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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

  X     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
------  EXCHANGE ACT OF 1934 FOR THE FISCAL ENDED DECEMBER 31, 1996

       TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
------ EXCHANGE ACT OF 1934 FOR THE FISCAL ENDED DECEMBER 31, 1996

Commission File Number : 0-15624



                          SECOND BANCORP, INCORPORATED
               (Exact name of registrant as specified in charter)


                     OHIO                                   34-1547453
        (State or other jurisdiction of                   (IRS Employer
        incorporation or organization)                 Identification No.)


       108 MAIN AVENUE SW, WARREN, OHIO                         44481
   (Address of principal executive offices)                  (Zip Code)


       Registrant's telephone number, including area code: (330) 841-0123


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:


                                                     Name of each exchange
                Title of each class                   on which registered
                -------------------                   -------------------
                       None                                   None



           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


                           Common Stock, no par value
                                (Title of Class)

Indicate be check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods 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 
                                ------                                  -----

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy of information
statements, incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [  ]


The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 1997 as reported on the NASDAQ National Market
System, was approximately $114,131,068. Shares of Common Stock held by each
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

As of March 15, 1997, registrant had outstanding 3,385,248 shares of Common 
Stock


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual shareholders' meeting to be held
on May 13, 1997 are incorporated by reference into Part III.


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                                     PART I.

ITEM 1. BUSINESS.

General.

Second Bancorp, Incorporated, (the "Company") is a one-bank holding company
which owns The Second National Bank of Warren (the "Bank"), a Warren, Ohio based
commercial bank. Operating through twenty-six branches and one loan production
office, the Bank offers a wide range of commercial and consumer banking and
trust services primarily to business and individual customers in various
communities in a five county area in northeastern Ohio. At December 31, 1996,
the Company had consolidated total assets of $867 million , deposits of $669
million and shareholders' equity of $69 million. At June 30, 1996, the Bank had
the highest market share in Trumbull County, Ohio, the fourth highest market
share in Ashtabula County, Ohio and the fourth highest market share in Portage
County, Ohio with 15.1%, 9.9% and 9.5% of all bank, thrift and credit union
deposits, respectively, according to an independent survey.

The Bank focuses its marketing efforts primarily on local independent commercial
and professional firms, the individuals who are the owners and principals of
such firms as well as the low-to-moderate to upper income retail customers in
the Bank's trade areas. In recent years, the Company has emphasized increased
commercial and direct consumer and real estate lending and market area
expansion. The Bank has de-emphasized its previous focus on indirect consumer
loan lending through local automobile dealers.

Branch Expansion
----------------

Second National Bank continued its branch expansion in 1996 by opening its 27th
office in the city of Green. The office, which is the fifth Second National
branch in Summit County, meets a demand for additional locations in the Bank's
southernmost territory and will be instrumental in growing the Second National
customer base in Summit County. We expect Second National's unique style of
banking--offering a high level of customer service and local decision-making--to
be well-received in the Green area.

Second National also converted its Boardman office to a full-service branch in
1996 to better serve its growing customer base in the Mahoning Valley. The
expanded office, which now serves as a hub facility for Second National's
Mahoning County offices, is staffed with a full range of financial service
professionals, including a Private Banking Representative, Alternative
Investment Representative, and Mortgage Loan Originator.

New and Enhanced Products
-------------------------

In the Fall of 1996, Second National introduced its own MasterCard(R) and
VISA(R) credit cards to provide the Bank with more control over its credit
card accounts and the ability to offer customers a better overall product.

To meet a growing need for insurance among current and potential customers--and
to capitalize on the Bank's ability to participate in this facet of the
financial services industry--Second National incorporated a line of insurance
products into its Alternative Investment Services program in late 1996. This
addition offers Second National the opportunity to solidify current customer
relationships, attract new customers, and increase the Bank's competitiveness in
the financial planning marketplace.




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Second National was among the first community banks in Northeast Ohio to offer
corporate customers a "bank from the office" capability in 1996. The Auto LinkSM
enables corporate customers to initiate bank transactions through their personal
computers with specialized software.

In addition to offering corporate customers immediate advantages for managing
their accounts, Auto Link is critical to the long-term competitiveness of Second
National's product line. PC-to-PC banking will also play an important role in
the future of banking services for individual customers searching for home
banking options.

Second National increased its real estate presence in 1996 by expanding the real
estate product line. New and enhanced products include a construction loan with
flat fees, an improved Own Your Own HomeSM Loan, and five new mortgage products:
three adjustable-rate mortgages, a seven-year balloon, and a non-owner occupied
loan program.

Loan Generation
---------------

Second National Bank's Commercial Lending Division continued to be a leader in
lending through the United States Small Business Administration (SBA),
originating more than $3 million in SBA loans in 1996. Second National ranked
second among the top community bank lenders in the SBA's Cleveland District and
sixth on the District-Wide List of Top SBA Lenders, which includes both
community banks and those banks with district-wide presence and operations.

The Express Loan Office, a highly successful loan production office located in a
low-income neighborhood of Warren, reached $5 million in loans during 1996. This
office and specially developed Own Your Own Home Loan and Express Loan bolster
Second National's ability to reach out to the low-to-moderate income consumer.

Trust Business Development
--------------------------

Second National Bank's Trust Division, which is approaching $500 million in
assets under management, posted another record year. In addition to continuing
to grow its traditional services of trust, estate, and retirement plan
administration and asset management, the Trust Division continued to
aggressively pursue new opportunities in 1996. A pioneer in offering trust
services to banks and savings and loan institutions that do not provide trust
services, the division is currently providing such services to four financial
institutions.

Technology Migration
--------------------

Second National continued its technology migration in 1996 by finalizing the
development of a customized branch platform system. This platform system will
improve measurement capabilities and productivity, enhance sales opportunities,
and increase the Bank's ability to compete in the marketplace.

To implement a new data processing system, Second National selected the Alltel
Horizon Banking System solution with an IBM AS/400 processor as the Bank's new
core processing vendor. The flexible, user-friendly, and feature-rich Alltel
system operates in a full database management environment. With this solution,
program modifications, product enhancements, and management reporting will all
be possible--and at significantly lower costs, with faster turnaround times, and
without having to maintain a programming staff on-site at the Bank.

Human Resources
---------------


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Second National worked toward increasing employee proficiency and
professionalism in 1996 by communicating the Bank's high standards and
challenging goals to all employees. Important initiatives were undertaken to
meet the core competencies required of Second National employees, from business
writing to time management to PC application training.

Because sales training is so crucial in today's competitive financial services
environment, Second National offered a series of "Consultative Selling and
Coaching" seminars in 1996. These programs were designed specifically for Second
National by The Richardson Company of Philadelphia, an affiliate of the Wharton
School at the University of Pennsylvania, to enhance the Bank's superior
customer service with sales and cross-selling training.

Employee recognition programs played an important role in this year's continuous
quality efforts. In addition to generating an awareness of Second National's
total quality efforts among employees, the programs encouraged staff to achieve
higher levels of performance--individually, departmentally, and
organizationally.

Six employees were honored with the Pinnacle of Achievement Award, an honor
bestowed by fellow Bank employees to recognize outstanding performance as
demonstrated by work quality, attitude, performance, dependability, initiative,
accuracy, and adaptability.

To give support employees the opportunity to be recognized and rewarded for
their contribution to the Bank's success, Second National introduced the
Five-Star Achievement Program. The program encourages Operations employees to
work both individually and as a team to increase the performance of their
division.

Extending the Bank's commitment to continuous improvement, Second National
introduced a new quality concept called Internal Service Guarantees in 1996.
Internal service guarantees--informal contracts written between the Operations
area of the Bank and other departments--promise a level of service and specify a
consequence if the level is not met. The program is designed to increase
teamwork, improve work quality and efficiency, enhance communication between
departments, and make employees more aware of the Bank's internal processes.

Recognition
-----------

Second National was recognized for its performance in 1996: the Bank appeared on
several lists ranking the top banks in both the state and the country.

Second National was included in the 1996 edition of the prestigious "PD 100," a
list compiled by the Cleveland Plain Dealer each year ranking the best companies
from all industries in the entire state of Ohio. In addition to placing 90th on
this year's "PD 100," Second National also ranked 43rd on the newspaper's list
of the 50 fastest-growing companies in Ohio.

Second National also appeared in a listing of top Ohio banks in the Akron Beacon
Journal. The Bank's position of 14th on the list, which was created by
evaluating various performance factors, put Second National ahead of several
other major banks in the area. Also in the Beacon Journal, Second Bancorp, Inc.
was listed as one of the 10 Ohio companies that offered the best five-year
return on investment--407 percent from 1990 to 1995.

The national magazine US Banker ranked Second National among the top 200
best-performing mid-sized banks in its June 1996 issue. The Bank placed 125th in
the publication's ranking, which is compiled using five performance measures to
rate the country's best mid-sized banks, or the 200 banks that fall just under
the largest 100 in the country.



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1997 and Beyond

As the financial services industry has evolved, so too has Second National Bank.
Over the last decade, Second National has emerged as a provider of quality
products and services designed to exceed customer expectations.

In 1997, and over the next several years, Second National Bank will strive to
reach the next plateau in financial services. Ongoing research and dialogue with
customers, coupled with a keen sense of the changing financial services industry
and consumer wants and needs, have led Second National to adopt a business
strategy that focuses on customer value. We believe customer value leads to
customer satisfaction and retention, in addition to bank profitability and
shareholder return.

In the coming years, we will endeavor to identify value opportunities in
specific products and markets, to create value for our products and services,
and to maintain extensive, long-lasting banking relationships with customers who
are satisfied with the value they receive from Second National Bank.

Our vigorous pursuit of customer value, as well as an ongoing commitment to our
Achievement Statement and Core Values, are reflected in all Second National Bank
initiatives for 1997.

Lending Opportunities
---------------------

Second National is dedicated to making loan products available to all members of
the communities it serves, in addition to directing special marketing efforts to
reach low-to-moderate income individuals. The Bank will aggressively pursue
small business lending in 1997, including expanding SBA lending efforts to
canvass all of Northeast Ohio for opportunities.

Second National will continue its commitment to service in the community by
sponsoring important educational opportunities. The Bank's Finance Seminars will
again be offered throughout the Bank's marketplace in 1997. These highly
successful programs have been instrumental in helping participants learn more
about personal finance, becoming a homeowner, and reducing debt.

Youngstown State University's Entrepreneurship Program, which has been steadily
booked at the Rebecca Williams Community Center in Warren since the Bank began
sponsoring an extension of the program there in 1989, also will be offered. The
two-part program provides a total of 16 weeks of instruction free of charge to
participants interested in pursuing business ownership.

Products and Services
---------------------

Building on 1996 product enhancements, Second National Bank expects 1997 to be a
year of continued growth in product sales and development.

To increase mortgage loan production, the Bank will establish a referral program
with area builders to both encourage quality loan production and serve as a
referral source to all Second National departments. The Bank will also establish
a real-estate relocation program in conjunction with area businesses, colleges,
hospitals, and realtors. Second National will increase its use of product
management in 1997, expanding on this successful management technique already in
place in other areas of the Bank. To achieve success in highly competitive
markets, home equity products, credit cards, personal lines of credit, and debit
and ATM cards will be individually managed.

Branch Network
--------------

Following the dictates of the Second National Bank Achievement Statement--to
balance profit and growth, with a focus on quality, innovation, and
opportunity--Second National will look to expand its branch network in 1997
through de novo offices, branch enhancements, and in-market 


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acquisitions. Anticipating a change in branching laws that would allow Second
National to open offices outside Ohio, this effort will include exploring the
possibility of Second National branches in Western Pennsylvania.

Trust Services
--------------

In addition to continuing to grow traditional trust services, Second National
will continue to aggressively pursue the development of new services in 1997.
"Baby boomer" financial planning and a senior advocate program will be designed
to meet growing demographic and market trends. The Bank's trust services will
also continue to be marketed to other banks and savings and loan institutions
that do not provide trust services.

