004. Small business issuers must apply this interpretation to all other types of VIEs at the end of the first reporting period ending after December 15, 2004. The adoption of this interpretation has not and is not
expected to have a material effect on the Companys financial position or results of operations.



Reclassification of Comparative Amounts



Certain items previously reported have been reclassified to conform with the current years format. Such reclassifications did not affect net income
or stockholders equity.



|2. | EARNINGS PER SHARE
|-- | ------------------



There are no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as
presented on the Consolidated Statement of Income will be used as the numerator. The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.



39



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##### Table of Contents

|2. | EARNINGS PER SHARE (Continued)
|-- | ------------------------------



|                                                                                                         |  |         |  |         |  |        
|-------------------------------------------------------------------------------------------------------- |  | ------- |  | ------- |  | -------
|                                                                                                         |  | 2003    |  | 2002    |  | 2001   
|Weighted-average common shares and common stock equivalents used to calculate basic earnings per share   |  | 574,954 |  | 579,444 |  | 596,213
|Additional common stock equivalents (stock options) used to calculate diluted earnings per share         |  | 2,335   |  | 871     |  | 3,658  
|                                                                                                         |  |         |  |         |  |        
|Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share |  | 577,289 |  | 580,315 |  | 599,871
|                                                                                                         |  |         |  |         |  |        



Options to purchase
14,500 shares of common stock at prices from $28 to $28.50, as of December 31, 2002, were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. There were no anti-dilutive shares at December
31, 2003.



|3. | INVESTMENT SECURITIES AVAILABLE FOR SALE
|-- | ----------------------------------------



The amortized cost and estimated market values of securities available for sale are as follows:



|                                                 |  |               |        |                      |   |                       |  |   |                      |   |  |   |       
|------------------------------------------------ |  | ------------- | ------ | -------------------- | - | --------------------- |  | - | -------------------- | - |  | - | ------
|                                                 |  | 2003         
|                                                 |  | AmortizedCost |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedMarketValue
|U.S. Government agency securities                |  | $             | 7,770  |                      | $ | 36                    |  | $ | (12                  | ) |  | $ | 7,794 
|Obligations of states and political subdivisions |  |               | 20,012 |                      |   | 329                   |  |   | (149                 | ) |  |   | 20,192
|Mortgage-backed securities                       |  |               | 19,702 |                      |   | 91                    |  |   | (119                 | ) |  |   | 19,674
|                                                 |  |               |        |                      |   |                       |  |   |                      |   |  |   |       
|Total debt securities                            |  |               | 47,484 |                      |   | 456                   |  |   | (280                 | ) |  |   | 47,660
|Equity securities                                |  |               | 8      |                      |   |                      |  |   |                     |   |  |   | 8     
|                                                 |  |               |        |                      |   |                       |  |   |                      |   |  |   |       
|Total                                            |  | $             | 47,492 |                      | $ | 456                   |  | $ | (280                 | ) |  | $ | 47,668
|                                                 |  |               |        |                      |   |                       |  |   |                      |   |  |   |       



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|3. | INVESTMENT SECURITIES AVAILABLE FOR SALE (Continued)
|-- | ----------------------------------------------------



|                                                 |  |               |        |                      |   |                       |  |   |                      |   |  |   |       
|------------------------------------------------ |  | ------------- | ------ | -------------------- | - | --------------------- |  | - | -------------------- | - |  | - | ------
|                                                 |  | 2002         
|                                                 |  | AmortizedCost |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedMarketValue
|U.S. Government agency securities                |  | $             | 6,487  |                      | $ | 147                   |  | $ |                     |   |  | $ | 6,634 
|Obligations of states and political subdivisions |  |               | 15,393 |                      |   | 300                   |  |   | (110                 | ) |  |   | 15,583
|Mortgage-backed securities                       |  |               | 2,413  |                      |   | 460                   |  |   | (1                   | ) |  |   | 22,872
|                                                 |  |               |        |                      |   |                       |  |   |                      |   |  |   |       
|Total debt securities                            |  |               | 44,293 |                      |   | 907                   |  |   | (111                 | ) |  |   | 45,089
|Equity securities                                |  |               | 58     |                      |   | 17                    |  |   |                     |   |  |   | 75    
|                                                 |  |               |        |                      |   |                       |  |   |                      |   |  |   |       
|Total                                            |  | $             | 44,351 |                      | $ | 924                   |  | $ | (111                 | ) |  | $ | 45,164
|                                                 |  |               |        |                      |   |                       |  |   |                      |   |  |   |       



The following table
shows the Companys gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 2003.



|                                                 |  |                         |        |                         |   |                      |  |                       |     |                      |   |                       |  |   |        |  |   |    
|------------------------------------------------ |  | ----------------------- | ------ | ----------------------- | - | -------------------- |  | --------------------- | --- | -------------------- | - | --------------------- |  | - | ------ |  | - | ---
|                                                 |  | Less than Twelve Months |        | Twelve Months orGreater |   | Total               
|                                                 |  | EstimatedMarketValue    |        | GrossUnrealizedLosses   |   | EstimatedMarketValue |  | GrossUnrealizedLosses |     | EstimatedMarketValue |   | GrossUnrealizedLosses
|U.S. Government agency securities                |  | $                       | 1,726  |                         | $ | 12                   |  | $                     |    |                      | $ |                      |  | $ | 1,726  |  | $ | 12 
|Obligations of states and political subdivisions |  |                         | 9,038  |                         |   | 147                  |  |                       | 257 |                      |   | 2                     |  |   | 9,295  |  |   | 149
|Mortgage-backed securities                       |  |                         | 11,606 |                         |   | 119                  |  |                       |    |                      |   |                      |  |   | 11,606 |  |   | 119
|                                                 |  |                         |        |                         |   |                      |  |                       |     |                      |   |                       |  |   |        |  |   |    
|Total                                            |  | $                       | 22,370 |                         | $ | 278                  |  | $                     | 257 |                      | $ | 2                     |  | $ | 22,627 |  | $ | 280
|                                                 |  |                         |        |                         |   |                      |  |                       |     |                      |   |                       |  |   |        |  |   |    



The Companys
investment securities portfolio contains unrealized losses of direct obligations of the U.S. Government, including mortgage-related instruments, issued or backed by the full faith and credit of the U.S. Government or are generally viewed as having
the implied guarantee of the U.S. Government, and debt obligations of a U.S. state or political subdivision.



On a monthly basis the Company evaluates the severity and duration of impairment for its investment securities portfolio unless the Company has the
ability to hold the security to maturity without incurring a loss. Generally, impairment is considered other than temporary when an investment security has sustained a decline of 10 percent or more for six months.



The Company has concluded that any impairment of its investment securities
portfolio is not other than temporary but is the result of interest rate changes that are not expected to result in the noncollection of principal and interest during the period.



41



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|3. | INVESTMENT SECURITIES AVAILABLE FOR SALE (Continued)
|-- | ----------------------------------------------------



The amortized cost and estimated market value of debt securities at December 31, 2003, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



|                                       |  |                |        |                        |   |       
|-------------------------------------- |  | -------------- | ------ | ---------------------- | - | ------
|                                       |  | Amortized Cost |        | Estimated Market Value
|Due after one year through five years  |  | $              | 2,604  |                        | $ | 2,647 
|Due after five years through ten years |  |                | 11,188 |                        |   | 11,194
|Due after ten years                    |  |                | 33,692 |                        |   | 33,819
|                                       |  |                |        |                        |   |       
|Total                                  |  | $              | 47,484 |                        | $ | 47,660
|                                       |  |                |        |                        |   |       



Investment securities
with a carrying value of $22,609 and $18,792 at December 31, 2003 and 2002, respectively, were pledged to secure deposits and other purposes as required by law.