Human Resources
---------------

At Second National, training is an investment, not an expense. In 1997, the
Bank's training efforts will continue to reflect this philosophy by helping
employees perform at the level necessary to exceed customer expectations.
Specific programs planned include interpersonal communication skills workshops,
professional image enhancement sessions, and consultative selling and coaching
seminars.

Information Services Migration Plan
-----------------------------------

Second National will implement two major initiatives of the information services
migration plan in 1997: engineering the conversion of the new core processing
solution and operationalizing the Executive Information System module.

The Executive Information System module, a sophisticated database capable of
providing the Bank's staff with customized report writing, will greatly enhance
the management of Second National by making timely and detailed data available.

Internet/World Wide Web
-----------------------

Second National Bank will establish a presence on the World Wide Web in 1997,
first through a major news wire service, and then through the Bank's own home
page.

Customer Call Center
--------------------

Second National will proceed with the planning and implementation of a Customer
Call Center in 1997. The center will increase Second National's level of
customer service through a combination of automated technology and increased
staffing. Utilizing voice response technology, the call center will offer both
24-hour automated account information and the option of speaking directly to a
customer service representative about financial needs during the center's
staffed hours, which will be expanded for greater service and increased sales
opportunities.

The Customer Call Center project will be completed using the management
technique of benchmarking "outside the box." In addition to gaining important
information that can be applied immediately to the call center, this process
will also help management evaluate the ongoing use of benchmarking at Second
National.

The Company has no significant industry segments which require disclosure.




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Market Area.

The Bank's primary market area consists of Trumbull, Mahoning, Portage, Summit
and Ashtabula counties in the northeastern corner of Ohio, to the east and south
of the Cleveland metropolitan area. The market area's economy is heavily
influenced by the manufacturing sector with an emphasis on steel, auto
manufacturing and a variety of related and smaller industries. The area has
benefited from an extensive transportation system comprised mainly of railroad
and trucking systems.

Competition.

There is significant competition in the financial services industry in
northeastern Ohio among commercial banks. As a result of deregulation of the
financial services industry, the Company also competes with other providers of
financial services such as savings and loan associations, credit unions,
commercial finance companies, brokerage and securities firms, insurance
companies, commercial finance and leasing companies and the mutual fund
industry. Some of the Company's competitors, including certain regional bank
holding companies which have operations in the Company's market area, have
substantially greater resources than the Company, and as such, may have higher
lending limits and may offer other services not available through the Bank. The
Company also faces significant competition, particularly with respect to
interest rates paid on deposit accounts, from well-capitalized local thrift
institutions. The Bank competes on the basis of rates of interest charged on
loans, the rates of interest paid on funds, the availability of services and
responsiveness to the needs of its customers.

Regulation.

The Company is a one bank holding company and is regulated by the Federal
Reserve Bank (the "FRB"). The Bank is a national bank and is regulated by the
Office of the Comptroller of the Currency (the "OCC"), as well as the Federal
Deposit Insurance Corporation (the "FDIC"). Dramatic changes have developed over
the past several years regarding minimum capital requirements for financial
institutions. A listing of the minimum requirements for capital and the
Company's capital position as of December 31, 1996 and 1995 are presented in
footnote 12 of Item 8; Financial Statements and Supplementary Data and is hereby
incorporated by reference.

The Company is subject to regulation under the Bank Holding Company Act of 1956,
as amended (the "Act"). The Act restricts the geographic and product range of
bank holding companies by circumscribing the types and locations of institutions
the holding companies own or acquire. Among the states where the Company may
acquire banks are Ohio and Pennsylvania. The Act also regulates transactions
between the Company and the Bank and generally prohibits tie-ins between credit
and other products and services.

The Bank is subject to regulation under the National Banking Act and is
periodically examined by OCC and is subject, as a member bank, to the rules and
regulations of the FRB. The Bank is an insured institution and member of the
Bank Insurance Fund ("BIF") and also has approximately $53 million in deposits
acquired through acquisitions of branches of savings and loan institutions that
are insured through the Savings Association Insurance Fund ("SAIF"). As such,
the Bank is also subject to regulation by the FDIC. Establishment of branches is
subject to approval of the OCC and geographic limits established by state law.
Ohio branch banking law permits a bank having its principal place of business in
the State of Ohio to establish branch offices in any county in Ohio 

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without geographic restrictions. A bank may also merge with any national or
state chartered bank located anywhere in the State of Ohio without geographic
restrictions.

Regulations governing the Company and its banking subsidiary change as Congress
and state legislatures respond to conditions affecting the industry and set new
policy objectives.

FIRREA.

FIRREA restructures the regulation, supervision and deposit insurance of savings
and loan associations and federal savings banks whose deposits were formerly
insured by the Federal Savings and Loans Insurance Corporation ("FSLIC"). FSLIC
was replaced by the Savings Association Insurance Fund ("SAIF") administered by
the FDIC. A separate fund, the Bank Insurance Fund ("BIF"), which was
essentially a continuation of the FDIC's then existing fund, was established for
banks and state savings banks. An acquired thrift generally would be required to
continue its deposit insurance with the SAIF unless significant exit and
entrance fees were paid in connection with a conversion to BIF insurance.

FDICIA.

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
substantially revised the bank regulatory and funding provisions of the Federal
Deposit Insurance Act and several other federal banking statutes. Among other
things, FDICIA requires federal banking agencies to broaden the scope of
regulatory corrective action taken with respect to banks that do not meet
minimum capital requirements and to take such actions promptly in order to
minimize losses to the FDIC. FDICIA established five capital tiers: "well
capitalized"; "adequately capitalized"; "undercapitalized"; "significantly
capitalized"; and "critically undercapitalized" and imposes significant
restrictions on the operations of a depository institution that is not in either
of the first two of such categories. A depository institution's capital tier
will depend upon the relationship of its capital to various capital measures. A
depository institution will be deemed to be "well capitalized" if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, "adequately capitalized" if it meets each such measure,
"undercapitalized" if it is significantly below any such measure and "critically
undercapitalized" if it fails to meet any critical capital level set forth in
regulations. An institution may be deemed to be in a capitalization category
that is lower than is indicated by its actual capital position if it receives an
unsatisfactory examination rating or is deemed to be in an unsafe or unsound
condition or to be engaging in unsafe or unsound practices.

Under regulations adopted under these provisions, for an institution to be well
capitalized it must have a total risk-based capital ratio of at least 10%, a
Tier I risk-based capital ratio of at least 6% and a Tier I leverage ratio of at
least 5% and not be subject to any specific capital order or directive. For an
institution to be adequately capitalized, it must have a total risk-based
capital ratio of at least 8%, a Tier I risk-based capital ratio of at least 4%
and a Tier I leverage ratio of at least 4% (or in some cases 3%). Under the
regulations, an institution will be deemed to be undercapitalized if the bank
has a total risk-based capital ratio that is less than 8%, a Tier I risk-based
capital that is less than 4% or a Tier I leverage ratio of less than 4% (or in
some cases 3%). An institution will be deemed to be significantly
undercapitalized if the bank has a total risk-based capital ratio that is less
than 6%, a Tier I risk-based capital ratio that is less than 3%, or a leverage

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ratio that is less than 3% and will be deemed to be critically undercapitalized
if it has a ratio of tangible equity to total assets that is equal to or less
than 2%.

FDICIA generally prohibits a depository institution from making a capital
distribution (including payment of dividends) or paying management fees to any
entity that controls the institution if it thereafter would be undercapitalized.
If an institution becomes undercapitalized, it will be generally restricted from
borrowing from the Federal Reserve, increasing its average total assets, making
any acquisitions, establishing any branches or engaging in any new line of
business. An undercapitalized institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency, which plan must, in
the opinion of such agency, be based on realistic assumptions and be "likely to
succeed" in restoring the institution's capital. In connection with the approval
of such a plan, the holding company of the institution must guarantee that the
institution will comply with the plan, subject to a limitation of liability
equal to a portion of the institution's assets. If an undercapitalized
institution fails to submit an acceptable plan or fails to implement such a
plan, it will be treated as if it is significantly undercapitalized.

Under FDICIA, bank regulators are directed to require "significantly
undercapitalized" institutions, among other things, to restrict business
activities, raise capital through a sale of stock, merge with another
institution and/or take any other action which the agency determines would
better carry out the purposes of FDICIA.

Within 90 days after an institution is determined to be "critically
undercapitalized", the appropriate federal banking agency must, in most cases,
appoint a receiver or conservator for the institution or take such other action
as the agency determines would better achieve the purposes of FDICIA. In
general, "critically undercapitalized" institutions will be prohibited from
paying principal or interest on their subordinated debt and will be subject to
other substantial restrictions.

Under FDICIA, an institution that is not well capitalized is generally
prohibited from accepting brokered deposits. Undercapitalized institutions are
prohibited from offering interest rates on deposits significantly higher than
prevailing rates.

The provisions of FDICIA governing capital regulations became effective on
December 19, 1992. FDICIA also directs that each federal banking agency
prescribe standards for depository institutions and depository institution
holding companies relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, a maximum ratio of classified assets to capital, a minimum ratio
of market value to book value for publicly traded shares (if feasible) and such
other standards as the agency deems appropriate.

FDICIA also contains a variety of other provisions that could affect the
operations of the Company, including new reporting requirements, regulatory
standards for real estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days' prior notice to
customers and regulatory authorities before closing any branch, limitations on
credit exposure between banks, restrictions on loans to a bank's insiders and
guidelines governing regulatory examinations.

Pursuant to FDICIA, the FDIC has developed a transitional risk- based assessment
system, under which, beginning on January 1, 1993, the assessment rate for an
insured depository institution varied according to its level of risk. An
institution's risk category will depend upon whether the institution is well
capitalized, adequately capitalized or less than adequately capitalized and
whether 


                                       8
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it is assigned to Subgroup A, B or C. Subgroup A institutions are financially
sound institutions with few minor weaknesses; Subgroup B institutions are
institutions that demonstrate weaknesses which, if not corrected, could result
in significant deterioration; and Subgroup C institutions are institutions for
which there is a substantial probability that the FDIC will suffer a loss in
connection with the institution unless effective action is taken to correct the
areas of weakness. Beginning in 1996 and based on its capital and supervisory
subgroups, each BIF member institution will be assigned an annual FDIC
assessment rate per $100 of insured deposits varying between 0.00% per annum
(for well capitalized Subgroup A institutions) and 0.27% per annum (for
undercapitalized Subgroup C institutions). With the recapitalization of the SAIF
fund in 1996, the assessment rate for SAIF insured deposits has decreased to an
annual rate per $100 of insured deposits of 0.00% to 0.27%. There are proposed
significant changes to the insurance premium structure that may be enacted
through congressional legislation. The ultimate effect of these changes cannot
be ascertained until final regulations are adopted.

INTERSTATE BANKING AND BRANCHING LEGISLATION

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"IBBEA") authorized interstate acquisitions of banks and bank holding companies
without geographic constraint beginning September 29, 1995. Beginning June 1,
1997, the IBBEA also authorizes banks to merge with banks located in another
state provided that neither state has "opted out" of interstate branching
between September 29, 1994 and May 31, 1997. States also may enact legislation
permitting interstate merger transactions prior to June 1, 1997. After acquiring
interstate branches through a merger, a bank may establish additional branches
in that state at the same locations as any bank involved in the merger could
have established branches under state and federal law. In addition, a bank may
establish a de novo branch in another state that expressly permits the
establishment of such branches. A bank that establishes a de novo interstate
branch may thereafter establish additional branches on the same basis as a bank
that has established interstate branches through a merger transaction.

If a state "opts out" of interstate branching, no bank from another state may
establish a branch in that state, whether through a merger of de novo
establishment. Several states are considering legislation to opt out of the
interstate branching provisions of the IBBEA or, alternatively, to permit
interstate branching prior to the June 1, 1997 statutory effective date. It is
not possible to predict the full impact of these actions on the Bank or the
Company until May 31, 1997, the date by which all such statutes must be adopted.

Employees.

The number of full time equivalent employees of the Company as of December 31,
1996 was approximately 390. The Company considers its employee relations to be
good. None of the employees are covered by a collective bargaining agreement.

ITEM 2. PROPERTIES.

The Company's executive offices are located at the Bank's main office building
in Warren, Ohio, which is leased by the Bank under a long-term triple net lease
agreement with a term, including optional renewals, expiring on October 31,
2029. The Bank has the option to purchase the main office facility before two
optional renewal periods at the fair market value in existence at that time. The
Bank owns four of its branch locations, while the Bank's 22 other branch and
loan production 


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office locations are leased under lease and sublease agreements with remaining
terms of 1 to 15 years. The Bank also has leases for record retention and office
space with remaining lease terms of one and six years, respectively.

ITEM 3. LEGAL PROCEEDINGS.

The Company is subject to various pending and threatened lawsuits in which
claims for monetary damages are asserted in the ordinary course of business.
While any litigation involves an element of uncertainty, in the opinion of
management, liabilities, if any, arising from such litigation or threat thereof
will not have a material effect on the financial position or results of
operations of the Company.

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

There were no special meetings for shareholders since last year's annual
meeting.

ITEM 4A. IDENTIFICATION OF EXECUTIVE OFFICERS.

The following table sets forth the names and ages and business experience for
the last five years of each of the executive officers of the Corporation. Each
executive officer of the Corporation is appointed by the Board of Directors on
an annual basis, and serves at the pleasure of the Board.

Name                   Age      Position and Experience          Year Appointed
--------------------------------------------------------------------------------
Alan G. Brant           64      Chairman and President of              1987
                                Second Bancorp, Inc. and
                                Chief Executive Officer of
                                The Second National Bank of
                                Warren.

George R. Dovich        55      Vice President of Second               1987
                                Bancorp, Inc. and Executive
                                Vice President of The
                                Second National Bank of
                                Warren.

Joseph D. Rusnak        56      Executive Vice President of            1996
                                Second Bancorp, Inc. and Vice
                                President of The Second
                                National Bank of Warren. Prior
                                to 1996, President of Horizon
                                Savings Bank and prior to that
                                Vice President of Society Bank.

Christopher Stanitz     48      Senior Vice President of               1992
                                Second Bancorp, Inc. and Vice
                                President of The Second
                                National Bank of Warren. Prior




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                                to 1992, Associate Counsel of
                                Ameritrust, NA.

David L. Kellerman      39      Treasurer of Second Bancorp,           1987
                                Inc. and Senior Vice President and
                                Chief Financial Officer of The
                                Second National Bank of Warren.

William Hanshaw         44      Executive Officer of Second            1989
                                Bancorp, Inc. and Senior
                                Vice President of The Second
                                National Bank of Warren.

Diane C. Bastic         53      Executive Officer of Second            1985
                                Bancorp, Inc. and Senior
                                Vice President of The Second
                                National Bank of Warren.


Darryl E. Mast          46      Executive Officer of Second            1986
                                Bancorp, Inc. and Senior Vice
                                President of The Second
                                National Bank of Warren.

Terry L. Myers          47      Executive Officer of Second            1986
                                Bancorp, Inc. and Senior Vice
                                President of The Second
                                National Bank of Warren.


                                    PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS.

The Company's Common Stock trades on The Nasdaq National Market tier of The
Nasdaq Stock Market under the trading symbol SECD. As of March 15, 1997, the
number of shareholders of record of the Common Stock totaled 1,874. The detail
of stock prices and dividend payments are incorporated herein by reference to
Item 7; Management's Discussion and Analysis of Financial Condition and Results
of Operations. Dividend restrictions are detailed in footnote 12 of Item 8;
Financial Statements and Supplementary Data and is incorporated herein by
reference.





                                       11
<PAGE>   13

<TABLE>
<CAPTION>

ITEM 6. SELECTED FINANCIAL DATA.

Year ended December 31                     1996           1995            1994           1993           1992
--------------------------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>             <C>            <C>            <C>      
Results of Operations:
    Interest income                      $ 65,646       $ 62,544        $ 52,115       $ 46,603       $ 43,485
    Interest expense                       31,785         30,803          22,064         19,340         19,471
--------------------------------------------------------------------------------------------------------------------
    Net interest income                    33,861         31,741          30,051         27,263         24,014
    Provision for loan losses               4,956          3,000           2,370          2,555          2,765
    Other income                            8,479          7,545           4,979          4,822          4,480
    Other expense                          26,276         26,026          23,627         21,381         19,387
    Income before federal income taxes     11,108         10,260           9,033          8,149          6,342
    Federal tax expense                     2,556          2,695           2,390          2,142          1,661
--------------------------------------------------------------------------------------------------------------------
Net income                               $  8,552       $  7,565        $  6,643       $  6,007       $  4,681
--------------------------------------------------------------------------------------------------------------------
Per Common Share Data: (1)
    Primary earnings                     $   2.64       $   2.55        $   2.22       $   1.97        $  1.68
    Fully diluted earnings                   2.53           2.26            2.01           1.82           1.61
    Cash dividends                            .88            .76             .64            .59            .53
    Book value, December 31                 20.67          20.80           16.99          16.53          15.13
    Market value, December 31               31.38          28.75           21.50          21.33          15.83
Per Preferred Share Data:
    Cash dividends                           $.75          $1.50           $1.50          $1.50           $.71
    Market value, December 31                 n/a          31.50           23.75          27.00          24.00
Balance Sheet Data:
    As of December 31:
       Total assets                      $867,279       $833,912        $787,189       $674,575       $602,685
       Loans, net                         558,437        527,442         499,772        465,841        415,318
       Deposits                           669,397        657,851         615,763        554,497        506,211
       Shareholders' equity                69,237         66,033          55,883         54,362         50,860
    Averages:
       Total assets                       850,662        807,215         717,904        640,516        539,555
       Shareholders' equity                66,149         59,805          54,917         52,491         43,043
Ratios:
    Return on average assets                 1.01%           .94%            .93%           .94%           .87%
    Return on average total
       shareholders' equity                 12.93          12.65           12.10          11.44          10.88
    Return on average common                                                                            
       shareholders' equity                 14.01          13.92           13.35          12.56          11.52
    Net interest margin                      4.47           4.40            4.63           4.72           4.97
    Net overhead ratio                       2.30           2.55            2.76           2.76           3.01
    Efficiency ratio                        60.55          65.21           65.25          64.41          66.17
    Dividend pay-out                        34.78          29.67           28.77          29.62          31.76
    Tier I leverage ratio                    7.75           7.39            7.48           8.03           8.72
<FN>

(1) Amounts have been retroactively restated for the three-for-two stock split,
effective May 1, 1995.

</TABLE>



                                       12
<PAGE>   14


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. 

RESULTS OF OPERATIONS

Net income for the Corporation in 1996 was a record $8,552, which
represents a 13% increase over the net income of $7,565 reported in 1995. Net
income for 1995 was 14% greater than the net income of $6,643 reported for
1994. The Corporation's return on average assets ("ROA") was 1.01%, .94%, and
 .93% for 1996, 1995, and 1994, respectively, demonstrating the Corporation's
commitment to continuous improvement in financial performance. The common
shareholders' return on average equity ("ROE") also indicates that commitment,
increasing from 13.35% in 1994 and 13.92% in 1995 to 14.01% in 1996. Fully
diluted earnings per common share have increased from $2.01 per share in 1994
to $2.26 in 1995 to $2.53 in 1996, with prior periods' per share data restated
for a three-for-two stock split effective May 1, 1995. The Corporation's common
stock, trading under the NASDAQ National Market symbol of SECD, has reflected
the improved earnings performance of the Corporation, increasing to $31.38 per
share as of December 31, 1996 from $28.75 per share at December 31, 1995. This
price represents a 9% increase for 1996 after a 34% increase in stock price in
1995 and also represents a price that is equivalent to 152% of the book value
per common share.

================================================================================
NET INTEREST INCOME
--------------------------------------------------------------------------------
The Corporation's net interest income improved again in 1996 amid a relatively
stable interest-rate environment. Net interest income was $33,861 in 1996, which
represents a 6.7% increase over the net interest income for 1995. The increase
in net interest income was derived from a combination of growth in both loans
and securities and a reduction in the average rate paid on deposits. Average
loans increased by over $32 million in 1996 as compared to 1995. Average
securities increased by almost $15 million during the past year, primarily in
the tax-exempt category. Overall, average earning assets were $792,239 in 1996,
which represents a 5.6% increase over the average earning assets for 1995. The
yield on average earning assets was 8.48% in 1996, down slightly from the 8.50%
level achieved in 1995. The slight decrease was more than offset by the results
of prudent management of the cost of funds in 1996. The rate on average interest
bearing liabilities declined by 8 basis points in 1996 to 4.52%. The combined
result of the growth in average assets and the reduced cost of funds allowed the
net interest margin to improve from 4.40% in 1995 to 4.47% in 1996. The net
interest margin of the Corporation was 4.63% in 1994, while net interest income
was $30,051 for the same period. Additions of deposits through acquisitions in
1994 allowed growth in average earning assets to reach 11% in 1995 and 12% in
1994.

Growth in funding has been generated primarily in the category of time deposits
over the past two years. Average time deposits were $359,170 in 1996. This
average balance was $37,159, or 11.5% greater than the average balance of
$322,011 for time deposits in 1995. Time deposits had grown at a rate of 13.9%
in 1995 from the average balance of $282,784 in 1994. Funding growth also came
in the category of Federal Home Loan Bank ("FHLB") advances in 1996. The average
balance for FHLB advances grew by almost $10 million in 1996 as the Bank
utilized this source of funding when their rates were favorable to do so. In
1995, growth also occurred in the area of retail repurchase agreements. Average
retail repurchase agreements grew by over $20 million from 1994 to 1995. These
areas of growth over the past two years have primarily been in the categories
with a higher average cost. Continued growth concentrated in these areas will
continue to place a downward pressure on the net interest margin.

The relationship between net interest income, FTE net interest income, earning
assets, and net interest margin for the past three years follows:
<TABLE>
<CAPTION>

                                                                          1996           1995            1994
----------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>            <C>      
Net interest income-- per financial statements                          $ 33,861       $ 31,741       $ 30,051
Tax equivalent adjustment                                                  1,517          1,260          1,197
--------------------------------------------------------------------------------------------------------------------
Net interest income-- FTE                                               $ 35,378       $ 33,001       $ 31,248
--------------------------------------------------------------------------------------------------------------------
Average earning assets                                                  $792,239       $750,355       $675,257
Net interest margin                                                         4.47%          4.40%          4.63%
</TABLE>

Net interest income can be analyzed through the use of the Average Balance 
Sheet/Net Interest Margin Analysis table. The table shows a three-year
comparison of the average balance of interest, earning assets and interest
bearing liabilities along with interest and yields associated with them.