The following is a summary of proceeds received, gross gains, and gross losses realized on the sale of investment securities
available for sale for the years ended December 31.



|                    |  |      |        |      |   |        |  |   |    
|------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ---
|                    |  | 2003 |        | 2002 |   | 2001  
|Proceeds from sales |  | $    | 18,146 |      | $ | 10,045 |  | $ | 130
|Gross gains         |  |      | 448    |      |   | 63     |  |   | 40 
|Gross losses        |  |      | 12     |      |   | 26     |  |   |   



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|4. | LOANS
|-- | -----



Major classifications of loans are summarized as follows:



|                                        |  |      |        |      |   |       
|--------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                        |  | 2003 |        | 2002
|Loans secured by real estate:           |  |      |        |      |   |       
|Residential                             |  | $    | 43,908 |      | $ | 32,227
|Commercial                              |  |      | 23,514 |      |   | 22,029
|Construction                            |  |      | 2,021  |      |   | 558   
|Commercial, financial, and agricultural |  |      | 11,045 |      |   | 7,802 
|Consumer                                |  |      | 6,534  |      |   | 8,939 
|                                        |  |      |        |      |   |       
|                                        |  |      | 87,022 |      |   | 71,555
|Less allowance for loan losses          |  |      | 1,194  |      |   | 1,213 
|                                        |  |      |        |      |   |       
|Net loans                               |  | $    | 85,828 |      | $ | 70,342
|                                        |  |      |        |      |   |       



Changes in the allowance for loan losses for the years ended December 31 are as follows:



|                                 |  |      |       |   |      |   |       |      |  |   |       |  
|-------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                 |  | 2003 |       |   | 2002 |   |       | 2001 | 
|Balance, January 1               |  | $    | 1,213 |   |      | $ | 1,499 |      |  | $ | 1,496 |  
|Add:                             |  |      |       |   |      |   |       |      |  |   |       |  
|Provisions charged to operations |  |      | 50    |   |      |   | (275  | )    |  |   |      |  
|Recoveries                       |  |      | 18    |   |      |   | 14    |      |  |   | 94    |  
|Less loans charged off           |  |      | (87   | ) |      |   | (25   | )    |  |   | (91   | )
|                                 |  |      |       |   |      |   |       |      |  |   |       |  
|Balance, December 31             |  | $    | 1,194 |   |      | $ | 1,213 |      |  | $ | 1,499 |  
|                                 |  |      |       |   |      |   |       |      |  |   |       |  



The Company grants
residential, commercial, and consumer loans to customers throughout its trade area which is concentrated in Crawford, Knox, and Morrow counties in Ohio. Although the Company has a diversified loan portfolio at December 31, 2003 and 2002, a
substantial portion of its debtors ability to honor their loan agreements is dependent upon the economic stability of its immediate trade area.



Certain directors and executive officers of the Company, members of their immediate families, and companies in which they are principal owners (i.e., at
least 10 percent) were indebted to the Company at December 31, 2003 and 2002. A summary of the activity on the related party loans to certain directors and executive officers and their related companies and immediate families consists of the
following:



|       |  |          |     |            |   |      |  |   |      
|------ |  | -------- | --- | ---------- | - | ---- |  | - | -----
|2002   |  | Advances |     | Repayments |   | 2003
|$2,432 |  | $        | 836 |            | $ | 782  |  | $ | 2,486



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|5. | PREMISES AND EQUIPMENT
|-- | ----------------------



Major classifications of premises and equipment are summarized as follows:



|                                    |  |      |       |      |   |      
|----------------------------------- |  | ---- | ----- | ---- | - | -----
|                                    |  | 2003 |       | 2002
|Land and land improvements          |  | $    | 799   |      | $ | 834  
|Building and leasehold improvements |  |      | 5,578 |      |   | 5,797
|Furniture, fixtures, and equipment  |  |      | 1,868 |      |   | 1,806
|                                    |  |      |       |      |   |      
|                                    |  |      | 8,245 |      |   | 8,437
|Less accumulated depreciation       |  |      | 1,499 |      |   | 1,414
|                                    |  |      |       |      |   |      
|Total                               |  | $    | 6,746 |      | $ | 7,023
|                                    |  |      |       |      |   |      



Depreciation charged
to operations was $408 in 2003, $308 in 2002, and $301 in 2001.



|6. | DEPOSITS
|-- | --------



Time deposits at December 31, 2003, mature $25,898, $15,697, $4,738, $1,548, and $1,663 during 2004, 2005, 2006, 2007, and 2008, respectively.



Time deposits include certificates of deposit in denominations of
$100,000 or more. Such deposits aggregated $14,217 and $13,895 at December 31, 2003 and 2002, respectively.



Maturities on time deposits of $100,000 or more at December 31, 2003, are as follows:



|                                    |  |   |       
|----------------------------------- |  | - | ------
|Within three months                 |  | $ | 1,673 
|Beyond three but within six months  |  |   | 3,525 
|Beyond six but within twelve months |  |   | 2,529 
|Beyond one year                     |  |   | 6,490 
|                                    |  |   |       
|Total                               |  | $ | 14,217
|                                    |  |   |       



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|7. | SHORT-TERM BORROWINGS
|-- | ---------------------



The outstanding balances and related information of short-term borrowings which includes securities sold under agreements to repurchase, are summarized as
follows:



|                                      |  |      |       |   |      |   |       |  
|------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                      |  | 2003 |       |   | 2002 |  
|Balance at year-end                   |  | $    | 8,472 |   |      | $ | 4,477 |  
|Average balance outstanding           |  |      | 6,019 |   |      |   | 5,136 |  
|Maximum month-end balance             |  |      | 9,971 |   |      |   | 6,697 |  
|Weighted-average rate at year-end     |  |      | 0.97  | % |      |   | 1.41  | %
|Weighted-average rate during the year |  |      | 1.08  | % |      |   | 1.71  | %



Average balances
outstanding during the year represent daily average balances, and average interest rates represent interest expense divided by the related average balance.



Investment securities with a carrying value of $7,512 and $4,892 at December 31, 2003 and 2002, respectively, were pledged as collateral for these
borrowings.



|8. | OTHER BORROWINGS
|-- | ----------------



The following table sets forth information concerning other borrowings with the FHLB:



|                       |      |                |    |                                |  |      |                            |  |      |                 |  |      |   |      |   |        |  |   |       
|---------------------- | ---- | -------------- | -- | ------------------------------ |  | ---- | -------------------------- |  | ---- | --------------- |  | ---- | - | ---- | - | ------ |  | - | ------
|Description            |      | Maturity range |    | Weighted- averageinterest rate |  |      | Stated interest rate range |  |      | At December 31,
|                       | from |                | to |                                |  | from |                            |  | To   |                 |  | 2003 |   | 2002
|Mortgage match         |      | 10/04/11       |    | 11/01/11                       |  | 4.99 | %                          |  | 4.99 | %               |  | 4.99 | % |      | $ | 221    |  | $ | 914   
|Convertible            |      | 04/23/07       |    | 01/28/13                       |  | 4.15 |                            |  | 3.51 |                 |  | 4.57 |   |      |   | 13,000 |  |   | 10,500
|Convertible amortizing |      | 03/13/03       |    | 04/01/08                       |  | 2.38 |                            |  | 2.38 |                 |  | 2.38 |   |      |   | 4,367  |  |   |      
|Fixed rate             |      | 02/22/04       |    | 12/11/07                       |  | 4.83 |                            |  | 3.68 |                 |  | 5.47 |   |      |   | 3,000  |  |   | 3,000 
|CMP advances           |      | 08/01/07       |    | 02/01/08                       |  | 3.16 |                            |  | 2.69 |                 |  | 3.48 |   |      |   | 3,139  |  |   | 2,347 
|                       |      |                |    |                                |  |      |                            |  |      |                 |  |      |   |      |   |        |  |   |       
|                       |      |                |    |                                |  |      |                            |  |      |                 |  |      |   |      |   | 23,727 |  |   | 16,761
|Note payable           |      |                |    |                                |  |      |                            |  |      |                 |  |      |   |      |   | 1      |  |   | 8     
|                       |      |                |    |                                |  |      |                            |  |      |                 |  |      |   |      |   |        |  |   |       
|                       |      |                |    |                                |  |      |                            |  |      |                 |  |      |   |      | $ | 23,728 |  | $ | 16,769
|                       |      |                |    |                                |  |      |                            |  |      |                 |  |      |   |      |   |        |  |   |       