                                       13
<PAGE>   15

<TABLE>
<CAPTION>

AVERAGE BALANCE SHEET/NET INTEREST MARGIN ANALYSIS
Year Ended December 31

                                                    1996                      1995                     1994
-------------------------------------------------------------------------------------------------------------------------
                                          Average            Yield/   Average          Yield/   Average             Yield/
                                          Balance  Interest   Rate    Balance Interest  Rate    Balance   Interest   Rate
<S>                                       <C>       <C>       <C>    <C>       <C>      <C>    <C>        <C>       <C>  
ASSETS
Interest earning assets:
 Taxable loans (1) (3)                    $544,797  $50,621   9.29%  $512,166  $48,303  9.43%  $467,429   $40,868   8.74%
 Tax-exempt loans (2)                       13,576    1,121   8.26     14,036    1,227  8.74     13,706     1,100   8.03
 Taxable securities                        184,433   11,789   6.39    182,291   11,167  6.13    153,548     8,546   5.57
 Tax-exempt securities                      44,000    3,341   7.59     31,232    2,478  7.93     32,327     2,421   7.49
Federal funds sold                           5,433      291   5.36     10,630      629  5.92      6,859       308   4.49
Time deposits with banks and
 other interest bearing assets                   0        0   0.00          0        0  0.00      1,388        69   4.97
--------------------------------------------------------------------------------------------------------------------------
Total interest earning assets              792,239   67,163   8.48    750,355   63,804  8.50    675,257    53,312   7.90

Non-interest earning assets:
    Cash and demand balances
       due from banks                       27,412                     27,550                    24,254
    Properties and equipment                 7,851                      6,064                     4,753
    Accrued interest receivable              4,377                      4,423                     3,800
    Goodwill and intangible assets           4,134                      5,069                     3,882
    Other assets                            22,041                     20,105                    12,033
Less: Reserve for loan losses               (7,392)                    (6,351)                   (6,075)
----------------------------------------------------------------------------------------------------------------
       TOTAL                              $850,662                   $807,215                  $717,904
----------------------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY 
Interest bearing liabilities:
    Demand deposits -- interest
       bearing                             $68,371    1,741   2.55    $63,713    1,600  2.51    $48,521     1,028   2.12
Savings deposits                           160,774    4,307   2.68    178,543    5,452  3.05    177,402     5,157   2.91
Time deposits                              359,170   20,295   5.65    322,011   18,363  5.70    282,784    12,649   4.47
Federal funds purchased and securities
    sold under agreements to repurchase     89,601   3,917    4.37     89,026    4,307  4.84     68,311     2,600   3.81
Note payable                                 5,000      371   7.42      5,000      434  8.68      1,466       121   8.25
Other borrowed funds                         2,732      144   5.27      3,220      181  5.62      3,339       130   3.89
Federal Home Loan Bank advances             17,458    1,010   5.79      7,586      466  6.14      5,537       379   6.84
------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities         703,106   31,785   4.52    669,099   30,803  4.60    587,360    22,064   3.76
Non-interest bearing liabilities:
    Demand deposits                         75,229                     73,186                    71,305
    Accrued expenses and other liabilities   6,178                      5,125                     4,322
--------------------------------------------------------------------------------------------------------------------
    Other liabilities                       81,407                     78,311                    75,627
--------------------------------------------------------------------------------------------------------------------
Shareholders' equity                        66,149                     59,805                    54,917
--------------------------------------------------------------------------------------------------------------------
       TOTAL                              $850,662                   $807,215                  $717,904
--------------------------------------------------------------------------------------------------------------------
Net interest earnings (FTE)                          35,378                     33,001                     31,248
Taxable equivalent adjustment                         1,517                      1,260                      1,197
--------------------------------------------------------------------------------------------------------------------
Net interest income
    (per financial statements)                      $33,861                    $31,741                    $30,051
--------------------------------------------------------------------------------------------------------------------

Net yield on interest earning assets                          4.47%                     4.40%                     4.63%
<FN>

(1) For purposes of these computations, non-accruing loans are included in the
    daily average loan amounts outstanding.

(2) The tax-exempt income and yields are shown on a tax equivalent basis using
    the 34% marginal federal tax rates in effect during the three years.

(3) Loan fees are included in the interest reported for loans. Those fees
    amounted to $2,936 in 1996, $2,610 in 1995, and $2,603 in 1994.
</TABLE>



                                       14
<PAGE>   16


You can further analyze the change in net interest income by separating the
volume and rate impact of the change. The following table details the breakdown
of the major categories affecting the change:
<TABLE>
<CAPTION>

                                                 1996 compared to 1995:               1995 compared to 1994:
--------------------------------------------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS (1)                            Due to Change in                     Due to Change in
--------------------------------------------------------------------------------------------------------------------
                                             Volume       Rate       Net          Volume       Rate        Net
--------------------------------------------------------------------------------------------------------------------
<S>                                          <C>       <C>         <C>            <C>         <C>      <C>     
Increase (decrease) in FTE interest income:
    Taxable loans                            $3,077    $  (759)    $2,318         $3,911      $3,524   $ 7,435
    Tax-exempt loans                            (40)       (66)      (106)            26         101       127
    Taxable securities                          131        491        622          1,600       1,021     2,621
    Tax-exempt securities                     1,013       (150)       863            (82)        139        57
    Federal funds sold                         (308)       (30)      (338)           169         152       321
    Time deposits with banks and
       other interest bearing assets              0          0          0            (69)          0       (69)
--------------------------------------------------------------------------------------------------------------------
Total interest bearing assets                $3,873    $  (514)    $3,359         $5,555      $4,937   $10,492
--------------------------------------------------------------------------------------------------------------------

Interest bearing liabilities:

    Demand deposits-- interest bearing       $  117    $    24     $  141         $  322      $  250   $   572
Savings deposits                               (543)      (602)    (1,145)           108         187       295
    Time deposits                             2,119       (187)     1,932          1,755       3,959     5,714
    Federal funds purchased and securities
       sold under agreements to repurchase       28       (418)      (390)           788         919     1,707
    Note payable                                  0        (63)       (63)           292          21       313
    Other borrowed funds                        (27)       (10)       (37)            (5)         56        51
    Federal Home Loan Bank advances             606        (62)       544            140         (53)       87
--------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities           $2,300    $(1,318)    $  982         $3,400      $5,339   $ 8,739
--------------------------------------------------------------------------------------------------------------------
Total effect on net interest income          $1,573    $   804     $2,377         $2,155      $ (402)  $ 1,753
--------------------------------------------------------------------------------------------------------------------
<FN>

(1) The change in interest due to both rate and volume has been allocated to
    volume and rate changes in proportion to the relationship of the absolute
    dollar amounts of the change in each.
</TABLE>
================================================================================
PROVISION FOR LOAN LOSSES
--------------------------------------------------------------------------------
The provision for loan losses increased to $4,956 in 1996, or .89% of average
loans. The increase was primarily driven by the deterioration of a small group
of related commercial loans. The loans totaled over $4 million in outstanding
balances at the time the deterioration occurred in the third quarter. An
additional provision of over $2 million was placed into the reserve for loan
losses and $1.6 million of the balances were subsequently charged-off. The
remaining balance is in non-accrual loans as of December 31, 1996, but is
considered collectible through disposition of the collateral. The large
charge-off of $1.6 million contributed to an increase in total net charge-offs
to $4,404 in 1996, which represents .79% of average loans. A further discussion
of asset quality is included in a later section. The provision for loan losses
was $3,000 in 1995 and $2,370 in 1994. These provisions represented .57% and
 .49% of average loans in 1995 and 1994, respectively.

================================================================================
NON-INTEREST INCOME
--------------------------------------------------------------------------------
Non-interest income totaled $8,479 in 1996 with all major categories of
non-interest income showing increases with the exception of security gains.
Excluding security gains, non-interest income totaled $8,017 in 1996, which
represents a 16% improvement over the comparable total for 1995. Trust fee
income increased by $108, or 5%, from 1995 to 1996, while service charges on
deposits improved by $278, or 12%, for the same timeframe. Other income improved
by 32% to $2,998 in 1996 and included improved earnings from secondary mortgage
activities, Small Business Administration ("SBA") loan sales, alternative
investment income derived from the sales of annuities and mutual funds, and fees
earned through the successful payoff of commercial loans.

Included in non-interest income over the past three years were pre-tax gains on
the sale of securities, which totaled $462, $634, and $17 in 1996, 1995, and
1994, respectively. The majority of the gains realized in 1996 were the results
of sales of securities designed to provide income in the current period without
significantly impairing the earnings capacity of the portfolio for future
periods. On November 15, 1995, the Financial Accounting Standards Board (FASB)
staff issued a special report, "A Guide to Implementation of Statement No. 115
on Accounting for Certain Investments in Debt and Equity Securities." In
accordance with the provisions of the special report, the Bank reclassified all
debt securities as available-for-sale. The reclassification allowed the Bank to
restructure the securities portfolio, generating net gains on sales of $634 in
1995. Prior to the implementation of SFAS No. 115 in 1995, the Corporation sold
securities as a part of its ongoing



                                       15

<PAGE>   17
asset/liability and interest-rate risk management. In 1994, these security sales
allowed the Corporation to improve the investment portfolio's overall earning
ability and reduce prepayment risk on mortgage-backed securities. The
Corporation continues to utilize security sales to provide liquidity and to
assist in the management of its interest rate risk.

Non-interest income was $7,545 in 1995, which represented a 52% increase over
1994. Trust fee income totaled $2,227 in 1995, a 10% improvement over the $2,025
earned in the prior year. Service charges on deposit accounts improved by 27%
from 1994 to $2,406 in 1995. The increase is attributable to both the 1994
acquisition of $50 million in deposit accounts and also to changes in service
charge structures during 1995. Other fee income increased a dramatic 119% during
1995 as the Bank implemented a bank-owned life insurance program to offset
future pension costs.

================================================================================
NON-INTEREST EXPENSE
--------------------------------------------------------------------------------
The Corporation is committed to becoming more efficient in the management of its
assets. The result has been a dramatic reduction in non-interest expenses as a
percentage of average assets in 1996. In total, non-interest expenses totaled
$26,276 in 1996 and represented 3.09% of average assets. In 1995, the ratio was
3.22% and in 1994 the ratio was 3.29%. Total non-interest expenses increased by
only 1% in 1996. A contributor to the strong performance was the reduction in
the assessment on deposits charged by the FDIC. That category of expense, which
also includes franchise tax expense, decreased by $1,041, or 54%, in 1996 and
represents an ongoing savings for the Bank. Other categories of expense that
realized a reduction from the previous year were professional services and the
amortization of goodwill and other intangibles. Net occupancy increased modestly
by 2% to $3,017. Salaries and benefits were up 8%, while data processing
services increased by 12%, equipment expense by 15% and other expenses by 6%
from 1995 to 1996. Equipment expenses in 1996 were impacted by the Corporation's
migration to a new data processing environment. In 1996, approximately $1.9
million was spent on equipment for teller and platform automation and for the
initial stages of the conversion to an in-house processing environment. Another
$1.4 million is anticipated to be spent in 1997 on these projects. Outside data
processing expenses will be significantly reduced in 1997 due to the conversion.
The expenses for 1995 and 1994 were impacted by the integration of the four
branches acquired in late 1994. Costs associated with the acquisition were
salaries and benefits (up 14%), net occupancy (up 15%), equipment costs (up 17%)
and the amortization of goodwill and other intangibles (up 18%). The remaining
expense categories were up modestly or were at reduced levels in 1995. The table
below details the percentage change in each non-interest expense category over
the past three years:
<TABLE>
<CAPTION>

                                                                        Percentage Change
---------------------------------------------------------------------------------------------------------
                                                         1996 over 1995                 1995 over 1994
<S>                                                            <C>                           <C>
Salaries and benefits                                          8%                            14%
Net occupancy                                                  2                             15
Equipment                                                     15                             17
Professional services                                         (9)                            11
Data processing services                                      12                             (9)
Assessment on deposits and other taxes                       (54)                            (3)
Amortization of goodwill and other intangibles               (14)                            18
Other expenses                                                 6                              6

</TABLE>
================================================================================
INCOME TAXES
--------------------------------------------------------------------------------
The provision for income taxes was $2,556, $2,695 and $2,390 in 1996, 1995 and
1994, respectively. The effective tax rate for the Corporation was 23.0%, 26.3%
and 26.5% during the same periods. The reduction in the effective tax rate in
1996 was a result of 1) an increase in the utilization of tax-exempt securities
and 2) the realization of investment tax credits through the Bank's
participation in low income housing projects.

A reconciliation of the Registrant's effective income tax rate to the statutory
rate is presented in Note 13 of Item 8; Financial Statements and Supplementary
Data and is incorporated herein by reference.