Maturities of other
borrowings at December 31, 2003, are summarized as follows:



|                         |  |        |        |                        |      |  
|------------------------ |  | ------ | ------ | ---------------------- | ---- | -
|Year Ending December 31, |  | Amount |        | Weighted- Average Rate |     
|2004                     |  | $      | 2,773  |                        | 3.74 | %
|2005                     |  |        | 1,820  |                        | 2.77 |  
|2006                     |  |        | 2,871  |                        | 3.67 |  
|2007                     |  |        | 7,740  |                        | 4.04 |  
|2008                     |  |        | 434    |                        | 2.59 |  
|2009 and after           |  |        | 8,091  |                        | 3.90 |  
|                         |  |        |        |                        |      |  
|                         |  | $      | 23,728 |                        | 3.79 | %
|                         |  |        |        |                        |      |  



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|8. | OTHER BORROWINGS (Continued)
|-- | ----------------------------



The terms of the convertible borrowings allow the FHLB to convert the interest rate to an adjustable rate based on the three-month London Interbank
Offered Rate (LIBOR) at a predetermined anniversary year of the borrowings origination, ranging from one to seven years. These initial conversion dates range from October 2006 through March 2008. The fixed rate amortizing
borrowings require monthly payments of principal and interest of $45,457 through July 2007, $26,747 through January 2008, $88,473 through March 2008, and $2,796 through October 2011.



Borrowing capacity consists of credit arrangements with the FHLB of Cincinnati. FHLB borrowings are subject to annual
renewal, incur no service charges, and are secured by a blanket security agreement on certain investment and mortgage-backed securities, outstanding residential mortgages, and the Banks investment in FHLB stock. As of December 31, 2003, the
Banks maximum borrowing capacity with the FHLB was approximately $74,815.



|9. | INCOME TAXES
|-- | ------------



The provision for federal income taxes consists of:



|                |  |      |     |   |      |   |      |  |   |    
|--------------- |  | ---- | --- | - | ---- | - | ---- |  | - | ---
|                |  | 2003 |     |   | 2002 |   | 2001
|Current payable |  | $    | 249 |   |      | $ | 117  |  | $ | 162
|Deferred        |  |      | (48 | ) |      |   | 63   |  |   | 31 
|                |  |      |     |   |      |   |      |  |   |    
|Total provision |  | $    | 201 |   |      | $ | 180  |  | $ | 193
|                |  |      |     |   |      |   |      |  |   |    



The tax effects of
deductible and taxable temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:



|                                                 |  |      |     |      |   |     |  
|------------------------------------------------ |  | ---- | --- | ---- | - | --- | -
|                                                 |  | 2003 |     | 2002 |  
|Deferred tax assets                              |  |      |     |      |   |     |  
|Allowance for loan losses                        |  | $    | 81  |      | $ | 88  |  
|Accrued expenses and employee benefits           |  |      | 397 |      |   | 310 |  
|                                                 |  |      |     |      |   |     |  
|Deferred tax assets                              |  |      | 478 |      |   | 398 |  
|                                                 |  |      |     |      |   |     |  
|Deferred tax liabilities:                        |  |      |     |      |   |     |  
|Unrealized gain on available-for-sale securities |  |      | 60  |      |   | 276 |  
|Premises and equipment                           |  |      | 132 |      |   | 106 |  
|Other                                            |  |      | 52  |      |   | 46  |  
|                                                 |  |      |     |      |   |     |  
|Deferred tax liabilities                         |  |      | 244 |      |   | 428 |  
|                                                 |  |      |     |      |   |     |  
|Net deferred tax assets (liabilities)            |  | $    | 234 |      | $ | (30 | )
|                                                 |  |      |     |      |   |     |  



No valuation allowance
was established at December 31, 2003 and 2002, in view of the Banks ability to carryback taxes paid in previous years and certain tax strategies and anticipated future taxable income as evidenced by the Banks earnings potential.



46



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|9. | INCOME TAXES (Continued)
|-- | ------------------------



The reconciliation between the federal statutory rate and the Companys effective consolidated income tax rate is as follows:



|                                      |  |        |      |   |                     |       |   |        |   |      |                     |  |       |        |  |   |                     |   |  |      |  
|------------------------------------- |  | ------ | ---- | - | ------------------- | ----- | - | ------ | - | ---- | ------------------- |  | ----- | ------ |  | - | ------------------- | - |  | ---- | -
|                                      |  | 2003   |      |   | 2002                |       |   | 2001   |  
|                                      |  | Amount |      |   | % of Pre-Tax Income |       |   | Amount |   |      | % of Pre-Tax Income |  |       | Amount |  |   | % of Pre-Tax Income |  
|Provision at statutory rate           |  | $      | 478  |   |                     | 34.0  | % |        | $ | 419  |                     |  | 34.0  | %      |  | $ | 393                 |   |  | 34.0 | %
|Tax exempt interest                   |  |        | (232 | ) |                     | (16.5 | ) |        |   | (172 | )                   |  | (13.9 | )      |  |   | (106                | ) |  | (9.2 | )
|Life insurance income                 |  |        | (44  | ) |                     | (3.1  | ) |        |   | (55  | )                   |  | (4.5  | )      |  |   | (43                 | ) |  | (3.7 | )
|Other                                 |  |        | (1   | ) |                     | (0.1  | ) |        |   | (12  | )                   |  | (1.0  | )      |  |   | (51                 | ) |  | (4.4 | )
|                                      |  |        |      |   |                     |       |   |        |   |      |                     |  |       |        |  |   |                     |   |  |      |  
|Actual tax expense and effective rate |  | $      | 201  |   |                     | 14.3  | % |        | $ | 180  |                     |  | 14.6  | %      |  | $ | 193                 |   |  | 16.7 | %
|                                      |  |        |      |   |                     |       |   |        |   |      |                     |  |       |        |  |   |                     |   |  |      |  



|10. | EMPLOYEE BENEFITS
|--- | -----------------



Savings Plan



The Bank maintains a 401(k) retirement savings plan, with all employees eligible for inclusion in the plan. Participants may make salary
savings contributions up to 15 percent of their compensation, a portion of which will be matched by the Bank. Additional contributions to the plan may be made at the discretion of the Board of Directors based upon earnings of the Bank. Contributions
by the Bank charged to operations were $63, $41, and $68 for the years ended December 31, 2003, 2002, and 2001, respectively.



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|10. | EMPLOYEE BENEFITS (Continued)
|--- | -----------------------------



Directors Retirement



The Company maintains a directors retirement plan which provides that any director with 15 years of continuous service will receive an annual retirement
benefit equal to that directors board fees in the year before retirement. The annual retirement benefit will be paid for 15 years. The plan has been amended to provide for pro rata benefits for any director who is unable to satisfy the 15
years of continuous service requirement due to the mandatory directors retirement provision upon reaching 70 years of age. The Bank has purchased individual life insurance contracts with respect to this program. The Bank is the owner and
beneficiary of the insurance contracts. The expense charged to operations was $40 in 2003, $30 in 2002, and $30 in 2001.



Executive Compensation



The Company and the Bank entered into an Amended and Restated Salary Continuation Agreement dated July 10, 2001, with the former president. The former
president was dismissed on February 19, 2002. The Agreement provided that a benefit be paid for 15 years once he reaches normal retirement age of 65 if his employment is terminated before he attains the age of 65. The former president is entitled to
an early termination retirement benefit of $47,000 per year when he attains normal retirement age. The Company has recorded an accrual of $216,000 which represents the estimated present value (using a discount rate of 8 percent) of the total future
distributions. The Company has purchased an individual life insurance contract with respect to the retirement portion of this program. The Company is the owner and beneficiary of the insurance contract. The former president is a general creditor of
the Company with respect to this retirement benefit. The expense charged to operations was $16 in 2003, $51 in 2002, and $56 in 2001.



Additionally, the Agreement provided a benefit to be paid upon the early termination of the former president. During 2002, the Company paid $291 to the
former president under the terms of this agreement.



Postretirement Benefits



The Bank sponsors a
noncontributory postretirement plan providing health care coverage. The Banks funding policy is to contribute as billed with their normal health care plan. For 2003, 2002, and 2001, the aggregate contributions were $28, $28, and $28,
respectively.



The following table sets forth the plans
funded status at December 31, 2003 and 2002:



|                                                                                                                        |  |      |      |   |      |   |      |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | -
|                                                                                                                        |  | 2003 |      |   | 2002 |  
|Accumulated postretirement benefit obligation:                                                                          |  |      |      |   |      |   |      |  
|Retirees                                                                                                                |  | $    | 433  |   |      | $ | 511  |  
|Other active plan participants                                                                                          |  |      | 67   |   |      |   | 47   |  
|                                                                                                                        |  |      |      |   |      |   |      |  
|Total                                                                                                                   |  |      | 500  |   |      |   | 558  |  
|Plan assets at fair value                                                                                               |  |      |     |   |      |   |     |  
|                                                                                                                        |  |      |      |   |      |   |      |  
|Accumulated postretirement benefit obligation in excess of plan assets                                                  |  |      | 500  |   |      |   | 558  |  
|Prior service cost not yet recognized in net periodic postretirement benefit cost                                       |  |      | (221 | ) |      |   | (237 | )
|Unrecognized net gain (loss) from past experience different from that assumed and effects of any changes in assumptions |  |      | 41   |   |      |   | (30  | )
|Unrecognized transition obligation, net of amortization                                                                 |  |      | (96  | ) |      |   | (105 | )
|                                                                                                                        |  |      |      |   |      |   |      |  
|Accrued postretirement cost                                                                                             |  | $    | 224  |   |      | $ | 186  |  
|                                                                                                                        |  |      |      |   |      |   |      |  



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|10. | EMPLOYEE BENEFITS (Continued)
|--- | -----------------------------



Postretirement Benefits (Continued)



Postretirement expense for 2003, 2002, and 2001 includes the following components:



|                                      |  |      |    |      |   |      |  |   |   
|------------------------------------- |  | ---- | -- | ---- | - | ---- |  | - | --
|                                      |  | 2003 |    | 2002 |   | 2001
|Service cost                          |  | $    | 7  |      | $ | 6    |  | $ | 6 
|Interest cost                         |  |      | 34 |      |   | 19   |  |   | 19
|Amortization of transition obligation |  |      | 9  |      |   | 9    |  |   | 9 
|Amortization of prior service cost    |  |      | 16 |      |   |     |  |   |  
|                                      |  |      |    |      |   |      |  |   |   
|Total                                 |  | $    | 66 |      | $ | 34   |  | $ | 34
|                                      |  |      |    |      |   |      |  |   |   



For measurement
purposes a 10 percent and 8 percent annual rate of increase in the per capita of covered health care benefits for those under and over 65, respectively, was assumed for 2003 and 2002. The rate was assumed to decrease gradually to 6 percent at 2014
and remain at that level thereafter.



The weighted-average
discount rate used in determining the accumulated postretirement benefit obligation was 6 percent in 2003 and 7 percent in 2002.



Stock Option Plan



The Company has a fixed director and employee stock-based compensation plan. Under the plan, the Company may grant options for up to 65,004 shares of
common stock. The exercise price for the purchase of shares subject to a stock option may not be less than 100 percent of the fair market value of the shares covered by the option on the date of the grant. The term of stock options will not exceed
ten years from the date of grant.



The following table
presents share data related to the outstanding options:



|                         |  |        |   |  |                                |       |      |         |   |                                |   |      
|------------------------ |  | ------ | - |  | ------------------------------ | ----- | ---- | ------- | - | ------------------------------ | - | -----
|                         |  | 2003   |   |  | Weighted- AverageExercisePrice |       | 2002 |         |   | Weighted- AverageExercisePrice
|Outstanding, January 1   |  | 39,560 |   |  | $                              | 24.55 |      | 58,710  |   |                                | $ | 23.69
|Granted                  |  |       |   |  |                                |      |      | 2,860   |   |                                |   | 26.25
|Exercised                |  | (4,940 | ) |  |                                | 22.02 |      | (1,600  | ) |                                |   | 22.00
|Forfeited                |  |       |   |  |                                |      |      | (20,410 | ) |                                |   | 22.54
|                         |  |        |   |  |                                |       |      |         |   |                                |   |      
|Outstanding, December 31 |  | 34,620 |   |  | $                              | 24.91 |      | 39,560  |   |                                | $ | 24.55
|                         |  |        |   |  |                                |       |      |         |   |                                |   |      
|Exercisable at year-end  |  | 27,872 |   |  | $                              | 24.53 |      | 26,228  |   |                                | $ | 23.93
|                         |  |        |   |  |                                |       |      |         |   |                                |   |      



49



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|10. | EMPLOYEE BENEFITS (Continued)
|--- | -----------------------------



Stock Option Plan (Continued)



The following table summarizes the characteristics of stock options at December 31, 2003:



|           |  |               |       |                        |        |                      |      |        |   |                      |  |        |  |   |      
|---------- |  | ------------- | ----- | ---------------------- | ------ | -------------------- | ---- | ------ | - | -------------------- |  | ------ |  | - | -----
|Grant Date |  | ExercisePrice |       | Outstanding            |        | Exercisable         
|           |  | Shares        |       | ContractualAverageLife |        | AverageExercisePrice |      | Shares |   | AverageExercisePrice
|04/23/97   |  | $             | 22.00 |                        | 5,300  |                      | 3.31 |        | $ | 22.00                |  | 5,300  |  | $ | 22.00
|03/03/98   |  |               | 22.00 |                        | 10,460 |                      | 4.17 |        |   | 22.00                |  | 10,460 |  |   | 22.00
|03/24/99   |  |               | 28.00 |                        | 12,700 |                      | 5.22 |        |   | 28.00                |  | 10,160 |  |   | 28.00
|01/18/00   |  |               | 28.50 |                        | 1,800  |                      | 6.05 |        |   | 28.50                |  | 1,080  |  |   | 28.50
|07/01/01   |  |               | 22.40 |                        | 1,800  |                      | 7.50 |        |   | 22.40                |  | 600    |  |   | 22.40
|11/19/02   |  |               | 26.25 |                        | 2,860  |                      | 8.88 |        |   | 26.25                |  | 572    |  |   | 26.25



|11. | COMMITMENTS
|--- | -----------



In the normal course of business, there are various outstanding commitments and certain contingent liabilities which are not reflected in
the accompanying consolidated financial statements. These commitments and contingent liabilities represent financial instruments with off-balance sheet risk. The contract or notional amounts of those instruments reflect the extent of involvement in
particular types of financial instruments which consisted of the following:



|                             |  |      |       |      |   |      
|---------------------------- |  | ---- | ----- | ---- | - | -----
|                             |  | 2003 |       | 2002
|Commitments to extend credit |  | $    | 4,768 |      | $ | 3,608
|Standby letters of credit    |  |      | 85    |      |   | 100  
|                             |  |      |       |      |   |      
|Total                        |  | $    | 4,853 |      | $ | 3,708
|                             |  |      |       |      |   |      



The instruments
involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheet. The same credit policies are used in making commitments and conditional obligations as for on-balance sheet
instruments. Generally, collateral is not required to support financial instruments with credit risk. The terms are typically for a one-year period with an annual renewal option subject to prior approval by management.



Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the loan agreement. These commitments comprise available commercial and personal lines of credit. Standby letters of credit are conditional commitments issued to guarantee the performance of a
customer to a third party.



50



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|11. | COMMITMENTS (Continued)
|--- | -----------------------



The exposure to loss under these commitments is limited by subjecting them to credit approval and monitoring procedures. Substantially all commitments to
extend credit are contingent upon customers maintaining specific credit standards at the time of the loan funding. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the allowance for
loan losses. Since many of the commitments are expected to expire without being drawn upon, the contractual amounts do not necessarily represent future funding requirements.



Standby letters of credit represent conditional commitments issued by the Company to guarantee the performance of a customer
to a third party. These instruments are issued primarily to support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management.
Fees earned from the issuance of these letters are recognized at the expiration of the coverage period. For secured letters of credit, the collateral is typically Bank deposit instruments.



|12. | REGULATORY RESTRICTIONS
|--- | -----------------------



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. The required reserve at December 31, 2003 and 2002,
was $833 and $728, respectively.



Loans



Federal law prevents the Company from borrowing from the
Bank unless the loans are secured by specific obligations. Further, such secured loans are limited in amount of 10 percent of the Banks common stock and capital surplus.



Dividends



The Bank is subject to a dividend restriction which generally limits the amount of dividends that can be paid by an Ohio state-chartered bank. Under the
Ohio Banking Code, cash dividends may not exceed net profits as defined for that year combined with retained net profits for the two preceding years less any required transfers to surplus. Under this formula, the amount available for payment of
dividends in 2004 is $1,167 plus 2004 profits retained up to the date of the dividend declaration.



|13. | REGULATORY CAPITAL
|--- | ------------------



Federal regulations require the Company and the Bank to maintain minimum amounts of capital. Specifically, each is required to maintain certain minimum
dollar amounts and ratios of Total and Tier I capital to risk-weighted assets and of Tier I capital to average total assets.



In addition to the capital requirements, the Federal Deposit Insurance Corporation Improvement Act (FDICIA) established five capital
categories ranging from well capitalized to critically undercapitalized. Should any institution fail to meet the requirements to be considered adequately capitalized, it would become subject to a series of
increasingly restrictive regulatory actions.



As of December
31, 2003 and 2002, the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be classified as a well capitalized financial institution, Total risk-based, Tier 1 risk-based, and Tier 1 Leverage
capital ratios must be at least 10 percent, 6 percent, and 5 percent, respectively.



51



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|13. | REGULATORY CAPITAL (Continued)
|--- | ------------------------------



The Companys actual capital ratios are presented in the following table which shows the Company met all regulatory capital requirements. The capital
position of the Bank does not differ significantly from the Companys.



|                                         |  |        |        |       |       |   |        |   |        |  |       |  
|---------------------------------------- |  | ------ | ------ | ----- | ----- | - | ------ | - | ------ |  | ----- | -
|                                         |  | 2003   |        |       | 2002  |  
|                                         |  | Amount |        | Ratio |       |   | Amount |   | Ratio  | 
|Total Capital (to Risk-weighted Assets)  |  |        |        |       |       |   |        |   |        |  |       |  
|                                         |  |        |        |      
|Actual                                   |  | $      | 14,364 |       | 15.05 | % |        | $ | 13,304 |  | 16.00 | %
|For Capital Adequacy Purposes            |  |        | 7,636  |       | 8.00  |   |        |   | 6,652  |  | 8.00  |  
|To Be Well Capitalized                   |  |        | 9,545  |       | 10.00 |   |        |   | 8,315  |  | 10.00 |  
|                                         |  |        |        |      
|Tier I Capital (to Risk-weighted Assets) |  |        |        |       |       |   |        |   |        |  |       |  
|                                         |  |        |        |      
|Actual                                   |  | $      | 13,171 |       | 13.80 | % |        | $ | 12,263 |  | 14.75 | %
|For Capital Adequacy Purposes            |  |        | 3,818  |       | 4.00  |   |        |   | 3,326  |  | 4.00  |  
|To Be Well Capitalized                   |  |        | 5,727  |       | 6.00  |   |        |   | 4,988  |  | 6.00  |  
|                                         |  |        |        |      
|Tier I Capital (to Average Assets)       |  |        |        |       |       |   |        |   |        |  |       |  
|                                         |  |        |        |      
|Actual                                   |  | $      | 13,171 |       | 8.67  | % |        | $ | 12,263 |  | 9.38  | %
|For Capital Adequacy Purposes            |  |        | 6,080  |       | 4.00  |   |        |   | 5,229  |  | 4.00  |  
|To Be Well Capitalized                   |  |        | 7,600  |       | 5.00  |   |        |   | 6,537  |  | 5.00  |  



52



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|14. | FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
|--- | ----------------------------------------------



The estimated fair value of the Companys financial instruments at December 31 is as follows:



|                                         |  |                |         |            |   |                |  |            |        |  |   |       
|---------------------------------------- |  | -------------- | ------- | ---------- | - | -------------- |  | ---------- | ------ |  | - | ------
|                                         |  | 2003           |         | 2002      
|                                         |  | Carrying Value |         | Fair Value |   | Carrying Value |  | Fair Value
|Financial assets:                        |  |                |         |            |   |                |  |            |        |  |   |       
|Cash and due from banks                  |  | $              | 3,936   |            | $ | 3,936          |  | $          | 4,825  |  | $ | 4,825 
|Investment securities available for sale |  |                | 47,668  |            |   | 47,668         |  |            | 45,164 |  |   | 45,164
|Net loans                                |  |                | 85,828  |            |   | 87,983         |  |            | 70,342 |  |   | 72,260
|Bank-owned life insurance                |  |                | 2,874   |            |   | 2,874          |  |            | 2,757  |  |   | 2,757 
|Regulatory stock                         |  |                | 948     |            |   | 948            |  |            | 914    |  |   | 914   
|Accrued interest receivable              |  |                | 839     |            |   | 839            |  |            | 796    |  |   | 796   
|                                         |  |                |         |           
|Financial liabilities:                   |  |                |         |            |   |                |  |            |        |  |   |       
|Deposits                                 |  | $              | 102,468 |            | $ | 103,694        |  | $          | 97,012 |  | $ | 98,094
|Short-term borrowings                    |  |                | 8,472   |            |   | 8,472          |  |            | 4,477  |  |   | 4,477 
|Other borrowings                         |  |                | 23,728  |            |   | 24,386         |  |            | 16,769 |  |   | 17,326
|Accrued interest payable                 |  |                | 123     |            |   | 123            |  |            | 134    |  |   | 134   



Financial instruments
are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.



Fair value is defined as the amount at which a financial
instrument could be exchanged in a current transaction between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the
market price per trading unit of the instrument.



If no
readily available market exists, the fair value estimates for financial instruments should be based upon managements judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other
factors as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may
not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.



As certain assets such as deferred tax assets and premises
and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.