================================================================================
EARNING ASSETS
--------------------------------------------------------------------------------
SECURITIES:

The securities portfolio of the Corporation is used to provide an adequate rate
of return to the Corporation along with appropriate levels of liquidity, and as
a tool for efficient tax management and interest rate risk management. The
accounting treatment for the securities portfolio is determined by the
Corporation's intent regarding particular security holdings. Securities
held-to-maturity are purchased with the intent and ability to hold them to
maturity and are, therefore, carried at amortized cost. With the adoption of
SFAS No. 115 on January 1, 1994, certain securities were determined to be
available-for-sale and transferred from the held-to-maturity category. On
November 15, 1995, the FASB staff, through its issuance of a special report
involving SFAS No. 115, declared certain provisions permitting additional
reclassifications of securities prior to December 31, 1995. On November 30,
1995, the Corporation, in accordance with the provisions of the special report,
reclassified all debt securities as available-for-sale.




                                       16
<PAGE>   18


Subsequent to the transfer, securities were purchased to satisfy yield
enhancement, liquidity, interest-rate risk management, and pledging needs.
Purchases in longer maturities that provided yield enhancement were concentrated
in the tax-exempt classification to provide the additional benefit of tax
reduction. Prior to November 30, 1995, the Corporation's strategy was to place
into available-for-sale securities with a shorter average maturity structure of
approximately two years to provide for liquidity and flexibility in
interest-rate risk management. Securities determined to meet the
held-to-maturity criteria were purchased with a longer average maturity
structure of four to five years and an emphasis on yield enhancement.

The securities portfolio totaled $231,324 as of December 31, 1996. This
represents a slight decrease from the balance of securities outstanding at the
previous year-end due to the strong loan demand experienced by the Bank.
Tax-exempt securities increased by 49% to $51,750, and mortgage-backed
securities increased by 12% to $95,554. U.S. Treasury and government securities
decreased by $29,196 during the same timeframe. The securities portfolio totaled
$236,534 as of December 31, 1995. That balance represents a 4% increase over the
prior year-end. The net increase in securities in 1995 was concentrated in
mortgage-backed securities.

The average yield on the portfolio has shown steady improvement over the past
three years. The yield has increased from 6.3% as of December 31, 1994 to 6.5%
on December 31, 1995 to 6.7% at the end of 1996. The Corporation has been
successful in identifying opportunities to improve the yield on the portfolio
via portfolio restructuring while, at the same time, generating $462 and $634 in
gains on security transactions in 1996 and 1995, respectively. Market interest
rates were at a higher level at December 31, 1996 than of the same date the
previous year, resulting in a reversal of the unrealized gain position of $3,407
as of December 31, 1995. The security portfolio had a modest $37 unrealized loss
at the end of 1996. According to the provision of SFAS No. 115, shareholders'
equity contains a net unrealized loss of $24 as of December 31, 1996 and an
unrealized gain of $2,248 as of December 31, 1995.

Summary yield and maturity information regarding the securities portfolios on
December 31 follows. Yields are calculated on a fully taxable equivalent basis
using the marginal federal income tax rate of 34% for 1996.
<TABLE>
<CAPTION>

                                              Book Value               Book Value              Book Value
--------------------------------------------------------------------------------------------------------------------
                                          1996                            1995             1994          1994
                                     Available-for-     1996         Available-for-      Held-to-   Available-for-
                                          Sale         Yield              Sale           Maturity        Sale
-------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>              <C>            <C>     
U.S. Treasury and other U.S. Government
    agencies and corporations:
    Under 1 year                         $ 23,912       5.4%            $ 32,028        $  5,924       $17,358
    1 to 5 years                           35,689       6.0               48,541          45,177        35,880
    5 to 10 years                          16,926       7.2               21,183          12,442             0
    Over 10 years                               0       0.0                3,971           3,905             0
--------------------------------------------------------------------------------------------------------------------
       Total                               76,527       6.1              105,723          67,448        53,238

Obligations of states and political subdivisions:
    Under 1 year                            3,126       7.1                3,535             971         3,195
    1 to 5 years                           13,348       8.0               11,551          12,040         3,044
    5 to 10 years                          28,881       7.7               16,091          14,111             0
    Over 10 years                           6,395       7.8                3,503             304             0
--------------------------------------------------------------------------------------------------------------------
       Total                               51,750       7.7               34,680          27,426         6,239

Corporate:
    Under 1 year                            1,002       4.0                1,017           7,606             0
    1 to 5 years                                0       0.0                6,013           6,296             0
    5 to 10 years                               0       0.0                    0               0             0
    Over 10 years                               0       0.0                    0               0             0
--------------------------------------------------------------------------------------------------------------------
       Total                                1,002       4.0                7,030          13,902             0

Mortgage-backed securities                 95,554       6.6               85,546          31,484        24,248
Equity securities                           6,491       6.9                3,555               0         3,228
--------------------------------------------------------------------------------------------------------------------
                                         $231,324       6.7%            $236,534        $140,260       $86,953
--------------------------------------------------------------------------------------------------------------------

</TABLE>



                                       17
<PAGE>   19


Mortgage-backed securities have various stated maturities through January 2026.
The estimated weighted-average maturity of this segment of the portfolio is 4.2
years.

LOANS:
Listed below is the Corporation's loan distribution at the end of each of the
last five years:
<TABLE>
<CAPTION>

                                           1996            1995           1994           1993            1992
----------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>             <C>            <C>            <C>     
Commercial                               $297,347       $269,248        $238,053       $217,529       $177,108
Consumer                                  205,409        195,752         202,343        176,409        141,354
Real estate mortgage                       62,981         69,190          65,502         54,154         55,825
Loans held-for-sale                             0              0               0         23,141         45,381
Balance as of December 31                $565,737       $534,190        $505,898       $471,233       $419,668
----------------------------------------------------------------------------------------------------------------
</TABLE>

The Corporation continues to emphasize growth in commercial balances through its
aggressive calling program targeting medium-size companies. Commercial loan
balances have risen by 68% over a five-year period, with balances almost
reaching $300 million as of December 31, 1996. Commercial loans have grown by
10%, 13% and 9% in 1996, 1995 and 1994, respectively.

An analysis of maturity and interest-rate sensitivity of commercial loans as of
December 31, 1996 follows:
<TABLE>
<CAPTION>

                                                        One Year        One to          Over
                                                        or Less       Five Years     Five Years         Total
----------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>           <C>             <C>     
Fixed-rate                                               $23,126        $ 18,756      $  87,684       $129,566
Variable-rate                                             68,675          33,774         65,332        167,781
----------------------------------------------------------------------------------------------------------------
Total commercial loans                                   $91,801         $52,530       $153,016       $297,347
----------------------------------------------------------------------------------------------------------------
</TABLE>

The Corporation has de-emphasized its indirect lending program with automobile
dealers within the Bank's primary market areas over the past two years, choosing
to permit more funds to be available to allow for commercial loan growth. In
1996, the Corporation shifted its focus on the remaining indirect lending
activities, strictly limiting the volume of lower-quality "C" and "D" type paper
it acquires. Prior to that the Corporation accepted a higher volume of
lower-quality paper utilizing a tiered pricing system designed to compensate the
Bank for the higher risk associated with the loans. The volume of direct
consumer lending through the retail branch system has increased from
approximately 17% of total consumer production in 1994 to 22% in 1996. The
Corporation is still active in generating loans from automobile dealers within
the Corporation's five-county market area; however, future growth is targeted in
higher-quality loans.

With the adoption of SFAS No. 122, "Accounting for Mortgage Servicing Rights,"
in 1995, the Corporation was required to recognize as separate assets the value
of mortgage servicing rights, whether the rights are acquired through loan
origination activities or through purchase activities, virtually eliminating the
opportunity to build a servicing portfolio that would generate a strong source
of non-interest income in years of either strong or weak originations. The
adoption of the standard prompted the Corporation to introduce a
servicing-released loan rate for purchasers that was lower than the normal rate
offered for the service-retained product.

The introduction of the servicing-released loan product along with the
utilization of mortgage loan originators helped to increase the volume of
mortgage loan originations in both 1996 and 1995. In 1996, loan originations
totaled $44.5 million, while 1995 production was $30.5 million. Loans sold into
the secondary mortgage market totaled approximately $34 million in 1996, with
nearly $18 million being sold in 1995. Mortgage loans sold totaled $11.5 million
in 1994 and $24.3 million in 1993. Generally, the loans sold into the secondary
mortgage market make funds available for re-use in mortgage or other lending
activities, generate a net gain (including origination fee income) from the
sale, limit the interest rate risk caused by holding long-term fixed-rate loans
and build a portfolio of serviced loans which generate fee income for the
Corporation. The serviced portfolio as of December 31, 1996 totaled $44.6
million.

Gains on the sales of loans into the secondary market totaled $519 in 1996, $327
in 1995 and $68 in 1994. The result of the adoption of the SFAS No. 122
generation of $72 and $155 in income in 1996 and 1995, respectively. In 1995,
the Corporation also decided to sell servicing on approximately $14 million in
loans that had been originated in previous years to customers that had no other
banking relationship with the Corporation. The gain on the sale of the servicing
totaled $140.




                                       18
<PAGE>   20



The Corporation's loans are granted to customers within the immediate trade area
of the Corporation. The mix is diverse, covering a wide range of borrowers. The
Corporation monitors and controls concentrations within a particular industry or
segment. As of December 31, 1996, the Corporation had a concentration in
commercial real estate loans totaling approximately $191 million, approximately
69% of which were owner-occupied businesses, including medical office buildings,
retail and fast-food restaurants, and automobile dealerships within the
Corporation's market area.
<TABLE>
<CAPTION>

====================================================================================================================
ASSET QUALITY
--------------------------------------------------------------------------------------------------------------------
The reserve for loan losses is analyzed in the table below:

Year ended December 31                      1996           1995            1994           1993           1992
--------------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>             <C>            <C>            <C>   
Balance at January 1                       $6,748         $6,126          $5,392         $4,350         $3,816
Charge-offs:
    Commercial                              2,051            775             535            563          1,177
    Real estate                                 1              5               7              9              6
    Consumer                                3,128          2,220           1,712          1,366          1,342
--------------------------------------------------------------------------------------------------------------------
                                            5,180          3,000           2,254          1,938          2,525

Recoveries:
    Commercial                                155            312             310            217             25
    Real estate                                 0              0              14              3              0
    Consumer                                  621            310             294            205            269
--------------------------------------------------------------------------------------------------------------------
                                              776            622             618            425            294
--------------------------------------------------------------------------------------------------------------------
Net charge-offs                             4,404          2,378           1,636          1,513          2,231

Additions:
    Charged to operations                   4,956          3,000           2,370          2,555          2,765
--------------------------------------------------------------------------------------------------------------------

Balance at December 31                     $7,300         $6,748          $6,126         $5,392         $4,350
Reserve for loan losses as a percentage
    of year-end loans                        1.29%          1.26%           1.21%          1.14%          1.04%
Reserve for loan losses as a percentage
     of non-performing assets                  82%           161%            111%           120%            72%

Net charge-offs as a percent of average loans by major loan category are shown
below:

Year ended December 31                        1996           1995           1994            1993           1992
--------------------------------------------------------------------------------------------------------------------
Commercial                                    .66%           .18%            .10%           .18%           .71%
Real estate mortgage                          .00            .01            (.01)           .01            .01
Consumer                                     1.27            .95             .72            .60            .71
Total net charge-offs to average loans        .79            .45             .34            .34            .59
--------------------------------------------------------------------------------------------------------------------
</TABLE>

The balance of the reserve for loan losses has increased substantially since
1992, increasing by 68% to $7,300. The reserve as a percent of period end loans
has also shown significant increase over the past five years, improving from
1.04% at the end of 1992 to 1.29% as of December 31, 1996. The Corporation has
historically had low net charge-off levels for the commercial loan portfolio,
averaging .15% from 1993 to 1995. Commercial loan net charge-offs in 1996 were
significantly higher as a small group of related loans totaling approximately
$4.2 million were identified as having suffered deterioration with the borrowers
subsequently filing bankruptcy, resulting in charge-offs of approximately $1.6
million. The remaining balance of $2.6 million is secured by real estate and is
expected to be recovered. Net charge-offs from consumer loans increased to 1.27%
of average consumer loans in 1996. In 1995, the Bank began efforts to reduce the
impact of consumer loan charge-offs by first introducing a tiered pricing
structure for indirect automobile loans originated through local dealers and, in
1996, restricting the total volume of lower-quality loans accepted from the
dealers. The low level of net charge-offs in real estate loans is an indication
of the strong credit quality inherent in the portfolio.