53



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|14. | FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS (Continued)
|--- | ----------------------------------------------------------



The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not
available based upon the following assumptions:



Cash and
Due From Banks, Regulatory Stock, Accrued Interest Receivable, Accrued Interest Payable, and Short-Term Borrowings



The fair value is equal to the current carrying value.



Bank-Owned Life Insurance



The fair value is equal to the cash surrender value of the life insurance policies.



Investment Securities



The fair value of investment securities available for sale and held to
maturity is equal to the available quoted market price. If no quoted market price is available, fair value is estimated using the quoted market price for similar securities.



Loans, Deposits, and Other Borrowings



The fair value of loans, certificates of deposit, and other borrowings is estimated by discounting the future cash flows
using a simulation model which estimates future cash flows and constructs discount rates that consider reinvestment opportunities, operating expenses, noninterest income, credit quality, and prepayment risk. Demand, savings, and money market deposit
accounts are valued at the amount payable on demand as of year-end.



Commitments to Extend Credit



These
financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value,
determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of
unfunded commitments and letters of credit are presented in Note 11.



54



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|15. | PARENT COMPANY
|--- | --------------



Following are condensed financial statements for the Company.



CONDENSED BALANCE SHEET



|                                           |  |              |        |      |   |       
|------------------------------------------ |  | ------------ | ------ | ---- | - | ------
|                                           |  | December 31,
|                                           |  | 2003         |        | 2002
|ASSETS                                     |  |              |        |      |   |       
|Cash and due from banks                    |  | $            | 41     |      | $ | 55    
|Investment securities available for sale   |  |              | 8      |      |   | 75    
|Investment in subsidiary bank              |  |              | 13,218 |      |   | 12,790
|Other assets                               |  |              | 22     |      |   | 3     
|                                           |  |              |        |      |   |       
|TOTAL ASSETS                               |  | $            | 13,289 |      | $ | 12,923
|                                           |  |              |        |      |   |       
|TOTAL LIABILITIES                          |  | $            | 2      |      | $ | 15    
|                                           |  |             
|STOCKHOLDERS EQUITY                       |  |              | 13,287 |      |   | 12,908
|                                           |  |              |        |      |   |       
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |  | $            | 13,289 |      | $ | 12,923
|                                           |  |              |        |      |   |       



CONDENSED STATEMENT OF
INCOME



|                                                                               |  |                         |       |      |   |       |  |   |    
|------------------------------------------------------------------------------ |  | ----------------------- | ----- | ---- | - | ----- |  | - | ---
|                                                                               |  | Year Ended December 31,
|                                                                               |  | 2003                    |       | 2002 |   | 2001 
|INCOME                                                                         |  |                         |       |      |   |       |  |   |    
|Dividends from subsidiary bank                                                 |  | $                       | 438   |      | $ | 771   |  | $ | 677
|Dividend income                                                                |  |                         | 1     |      |   | 3     |  |   | 5  
|Investment securities gains, net                                               |  |                         | 24    |      |   | 7     |  |   | 40 
|Other income                                                                   |  |                         | 1     |      |   | 2     |  |   | 3  
|                                                                               |  |                         |       |      |   |       |  |   |    
|Total income                                                                   |  |                         | 464   |      |   | 783   |  |   | 725
|                                                                               |  |                         |      
|EXPENSES                                                                       |  |                         |       |      |   |       |  |   |    
|Professional fees                                                              |  |                         | 95    |      |   | 78    |  |   | 33 
|Other                                                                          |  |                         | 20    |      |   | 15    |  |   | 15 
|                                                                               |  |                         |       |      |   |       |  |   |    
|Total expenses                                                                 |  |                         | 115   |      |   | 93    |  |   | 48 
|                                                                               |  |                         |      
|Income before tax benefit and equity in undistributed net income of subsidiary |  |                         | 349   |      |   | 690   |  |   | 677
|Income tax benefit                                                             |  |                         | 28    |      |   | 23    |  |   | 1  
|Equity in undistributed net income of subsidiary                               |  |                         | 828   |      |   | 339   |  |   | 285
|                                                                               |  |                         |       |      |   |       |  |   |    
|NET INCOME                                                                     |  | $                       | 1,205 |      | $ | 1,052 |  | $ | 963
|                                                                               |  |                         |       |      |   |       |  |   |    



55



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|15. | PARENT COMPANY (Continued)
|--- | --------------------------



CONDENSED STATEMENT OF CASH FLOWS



|                                                                                  |  |                         |       |   |      |   |       |      |  |   |      |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ----- | - | ---- | - | ----- | ---- |  | - | ---- | -
|                                                                                  |  | Year Ended December 31, |      
|                                                                                  |  | 2003                    |       |   | 2002 |   |       | 2001 | 
|OPERATING ACTIVITIES                                                              |  |                         |       |   |      |   |       |      |  |   |      |  
|Net income                                                                        |  | $                       | 1,205 |   |      | $ | 1,052 |      |  | $ | 963  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |       |   |      |   |       |      |  |   |      |  
|Equity in undistributed net income of subsidiary                                  |  |                         | (828  | ) |      |   | (339  | )    |  |   | (285 | )
|Investment securities gains, net                                                  |  |                         | (24   | ) |      |   | (7    | )    |  |   | (40  | )
|Other                                                                             |  |                         | (34   | ) |      |   | 45    |      |  |   |     |  
|                                                                                  |  |                         |       |   |      |   |       |      |  |   |      |  
|Net cash provided by operating activities                                         |  |                         | 319   |   |      |   | 751   |      |  |   | 638  |  
|                                                                                  |  |                         |       |   |      |   |       |      |  |   |      |  
|INVESTING ACTIVITIES                                                              |  |                         |       |   |      |   |       |      |  |   |      |  
|Investment securities available for sale:                                         |  |                         |       |   |      |   |       |      |  |   |      |  
|Proceeds from sales                                                               |  |                         | 73    |   |      |   | 22    |      |  |   | 130  |  
|                                                                                  |  |                         |       |   |      |   |       |      |  |   |      |  
|Net cash provided by investing activities                                         |  |                         | 73    |   |      |   | 22    |      |  |   | 130  |  
|                                                                                  |  |                         |       |   |      |   |       |      |  |   |      |  
|FINANCING ACTIVITIES                                                              |  |                         |       |   |      |   |       |      |  |   |      |  
|Purchase of treasury stock                                                        |  |                         | (108  | ) |      |   | (406  | )    |  |   | (361 | )
|Proceeds from stock option exercise                                               |  |                         | 122   |   |      |   | 38    |      |  |   |     |  
|Cash dividends                                                                    |  |                         | (420  | ) |      |   | (382  | )    |  |   | (382 | )
|                                                                                  |  |                         |       |   |      |   |       |      |  |   |      |  
|Net cash used for financing activities                                            |  |                         | (406  | ) |      |   | (750  | )    |  |   | (743 | )
|                                                                                  |  |                         |       |   |      |   |       |      |  |   |      |  
|Increase (decrease) in cash                                                       |  |                         | (14   | ) |      |   | 23    |      |  |   | 25   |  
|                                                                                  |  |                         |      
|CASH AT BEGINNING OF YEAR                                                         |  |                         | 55    |   |      |   | 32    |      |  |   | 7    |  
|                                                                                  |  |                         |       |   |      |   |       |      |  |   |      |  
|CASH AT END OF YEAR                                                               |  | $                       | 41    |   |      | $ | 55    |      |  | $ | 32   |  
|                                                                                  |  |                         |       |   |      |   |       |      |  |   |      |  



56



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|16. | QUARTERLY DATA
|--- | --------------



|                                                    |  |                    |         |               |   |                    |  |                   |         |  |   |        
|--------------------------------------------------- |  | ------------------ | ------- | ------------- | - | ------------------ |  | ----------------- | ------- |  | - | -------
|                                                    |  | Three Months Ended
|                                                    |  | March 31, 2003     |         | June 30, 2003 |   | September 30, 2003 |  | December 31, 2003
|Total interest income                               |  | $                  | 1,833   |               | $ | 1,780              |  | $                 | 1,709   |  | $ | 1,859  
|Total interest expense                              |  |                    | 673     |               |   | 708                |  |                   | 681     |  |   | 681    
|                                                    |  |                    |         |               |   |                    |  |                   |         |  |   |        
|Net interest income                                 |  |                    | 1,160   |               |   | 1,072              |  |                   | 1,028   |  |   | 1,178  
|Provision for loan losses                           |  |                    |        |               |   | 50                 |  |                   |        |  |   |       
|                                                    |  |                    |         |               |   |                    |  |                   |         |  |   |        
|Net interest income after provision for loan losses |  |                    | 1,160   |               |   | 1,022              |  |                   | 1,028   |  |   | 1,178  
|                                                    |  |                    |         |              
|Total noninterest income                            |  |                    | 322     |               |   | 347                |  |                   | 416     |  |   | 523    
|Total noninterest expense                           |  |                    | 1,148   |               |   | 1,043              |  |                   | 1,144   |  |   | 1,255  
|                                                    |  |                    |         |               |   |                    |  |                   |         |  |   |        
|Income before income taxes                          |  |                    | 334     |               |   | 326                |  |                   | 300     |  |   | 446    
|Income taxes                                        |  |                    | 54      |               |   | 53                 |  |                   | 21      |  |   | 73     
|                                                    |  |                    |         |               |   |                    |  |                   |         |  |   |        
|Net income                                          |  | $                  | 280     |               | $ | 273                |  | $                 | 279     |  | $ | 373    
|                                                    |  |                    |         |               |   |                    |  |                   |         |  |   |        
|Per share data:                                     |  |                    |         |               |   |                    |  |                   |         |  |   |        
|Net income                                          |  |                    |         |               |   |                    |  |                   |         |  |   |        
|Basic                                               |  | $                  | 0.49    |               | $ | 0.47               |  | $                 | 0.48    |  | $ | 0.65   
|Diluted                                             |  |                    | 0.49    |               |   | 0.47               |  |                   | 0.48    |  |   | 0.64   
|Average shares outstanding                          |  |                    |         |               |   |                    |  |                   |         |  |   |        
|Basic                                               |  |                    | 574,427 |               |   | 574,620            |  |                   | 575,682 |  |   | 575,704
|Diluted                                             |  |                    | 576,932 |               |   | 576,142            |  |                   | 577,346 |  |   | 579,172



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|16. | QUARTERLY DATA (Continued)
|--- | --------------------------



|                                                    |  |                    |         |   |              |   |         |                   |  |                  |         |  |   |         |  
|--------------------------------------------------- |  | ------------------ | ------- | - | ------------ | - | ------- | ----------------- |  | ---------------- | ------- |  | - | ------- | -
|                                                    |  | Three Months Ended |        
|                                                    |  | March 31,2002      |         |   | June 30,2002 |   |         | September 30,2002 |  | December 31,2002 |        
|Total interest income                               |  | $                  | 1,647   |   |              | $ | 1,736   |                   |  | $                | 1,637   |  | $ | 1,986   |  
|Total interest expense                              |  |                    | 538     |   |              |   | 466     |                   |  |                  | 757     |  |   | 571     |  
|                                                    |  |                    |         |   |              |   |         |                   |  |                  |         |  |   |         |  
|Net interest income                                 |  |                    | 1,109   |   |              |   | 1,270   |                   |  |                  | 880     |  |   | 1,415   |  
|Provision for loan losses                           |  |                    |        |   |              |   | (275    | )                 |  |                  |        |  |   |        |  
|                                                    |  |                    |         |   |              |   |         |                   |  |                  |         |  |   |         |  
|Net interest income after provision for loan losses |  |                    | 1,109   |   |              |   | 1,545   |                   |  |                  | 880     |  |   | 1,415   |  
|                                                    |  |                    |         |  
|Total noninterest income                            |  |                    | 173     |   |              |   | 198     |                   |  |                  | 408     |  |   | 105     |  
|Total noninterest expense                           |  |                    | 1,238   |   |              |   | 1,134   |                   |  |                  | 949     |  |   | 1,280   |  
|                                                    |  |                    |         |   |              |   |         |                   |  |                  |         |  |   |         |  
|Income before income taxes                          |  |                    | 44      |   |              |   | 609     |                   |  |                  | 339     |  |   | 240     |  
|Income taxes                                        |  |                    | (21     | ) |              |   | 163     |                   |  |                  | 61      |  |   | (23     | )
|                                                    |  |                    |         |   |              |   |         |                   |  |                  |         |  |   |         |  
|Net income                                          |  | $                  | 65      |   |              | $ | 446     |                   |  | $                | 278     |  | $ | 263     |  
|                                                    |  |                    |         |   |              |   |         |                   |  |                  |         |  |   |         |  
|Per share data:                                     |  |                    |         |   |              |   |         |                   |  |                  |         |  |   |         |  
|Net income                                          |  |                    |         |   |              |   |         |                   |  |                  |         |  |   |         |  
|Basic                                               |  | $                  | 0.11    |   |              | $ | 0.77    |                   |  | $                | 0.48    |  | $ | 0.45    |  
|Diluted                                             |  |                    | 0.11    |   |              |   | 0.77    |                   |  |                  | 0.48    |  |   | 0.45    |  
|Average shares outstanding                          |  |                    |         |   |              |   |         |                   |  |                  |         |  |   |         |  
|Basic                                               |  |                    | 583,089 |   |              |   | 579,862 |                   |  |                  | 579,862 |  |   | 578,648 |  
|Diluted                                             |  |                    | 583,089 |   |              |   | 579,862 |                   |  |                  | 582,010 |  |   | 581,468 |  



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PART III



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



(Not Applicable)



ITEM 8A  Controls and Procedures



The
Company, under the supervision, and with the participation, of its management, including the Companys Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Companys disclosure
controls and procedures pursuant to the requirements of Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective
as of December 31, 2003, in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys periodic SEC filings.



There was no change in the Companys internal control over financial reporting that
occurred during the Companys fiscal quarter ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



ITEM 9. Directors and Executive Officers of the Registrant



The information set forth under the caption FIRST PROPOSAL- ELECTION OF DIRECTORS, page 3 of the Proxy Statement of the Company and the information under the caption SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE on page 13 of the Proxy Statement filed March 29, 2004, with the United States Securities and Exchange Commission are incorporated by reference herein.



The Board of Directors has determined that the Company does not have an audit committee financial expert serving on its audit
committee. However, the Board of Directors believes that each audit committee member has sufficient knowledge in financial and auditing matters to serve on the committee. At this time, the Board does not believe it is necessary to actively search
for an outside person to serve on the Board who would qualify as a financial expert.



The Company has adopted a code of ethics that applies to its principal executive, financial and accounting officers, a copy of which is attached as an exhibit to this 10-K. In the event we make any amendment to, or grant any waiver of, a
provision of the code of ethics that applies to the principal executive, financial or accounting officer, or any person performing similar functions, that requires disclosure under applicable SEC rules, we intend to disclose such amendment or
waiver, the nature of and reasons for it, along with the name of the person to whom it was granted, on our internet website. The Companys website address is www.farmerscitizensbank.com.



ITEM 10. Executive Compensation



The information
required by this item is incorporated herein by reference to the section captioned CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS on pages 11 and 12 in the Proxy Statement of the Company filed March 29, 2004, with the United States
Securities and Exchange Commission.