                                       19
<PAGE>   21


The following presents a breakdown of the allocation of the loan loss allowance
by loan category for each of the last five years:
<TABLE>
<CAPTION>

                                                                  December 31
Loan Category                     1996              1995             1994             1993             1992
--------------------------------------------------------------------------------------------------------------------
<S>                        <C>        <C>    <C>        <C>   <C>        <C>    <C>        <C>    <C>        <C>
Commercial                 $4,720     65%    $3,933     58%   $3,578     58%    $2,984     55%    $2,828     65%
Consumer                    2,570     35      2,777     41     2,368     39      2,271     42      1,514     35
Real Estate                    10      0         38      1       180      3        137      3          8      0
--------------------------------------------------------------------------------------------------------------------
                           $7,300    100%    $6,748    100%   $6,126    100%    $5,392    100%    $4,350    100%
--------------------------------------------------------------------------------------------------------------------
</TABLE>

The determination of the reserve for loan losses is based on Management's
evaluation of the potential losses in the loan portfolio considering, among
other relevant factors, repayment status, borrowers' ability to repay,
collateral, and current and foreseeable economic conditions. The Bank utilizes
its internal loan gradings for commercial loans in conjunction with historical
loss experience for loans of each grade level and current economic trends as
parts of its analysis in determining the adequacy of its reserve for loan
losses.

Below is a table listing the non-accrual, past-due, and restructured loans at 
the end of the last five years:
<TABLE>
<CAPTION>

                                                                        December 31
----------------------------------------------------------------------------------------------------------------
                                            1996           1995            1994           1993           1992
----------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>             <C>            <C>            <C>   
Non-accrual loans                          $6,809         $2,673          $3,412         $2,984         $3,449
Past-due loans                              1,963          1,465           2,081          1,513          2,593
Restructured loans                            171             25              33              1              4
--------------------------------------------------------------------------------------------------------------------
       Total                               $8,943         $4,163          $5,526         $4,498         $6,046
--------------------------------------------------------------------------------------------------------------------
Percent of loans at year-end                 1.58%           .78%           1.09%           .95%          1.44%
Other real estate owned                        $0            $27            $116           $557           $467
</TABLE>

Loans 30 to 89 days past due, excluding non-accrual and restructured loans
included in the table above, amounted to $10,039, or 1.78% of outstanding loans,
as of December 31, 1996, as compared to $9,464, or 1.77% of loans on December
31, 1995. Loans then current where some concern existed as to ability of the
borrower to comply with loan repayment terms approximated $20,263 at December
31, 1996 and $15,852 on December 31, 1995. Such loans have been and are being
closely monitored by Management.

Further discussion on loan quality and credit risk are presented in Note 1f, 6
and 18 of Item 8; Financial Statements and Supplementary Data and are
incorporated herein by reference.




                                       20
<PAGE>   22

<TABLE>
<CAPTION>

FUNDING SOURCES

Deposits: The average amounts of deposits are summarized below.

                                                                     1996              1995             1994
--------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>               <C>              <C>      
Demand deposits--non-interest bearing                              $ 75,229          $ 73,186         $ 71,305
Demand deposits--interest bearing                                    68,371            63,713           48,521
Savings deposits                                                    160,774           178,543          177,402
Time deposits                                                       359,170           322,011          282,784
--------------------------------------------------------------------------------------------------------------------
                                                                   $663,544          $637,453         $580,012
--------------------------------------------------------------------------------------------------------------------
</TABLE>

In 1996, average deposits increased by 4%, led by an 11.5% increase in average
time deposits. Both interest bearing and non-interest bearing deposits also
showed increases in average balances. Savings deposits exhibited a decline in
average balances as customers chose to seek higher yielding alternatives. The
average deposits balance increase of 10% in 1995 resulted from a combination of
the continued strong sales effort of the Bank's staff and a full-year impact of
the effect of 1994 acquisitions. In 1995, deposit growth was also concentrated
primarily in time deposit balances.

On December 31, 1996 time deposits over $100 totaled $62,235, an increase from
the previous year-end total of $52,316. The Bank continues to maintain strong
relationships with the various public entities centered in the primary markets
of the Bank. Time deposits over $100 averaged approximately $59 million in 1996
as compared to $44 million during 1995. The 1996 year-end balance represents 9%
of total deposits. The maturity schedule for time deposits over $100 as of
December 31, 1996 is given in the following table:
<TABLE>
<CAPTION>

                                                                     Amount
----------------------------------------------------------------------------------------------------------------
Maturing in:

<S>                                                                <C>    
3 months or less                                                    $36,748
3 to 6 months                                                        16,697
6 to 12 months                                                        3,756
Over 12 months                                                        5,034
----------------------------------------------------------------------------------------------------------------
                                                                    $62,235
----------------------------------------------------------------------------------------------------------------
</TABLE>

Other Sources of Funds:
The retail repurchase agreement program the Corporation offers provides a sweep
feature on a customer's primary business account along with competitive market
rates of interest for their excess funds. The average balance of these accounts
was $86,006 and $86,955 during 1996 and 1995, respectively. The success of this
product reflects the strong emphasis the Bank places on offering competitive
products coupled with personalized service to the small- to mid-size businesses
operating in the Bank's various markets.

The Corporation also has outstanding an unsecured note payable to a
correspondent bank totaling $5 million as of December 31, 1996. The note has a
maturity of September 15, 1997 and bears interest at a floating rate based on
either the federal funds rate plus two percent or the prime rate. In addition,
the Corporation has available a $5 million unsecured line of credit with another
correspondent bank.

The Corporation also has access to federal tax deposits on a daily basis. After
being deposited by customers, the tax deposits are held at the Corporation up to
a self-imposed limit of $6 million until they are drawn on by the federal
government. The balance of these funds was $3,989 and $3,164 as of December 31,
1996 and 1995, respectively. The Corporation occasionally uses federal funds
purchased from other financial institutions as a source of short-term funding.
The Corporation had no federal funds purchased as of December 31, 1996 and had
$5 million of federal funds as of December 31, 1995.

The Bank is also a member of the Federal Home Loan Bank ("FHLB") system and
utilizes the various advance programs offered by the FHLB. The funds are drawn
from the FHLB for a term of up to 15 years and are utilized to provide long-term
funding to offset the interest rate risk inherent with holding long-term,
fixed-rate mortgages, and from time to time as a short-term funding source. The
balance of these advances was $26,557 and $7,396 as of December 31, 1996 and
1995, respectively.




                                       21
<PAGE>   23



CAPITAL

The shareholders' equity increased to $69,237 at December 31, 1996, from $66,033
a year earlier. The increase was primarily attributed to the earnings retained
this year after common and preferred stock dividend payments. The impact of SFAS
No. 115 resulted in a net unrealized loss position (net of tax) of $24 at
December 31, 1996 versus a net unrealized gain position (net of tax) of $2,248
at December 31, 1995. The Corporation also increased common stock by $547
through the issuance of common stock for the dividend reinvestment plan and
through the exercise of stock options. Effective June 25, 1996, the Corporation
called for the redemption of all the outstanding shares of the Series A $1.50
preferred stock. The preferred stock was convertible into 1.1177 shares of
Second Bancorp, Inc. common stock per preferred share. Virtually all preferred
stockholders exercised their conversion rights prior to the redemption date. The
net effect was a transfer of approximately $12.7 million in capital from
preferred stock to common stock. In 1995, certain preferred stock holders
exercised their conversion rights, resulting in an amount transferred from
preferred stock to common stock within shareholders' equity of $504.

The Corporation has consistently had qualifying capital under the risk-based
capital requirements in excess of those required to meet the "well-capitalized"
standards. For further details on capital ratios, see Note 12.

On March 7, 1996 the Board of Directors authorized the Corporation to repurchase
up to 70,000 shares of its common stock. As of December 31, 1996, the
Corporation had repurchased 10,000 shares. The repurchase of any more than
70,000 shares of stock must first be approved by creditors.

The Corporation's common stock trades under the symbol SECD on the NASDAQ
National Market System. As of December 31, 1996, there were 1,872 common
stockholders of record. The total market capitalization of the Corporation was
approximately $105 million. The table below lists the high and low trading
prices for the common stock by quarter for the last three years. The price
ranges and per share dividend figures set forth below have been adjusted to
reflect the three-for-two stock split distributed May 1, 1995.
<TABLE>
<CAPTION>
Quarter                                    First          Second          Third         Fourth             Year
--------------------------------------------------------------------------------------------------------------------
1996
<S>                                        <C>            <C>             <C>            <C>             <C>   
High                                       $29.88         $28.25          $34.00         $33.00          $34.00
Low                                         27.50          25.00           27.25          29.75           25.00
Dividends paid                                .19            .22             .22            .22             .85
Dividends declared                            .22            .22             .22            .22             .88

1995
High                                       $21.83         $23.50          $30.00         $29.88          $30.00
Low                                         20.17          20.50           23.25          27.50           20.17
Dividends paid                                .16            .19             .19            .19             .73
Dividends declared                            .19            .19             .19            .19             .76

1994
High                                       $21.33         $21.67          $21.67         $22.00          $22.00
Low                                         20.33          20.33           20.33          20.33           20.33
Dividends paid                                .15            .16             .16            .16             .63
Dividends declared                            .16            .16             .16            .16             .64
</TABLE>

The Corporation's price for its common stock increased to a trading range of
$29.75 to $33.00 per share in the fourth quarter of 1996. The common stock
closed at $31.38 per share on December 31, 1996, representing a 9%, increase
from the prior year-end. Book value per common share at December 31, 1996 was
$20.67, compared to $20.80 at December 31, 1995. The 1996 book value included
$.01 of unrealized market depreciation in the securities available-for-sale
portfolio, compared with $.88 of market appreciation at year-end 1995.

The Corporation has historically paid cash dividends on a quarterly basis and
has periodically paid stock dividends at the discretion of the Board of
Directors. The payment and amount of future dividends on the common stock will
be determined by the Board of Directors. The payment will depend on, among other
things, earnings, financial condition and cash requirements of the Corporation
at the time that such payment is considered and on the ability of the
Corporation to receive dividends from the Bank, the amount of which is subject
to regulatory limitations. For 1996, 1995 and 1994, the dividend-payout ratio
for the Corporation was 34.8%, 29.7% and 28.8%, respectively.




                                       22
<PAGE>   24



INTEREST RATE SENSITIVITY

Management, through active management of the balance sheet, attempts to limit
the impact that changes in interest rates might have on net interest income.
Interest-rate risk is monitored through both simulation analysis and asset and
liability repricing schedules.