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ITEM 11. Security Ownership of Certain Beneficial Owners and Management



The information set forth under the caption VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF on page 2 of the Proxy Statement of the Company filed March 29, 2004, with the United States Securities and
Exchange Commission is incorporated by reference herein.



The Company has only
one stock option plan, the 1997 Stock Option and Incentive Plan (the Plan), which allows options to be granted for a total of 65,004 common shares of the Companys stock. The terms of this Plan have been approved by shareholders.
However, because the number of options that the Company has agreed to issue to non-officer directors has exceeded certain percentage limitations contained in the Plan, such Excess Grants, totaling options for the purchase of 13,500
common shares, could be deemed to have been issued under a plan not approved by shareholders. All options, including the Excess Grants, are subject to the terms and conditions of the Plan with respect to vesting and exercise.



Pursuant to the terms of the Plan, options vest and become exercisable in five equal annual
installments; the first 20% becoming exercisable at the conclusion of the first year following the date of grant, the second 20% becoming exercisable at the conclusion of the second year following the date of grant, and so on. However, unexercised
options become fully exercisable in the event that: (1) a qualifying tender offer is made for shares of the Companys common stock; (2) the Companys shareholders approve an agreement whereby the Company will cease to be an independent,
publicly owned company; or (3) the Company agrees to a sale of substantially all of its assets. Unless the terms of an individual grant provide that the options may not be exercised after termination of service, a director has three months following
the date of his or her termination to exercise all options vested as of the date of termination. All options not yet vested at the time of termination are forfeited. Options held by a director whose service terminates as a result of death or
disability become fully exercisable at the time of termination and remain exercisable for three months in the case of termination due to disability, and one year in the case of termination due to death. A director whose service is terminated for
cause forfeits all unexercised stock options, and in no event may any option be exercised more that 10 years following the date of grant.



|                                                           |  |                                                                                         |  |                                                                          |                 |                                                                                                                                       |              
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | --------------- | ------------------------------------------------------------------------------------------------------------------------------------- | -------------
|                                                           |  | Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |                 | Number of securitiesremaining availablefor future issuanceunder equitycompensation
plans(excluding securities reflectedin column (a))
|                                                           |  | (a)                                                                                     |  | (b)                                                                      |                 | (c)                                                                                                                                  
|Equity compensation Plans approved by Security holders     |  | 21,870 shares                                                                           |  | $                                                                        | 23.93 per share |                                                                                                                                       | 43,134 shares
|Equity compensation plans not approved by security holders |  | 12,750 shares                                                                           |  | $                                                                        | 26.34 per share |                                                                                                                                       | None         
|                                                           |  |                                                                                         |  |                                                                          |                 |                                                                                                                                       |              
|Total                                                      |  | 34,620 shares                                                                           |  | $                                                                        | 24.82 per share |                                                                                                                                       | 43,134 shares
|                                                           |  |                                                                                         |  |                                                                          |                 |                                                                                                                                       |              



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ITEM 12. Certain Relationships and Related Transactions



The information required by this item is incorporated herein by reference to the section captioned CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS on pages 11 and 12 in the Proxy Statement of the Company filed March 29,
2004, with the United States Securities and Exchange Commission.



ITEM 13. Exhibits and Reports on Form 8-K



Exhibit
3.1 Amended and Restated Articles of Incorporation of FC Banc Corp., filed as Exhibit 3 to Form 10-KSB for the fiscal year ended December 31, 2000 and incorporated herein by reference.



Exhibit 3.2 Code of regulations of FC Banc Corp., filed as Exhibit 3 to Form 10-KSB
for the fiscal year ended December 31, 2000 and incorporated herein by reference.



Exhibit 4 For definition of rights of security holders please refer to Exhibit 3 on Form 10-KSB for the fiscal year ended December 31, 2000 and incorporated herein by reference.



Exhibit 10.1 Employment Agreement dated November 19,2002, for John R. Christman,
President of Company and Chief Executive Officer of Bank, filed as Exhibit 10 to Form 10-KSB for the fiscal year ended December 31, 2002 and incorporated herein by reference.



Exhibit 10.2 The FC Banc Corp 1997 Stock Option Plan is incorporated herein by reference to the registrants proxy statement
filed March 29, 2004 with the United States Securities and Exchange Commission.



Exhibit 10.3 Change of Control Agreement dated March 1, 2003, for Anne K. Spreng Ferris, Vice President of the Bank, filed as Exhibit 10.3 to Form 10-QSB for the quarter ended March 31, 2003 and incorporated herein by reference.



Exhibit 10.4 Amended and Restated Farmers Citizens Bank Director
Retirement Agreements, filed as Exhibits 10.5 through 10.11 to the registrants 10-KSB for the fiscal year ended December 31, 2000 and incorporated herein by reference.



Exhibit 14 Code of Ethics



Exhibit 21 Subsidiaries of Registrant



Exhibit 23 Consent of the Independent Auditor



Exhibit 31.1 CEO Certification Pursuant to Rule 13A-14(a)/15d-14(a) as enacted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



Exhibit 31.2 CFO Certification Pursuant to Rule 13A-14(a)/15d-14(a) as enacted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



Exhibit 32.1
CEO Certification Pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



Exhibit 32.2 CFO Certification Pursuant to 18 U.S.C. Section 1350, as enacted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



No reports on Form 8-K were filed during the last quarter of the period covered by this
report.



ITEM 14  PRINCIPAL ACCOUNTANT FEES AND SERVICES



The information required by this item is incorporated herein by reference to the section captioned INFORMATION CONCERNING INDEPENDENT ACCOUNTANTS on page 11 of the Proxy Statement of the Company filed March 29, 2004, with the
United States Securities and Exchange Commission.



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##### Table of Contents

SIGNATURES



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



FC BANC CORP.



|     |  |                      
|---- |  | ---------------------
|By:  |  | /s/ JOHN R. CHRISTMAN
|     |  | John R. Christman    
|     |  | President            
|     | 
|Date |  | March 29, 2004       



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



|     |  |                                                             
|---- |  | ------------------------------------------------------------
|By:  |  | /s/ JOHN R. CHRISTMAN                                       
|     |  | John R. Christman, President and Principle Executive Officer
|     | 
|Date |  | March 29, 2004                                              



|                                                         |  |                                                    
|-------------------------------------------------------- |  | ---------------------------------------------------
|/s/ ROBERT D. HORDRobert D. Hord Chairman                |  | /s/ DAVID G. DOSTALDavid G. Dostal Director        
|                                                         | 
|Date March 29, 2004                                      |  | Date March 29, 2004                                
|                                                         | 
|/s/ CHARLES W. KIMERLINE                                 |  | /s/ PATRICK J. DROUHARD                            
|Charles W. Kimerline Director                            |  | Patrick J. Drouhard Director                       
|                                                         | 
|Date March 29, 2004                                      |  | Date March 29, 2004                                
|                                                         | 
|/s/ TERRY L. GERNERT                                     |  | /s/ JOHN O. SPRENG, JR.                            
|Terry L. Gernert Director                                |  | John O. Spreng, Jr. Director                       
|                                                         | 
|Date March 29, 2004                                      |  | Date March 29, 2004                                
|                                                         | 
|/s/ SAMUEL J. HARVEY                                     |  | /s/ JOAN C. STEMEN                                 
|Samuel J. Harvey Director                                |  | Joan C. Stemen Director                            
|                                                         | 
|Date March 29, 2004                                      |  | Date March 29, 2004                                
|                                                         | 
|/s/ COLEMAN CLOUGHERTYColeman Clougherty                 |  | /s/ JOHN R. CHRISTMANJohn R. Christman             
|Principal Financial and Accounting Officer and Treasurer |  | President, Principal Executive Officer and Director
|                                                         | 
|Date March 29, 2004                                      |  | Date March 29, 2004                                



62