The following table sets forth the cumulative contractual maturity distributions
as of December 31, 1996 of the Corporation's interest earning assets and
interest bearing liabilities, its interest-rate sensitivity gap, cumulative
interest-rate sensitivity gap for such assets and liabilities, and cumulative
interest-rate sensitivity gap as a percentage of total interest earning assets.
This table indicates the time periods in which certain interest earning assets
and interest bearing liabilities will mature or reprice in accordance with their
contractual terms. However, this table does not necessarily indicate the impact
of general interest rate movements on the Corporation's net interest movements
due to several factors. Among these factors are that the repricing of various
categories of assets and liabilities is discretionary and is subject to
competition and other pressures, and that the schedule does not account for
anticipated repricing of loans and securities prior to their contractual
maturity. As a result, various assets and liabilities indicated as repricing
within the same period may, in fact, reprice at different times and at different
rate levels. Subject to these qualifications, the table reflects a cumulative
negative gap for assets and liabilities maturing or repricing in 1996.
<TABLE>
<CAPTION>

                                                         Under          1 to 5          Over
----------------------------------------------------------------------------------------------------------------
                                                         1 Year         Years          5 Years         Total
----------------------------------------------------------------------------------------------------------------
<S>                                                     <C>            <C>            <C>            <C>      
Interest earning assets:
    Federal funds sold                                  $ 10,000        $      0      $       0      $  10,000
    Securities                                            28,040          49,037         58,693        135,770
    Mortgage-backed securities (1)                        11,585          16,128         67,841         95,554
    Commercial loans (1)                                 190,907          18,756         87,684        297,347
    Other loans (1)                                       25,509         173,114         69,767        268,390
----------------------------------------------------------------------------------------------------------------
Total interest earning assets                           $266,041        $257,035       $283,985       $807,061
----------------------------------------------------------------------------------------------------------------

Interest bearing liabilities:
    Demand--interest bearing accounts                    $69,326        $      0      $       0      $  69,326
    Savings accounts                                     156,180               0              0        156,180
    Time deposits                                        231,637         128,142          3,784        363,563
    Other liabilities                                     99,760          13,993          8,580        122,333
----------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities                      $556,903       $ 142,135      $  12,364       $711,402
----------------------------------------------------------------------------------------------------------------
Contractual gap (2)                                    $(290,862)      $ 114,900      $ 271,621      $  95,659
----------------------------------------------------------------------------------------------------------------
Cumulative gap                                         $(290,862)      $(175,962)     $  95,659
Cumulative gap as a percentage of
    total interest earning assets                          (36.0)%         (21.8)%         11.9%
<FN>

(1) Expected maturities will likely differ from contractual maturities because
    some borrowers and issuers have the right to call or repay obligations with
    or without call or prepayment penalties.
(2) Contractual gap is defined as rate-sensitive assets less rate-sensitive
    liabilities classified as to their final maturity date.
</TABLE>

================================================================================
LIQUIDITY
--------------------------------------------------------------------------------

Management of the Corporation's liquidity position is necessary to ensure that
funds are available for asset growth, deposit withdrawals, and other liability
maturities. The Corporation provides these funds for short-term liquidity needs
through maturing securities, payments made on loans, and through the acquisition
of new deposits. Long-term funding needs can be additionally met, if required,
through the issuance of common stock and preferred stock. Excluding the
origination and sale of loans held-for-sale, the net cash provided by operating
activities was approximately $13,000, $5,000, and $10,000 for 1996, 1995, and
1994, respectively. The Corporation also has the ability to borrow money on a
daily basis in excess of $37,000 through correspondent banks to satisfy
short-term liquidity needs. The Corporation has available a $5,000 line of
credit with a correspondent bank. The Corporation also has the ability to borrow
funds, up to certain limits, via advances of various terms from the Federal Home
Loan Bank. The Corporation's liquidity is considered by Management to be
adequate to meet all current and projected needs.

Additional discussion regarding the Company's liquidity and capital resources
are set forth in Notes 9, 10, 11, and 12 of Item 8; Financial Statements and
Supplementary Data and is incorporated herein by reference.




                                       23
<PAGE>   25

<TABLE>
<CAPTION>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

================================================================================================================
CONSOLIDATED BALANCE SHEETS
================================================================================================================

SECOND BANCORP, INC. AND SUBSIDIARY
================================================================================================================
ASSETS                                                                                        DECEMBER 31
(DOLLARS IN THOUSANDS)                                                                   1996            1995
----------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>       
Cash and demand balances due from banks                                              $   27,934     $   29,461
Federal funds sold                                                                       10,000          3,000
Securities (at market value)                                                            231,324        236,534
Loans                                                                                   565,737        534,190
Less reserve for loan losses                                                              7,300          6,748
----------------------------------------------------------------------------------------------------------------
    Net loans                                                                           558,437        527,442

Premises and equipment                                                                    8,918          7,276
Accrued interest receivable                                                               5,086          5,028
Goodwill and intangible assets                                                            3,701          4,565
Other assets                                                                             21,879         20,606
----------------------------------------------------------------------------------------------------------------
       Total assets                                                                    $867,279       $833,912
----------------------------------------------------------------------------------------------------------------

================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
----------------------------------------------------------------------------------------------------------------
Deposits:
    Demand--non-interest bearing                                                     $   80,328     $   78,906
    Demand--interest bearing                                                             69,326         72,785
    Savings                                                                             156,180        172,183
    Time deposits                                                                       363,563        333,977
----------------------------------------------------------------------------------------------------------------
       Total deposits                                                                   669,397        657,851
Federal funds purchased and securities sold under agreements to repurchase               86,787         86,942
----------------------------------------------------------------------------------------------------------------
Note payable                                                                              5,000          5,000
Other borrowed funds                                                                      3,989          3,164
Federal Home Loan Bank advances                                                          26,557          7,396
Accrued expenses and other liabilities                                                    6,312          7,526
----------------------------------------------------------------------------------------------------------------
       Total liabilities                                                                798,042        767,879

Shareholders' equity:
    Preferred stock, no par value;
       Series A: 1,500,000 shares authorized; 718,750 issued and 300
           and 691,366 shares outstanding in 1996 and 1995, respectively                      6         12,731
       Series B: 1,500,000 shares authorized                                                  0              0
    Common stock, no par value;
       10,000,000 shares authorized; 3,358,587 and 2,562,041 shares issued
           in 1996 and 1995, respectively                                                27,398         14,155
    Treasury stock, 10,000 and 0 shares, respectively                                      (319)             0
    Net unrealized holding (losses) gains on available-for-sale securities, net of tax      (24)         2,248
Retained earnings                                                                        42,176         36,899
----------------------------------------------------------------------------------------------------------------
       Total shareholders' equity                                                        69,237         66,033
----------------------------------------------------------------------------------------------------------------
       Total liabilities and shareholders' equity                                      $867,279       $833,912
================================================================================================================

</TABLE>




                                       24
<PAGE>   26

<TABLE>
<CAPTION>

====================================================================================================================
CONSOLIDATED STATEMENT OF INCOME
====================================================================================================================

SECOND BANCORP, INC. AND SUBSIDIARY
====================================================================================================================

INTEREST INCOME                                                           FOR THE CALENDAR YEAR
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)                             1996           1995            1994
----------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>            <C>    
Loans (including fees):
    Taxable                                                              $50,621        $48,303        $40,868
    Exempt from federal income taxes                                         740            810            726
Securities:
    Taxable                                                               11,789         11,167          8,546
    Exempt from federal income taxes                                       2,205          1,635          1,598
Federal funds sold                                                           291            629            308
Time deposits with banks and other interest income                             0              0             69
----------------------------------------------------------------------------------------------------------------
       Total interest income                                              65,646         62,544         52,115

====================================================================================================================
INTEREST EXPENSE
--------------------------------------------------------------------------------------------------------------------
Deposits                                                                  26,343         25,415         18,834
Federal funds purchased and securities
    sold under agreements to repurchase                                    3,917          4,307          2,600
Note payable                                                                 371            434            121
Other borrowed funds                                                         144            181            130
Federal Home Loan Bank advances                                            1,010            466            379
----------------------------------------------------------------------------------------------------------------
       Total interest expense                                             31,785         30,803         22,064
----------------------------------------------------------------------------------------------------------------
       NET INTEREST INCOME                                                33,861         31,741         30,051
Provision for loan losses                                                  4,956          3,000          2,370
    Net interest income after provision for loan losses                   28,905         28,741         27,681

====================================================================================================================
NON-INTEREST INCOME
--------------------------------------------------------------------------------------------------------------------
Trust fees                                                                 2,335          2,227          2,025
Service charges on deposit accounts                                        2,684          2,406          1,899
Security gains                                                               462            634             17
  Other                                                                    2,998          2,278          1,038
----------------------------------------------------------------------------------------------------------------
       Total non-interest income                                           8,479          7,545          4,979

====================================================================================================================
NON-INTEREST EXPENSE
--------------------------------------------------------------------------------------------------------------------
Salaries and employee benefits                                            12,618         11,702         10,285
Net occupancy                                                              3,017          2,955          2,569
Equipment                                                                  1,546          1,340          1,141
Professional services                                                      1,400          1,534          1,378
Data processing services                                                   1,155          1,034          1,132
Assessment on deposits and other taxes                                       891          1,932          1,994
Amortization of goodwill and other intangibles                               864          1,000            847
Other                                                                      4,785          4,529          4,281
----------------------------------------------------------------------------------------------------------------
       Total non-interest expense                                         26,276         26,026         23,627
Income before federal income taxes                                        11,108         10,260          9,033
Income tax expense (benefit):
    Current                                                                2,767          3,516          3,312
    Deferred                                                                (211)          (821)          (922)
====================================================================================================================
       Total federal income tax expense                                    2,556          2,695          2,390
----------------------------------------------------------------------------------------------------------------
NET INCOME                                                               $ 8,552        $ 7,565        $ 6,643
====================================================================================================================
    Preferred stock dividends                                               (456)        (1,066)        (1,078)
====================================================================================================================
    Net income applicable to common stock                                $ 8,096        $ 6,499        $ 5,565
----------------------------------------------------------------------------------------------------------------

NET INCOME PER COMMON SHARE
    Primary                                                                $2.64          $2.55          $2.22
    Fully diluted                                                          $2.53          $2.26          $2.01
Weighted average common shares outstanding                             3,066,847      2,547,787      2,508,906
----------------------------------------------------------------------------------------------------------------
</TABLE>


                                       25

<PAGE>   27

<TABLE>
<CAPTION>

====================================================================================================================
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
====================================================================================================================

SECOND BANCORP, INC. AND SUBSIDIARY
====================================================================================================================

                                                                                Unrealized
                                               Preferred    Common    Treasury    Holding   Retained
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)    Stock       Stock      Stock   (Loss) Gain Earnings     Total
----------------------------------------------------------------------------------------------------------------
<S>                                             <C>       <C>          <C>       <C>        <C>        <C>     
Balance, January 1, 1994                        $13,235   $ 12,763     $    0    $     0    $28,364    $54,362

Net income                                                                                    6,643      6,643
Cash dividends declared:
    Common stock ($0.64 per share)                                                           (1,601)    (1,601)
    Preferred stock ($1.50 per share)                                                        (1,078)    (1,078)
Exercise of stock options                                       35                                          35
Common stock issued--
    dividend reinvestment plan                                 342                                         342
Change in unrealized market value adjustment
    on securities available-for-sale, net of tax                                  (2,820)               (2,820)
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994                       13,235     13,140          0     (2,820)    32,328     55,883

Net income                                                                                    7,565      7,565
Cash dividends declared:
    Common stock ($0.76 per share)                                                           (1,928)    (1,928)
    Preferred stock ($1.50 per share)                                                        (1,066)    (1,066)
Exercise of stock options                                       33                                          33
Common stock issued--
    dividend reinvestment plan                                 478                                         478
Conversion of preferred stock to
    common stock                                   (504)       504                                           0
Change in unrealized market value adjustment
    on securities available-for-sale, net of tax                                   5,068                 5,068
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995                       12,731     14,155          0      2,248     36,899     66,033

Net income                                                                                    8,552      8,552
Cash dividends declared:
    Common stock ($0.88 per share)                                                           (2,816)    (2,816)
    Preferred stock ($0.75 per share)                                                          (456)      (456)
Exercise of stock options                                      276                                         276
Common stock issued--
    dividend reinvestment plan                                 271                                         271
Conversion of preferred stock to
    common stock                                (12,700)    12,696                                          (4)
Redemption of preferred stock                       (25)                                         (3)       (28)
Purchase of treasury stock                                               (319)                            (319)
Change in unrealized market value adjustment
    on securities available-for-sale, net of tax                                  (2,272)               (2,272)
--------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996                      $     6    $27,398     $ (319)   $   (24)   $42,176    $69,237
--------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       26



<PAGE>   28
<TABLE>
<CAPTION>

====================================================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
====================================================================================================================

SECOND BANCORP, INC. AND SUBSIDIARY
====================================================================================================================

OPERATING ACTIVITIES FOR THE CALENDAR YEAR
(DOLLARS IN THOUSANDS)                                                     1996           1995           1994
<S>                                                                     <C>           <C>            <C>      
Net income                                                              $  8,552      $   7,565      $   6,643
Adjustments to reconcile net income to net cash provided by operating 
  activities:
    Provision for loan losses                                              4,956          3,000          2,370
    Provision for depreciation                                             1,248          1,054            908
    Provision for amortization of intangibles                                864          1,000            929
    Amortization of investment discount and premium                          242            590          1,231
    Deferred income taxes                                                   (211)          (821)          (922)
    Securities gains                                                        (462)          (634)           (17)
    Other gains, net                                                        (684)          (408)           (22)
    (Increase) decrease in interest receivable                               (58)          (200)           256
    (Decrease) increase in interest payable                                 (284)           789            838
    Originations of loans held-for-sale                                  (38,005)       (17,977)        (8,586)
    Proceeds from sales of loans held-for-sale                            38,679         18,367         43,924
    Decrease (increase) in other assets                                      109         (8,886)        (2,098)
    (Decrease) increase in other liabilities                                (930)         2,368            119
--------------------------------------------------------------------------------------------------------------------
    Net cash provided by operating activities                             14,016          5,807         45,573
====================================================================================================================
INVESTING ACTIVITIES
--------------------------------------------------------------------------------------------------------------------
    Proceeds from maturities of securities--held-to-maturity                   0         19,974         10,114
    Proceeds from maturities of securities--available-for-sale            67,997         46,392         15,718
    Proceeds from sales of securities--available-for-sale                 60,299         66,232         42,045
    Purchases of securities--held-to-maturity                                  0           (250)       (95,787)
    Purchases of securities--available-for-sale                         (126,309)      (133,956)       (41,132)
    Net decrease in time deposits with banks
       and other interest bearing assets                                       0              0          1,049
    Deposits acquired--branch acquisitions                                     0              0         65,269
    Premium paid for acquired deposits                                         0              0         (3,112)
    Net increase in revolving credit receivables                          (4,455)        (1,257)          (332)
    Net increase in loans                                                (31,496)       (29,413)       (71,257)
    Net increase in premises and equipment                                (2,880)        (2,547)        (2,288)
--------------------------------------------------------------------------------------------------------------------
    Net cash used by investing activities                                (36,844)       (34,825)       (79,713)
====================================================================================================================
FINANCING ACTIVITIES
--------------------------------------------------------------------------------------------------------------------
    Net (decrease) increase in demand, interest bearing demand
       and savings deposits                                              (18,040)        (6,338)        16,982
    Net increase (decrease) in time deposits                              29,586         48,426        (21,368)
    Net (decrease) increase in federal funds purchased and securities
       sold under agreements to repurchase                                  (155)        (7,816)        39,804
    Increase in note payable                                                   0              0          5,000
    Net increase (decrease) in borrowings                                    825           (504)        (2,331)
    Net advances (repayments) from Federal Home Loan Bank                 19,161           (352)         6,780
    Cash dividends                                                        (3,272)        (2,994)        (2,679)
    Redemption/conversion of preferred stock                                 (32)             0              0
    Purchase of treasury stock                                              (319)             0              0
    Issuance of common stock                                                 547            511            377
--------------------------------------------------------------------------------------------------------------------
       Net cash provided by financing activities                          28,301         30,933         42,565
--------------------------------------------------------------------------------------------------------------------
       Increase in cash and cash equivalents                               5,473          1,915          8,425
    Cash and cash equivalents at beginning of year                        32,461         30,546         22,121
--------------------------------------------------------------------------------------------------------------------
       Cash and cash equivalents at end of year                          $37,934        $32,461        $30,546
--------------------------------------------------------------------------------------------------------------------
<FN>

Supplementary Cash Flow Information: Cash paid for 1) Federal income taxes -
$3,285, $3,713 and $3,929 for the twelve months ended December 31, 1996, 1995
and 1994, respectively; and 2) Interest - $32,068, $30,014 and $21,226 for the
twelve months ended December 31, 1996, 1995 and 1994, respectively.
</TABLE>


                                       27


<PAGE>   29

================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

SECOND BANCORP, INC. AND SUBSIDIARY
================================================================================

1. STATEMENT OF ACCOUNTING POLICIES

Nature of Operations: Second Bancorp, Inc. (the "Corporation") is a one bank
holding company with its sole subsidiary being The Second National Bank of
Warren (the "Bank"), headquartered in Warren, Ohio, with 26 branches and one
loan production office operating in northeast Ohio. In addition to general
commercial banking, the Bank engages in trust and mortgage banking activities
and other financially related businesses.

The accounting policies followed by Second Bancorp, Inc. conform to generally
accepted accounting principles and to general practice within the banking
industry. The following is a description of the more significant accounting
policies:

a. Principles of Consolidation: Significant intercompany balances and
   transactions between the Corporation and the Bank have been eliminated.

b. Use of Estimates: The preparation of the financial statements in conformity
   with generally accepted accounting principles requires Management to make
   estimates and assumptions that affect the amounts reported in the financial
   statements and accompanying notes. Actual results could differ from these
   estimates.

c. Securities: Debt and equity securities are classified as held-to-maturity,
   available-for-sale, or trading. Securities classified as held-to-maturity are
   measured at amortized or historical cost, securities available-for-sale and
   trading at fair value. Adjustments to fair value of the securities
   available-for-sale, in the form of unrealized holding gains and losses, are
   excluded from earnings and reported net of tax as a separate component of
   shareholders' equity. Adjustments to fair value of securities classified as
   trading are included in earnings. Management determines the appropriate
   classification of debt securities at the time of purchase and re-evaluates
   such designation as of each balance sheet date. Debt securities are
   classified as held-to-maturity when the Corporation has the positive intent
   and ability to hold the securities to maturity. Effective November 30, 1995,
   the Corporation reclassified all securities as available-for-sale as
   permitted by a special report, "A Guide to Implementation of Statement No.
   115 on Accounting for Certain Investments in Debt and Equity Securities,"
   issued by the Financial Accounting Standards Board. The effect of the
   reclassification was to transfer $120,273 in securities from held-to-maturity
   to available-for-sale. There were unrealized gains of $1,968 on the
   securities at the time of the transfer. Upon initial adoption of Statement
   115 in 1994, the Corporation transferred $14,710 in amortized cost of
   securities from held-to-maturity to available-for-sale. The related
   unrealized gain transferred with the securities was immaterial.
   Classification as available-for-sale allows the Corporation to sell
   securities to fund liquidity and manage the Corporation's interest-rate risk.
   The Corporation does not maintain a trading account.
--------------------------------------------------------------------------------

   The amortized cost of the debt securities classified as held-to-maturity or
   available-for-sale is adjusted for amortization of premiums and accretion of
   discounts to maturity or, in the case of mortgage-backed securities, over the
   estimated life of the security. Such amortization is included in interest
   income from investments. Interest and dividends are included in interest
   income from investments. Realized gains and losses, and declines in value
   judged to be other than temporary, are included in net securities gains
   (losses). The cost of securities sold is based on the specific identification
   method.

d. Revenue Recognition: Interest on loans is accrued and credited to operations
   based upon the principal amount outstanding. Premiums on acquired loans have
   been deducted from the related interest income and are amortized over the
   remaining useful life of the loans acquired. Discounts and premiums on
   acquired deposits have been deducted or added respectively from the related
   interest expense and are being accreted or amortized over the remaining
   useful life of the deposits. The accrual of interest income generally is
   discontinued when a loan becomes, in Management's opinion, doubtful of being
   collectible. When interest accruals are discontinued, interest credited to
   income for the current year is reversed and interest accrued in prior years
   is charged to the reserve for loan losses.

   The Corporation accounts for loan origination and commitment fees and certain
   direct loan origination costs by deferring the net fees and amortizing them
   as an adjustment of the related loan's yield. The Corporation is amortizing
   these amounts over the contractual life of the related loans.

   In 1995, the Corporation adopted Statement of Financial Accounting Standard
   (SFAS) No. 122, "Accounting for Mortgage Servicing Rights," which requires
   companies to recognize as separate assets the value of mortgage servicing
   rights, whether those rights are acquired through loan origination activities
   or through purchase activities. Capitalized mortgage servicing rights are
   amortized on an accelerated basis over the estimated life of the loans sold.
   Management evaluates the recoverability of the mortgage servicing rights in
   relation to the impact of actual and anticipated loan portfolio prepayments,
   foreclosures and delinquency experience. There was no valuation allowance
   associated with the mortgage servicing rights portfolio as of December 31,
   1996 and 1995. The impact of adopting this standard was not material.

e. Loans Available-for-Sale: From time to time, the Corporation will sell loans
   it originated, mostly mortgages. The loans are reclassified as
   available-for-sale and are recorded at the aggregate cost or market by loan.
   As of December 31, 1996, the Corporation had no loans available-for-sale.




                                       28
<PAGE>   30

f. Reserve for Loan Losses: The reserve for loan losses is maintained at a level
   believed adequate by Management to absorb potential losses in the loan
   portfolio. Management's determination of the adequacy of the reserve is based
   upon an evaluation of the collectibility of the loans. These evaluations take
   into consideration such factors as changes in the nature and volume of the
   loan portfolio, current economic conditions that may affect the borrower's
   ability to pay, overall quality and a review of specific problem loans.
   Effective January 1, 1995, the Corporation adopted SFAS No. 114, "Accounting
   by Creditors for Impairment of a Loan," as amended by SFAS No. 118,
   "Accounting by Creditors for Impairment of a Loan Income Recognition and
   Disclosures." These standards address the accounting for certain loans when
   it is probable that amounts due pursuant to the contractual terms of the loan
   will not be collected. This evaluation is inherently subjective and requires
   a material estimate, including the amounts and timing of future cash flows
   expected to be received on impaired loans, that could be susceptible to
   change. The adoption of these standards was not material.

g. Premises and Equipment: Premises and equipment are stated at cost, less
   accumulated depreciation and amortization. The provision for depreciation and
   amortization is computed generally by the straight-line method. Leasehold
   improvements are amortized over the shorter of the terms of the respective
   leases or the estimated useful lives.

h. Federal Income Taxes: Deferred federal income taxes are provided for
   differences between tax and financial statement bases of assets and
   liabilities at year-end. Deferred taxes are recognized using the liability
   method, whereby tax rates are applied to cumulative temporary differences
   based on when and how they are expected to affect the tax return. Deferred
   tax assets and liabilities are adjusted for tax rate changes.

i. Intangible Assets: Intangible assets resulting from the excess of the
   purchase price over net identifiable tangible and intangible assets acquired
   through acquisitions are specifically identified when determinable. Goodwill
   is amortized based on the estimated useful life of the long-term assets
   acquired and on an accelerated basis. The core deposit intangible is
   amortized both on an accelerated basis and on a straight-line basis over the
   estimated useful life. Original estimated useful lives for the core deposit
   intangible and goodwill range from 10 to 14 years and 8 to 22 years,
   respectively. Accumulated amortization as of December 31, 1996 and 1995 were
   $6,082 and $5,218, respectively.

j. Interest Rate Management: From time to time, the Bank may enter into interest
   rate swap agreements to modify characteristics of its financial assets and
   liabilities. These agreements involve the receipt of floating or fixed rate
   interest in exchange for floating or fixed rate interest payments over the
   life of the agreement without an exchange of the underlying principal amount.
   The differential to be paid or received is accrued as interest rates change
   and recognized as an adjustment to interest income or expense related to the
   assets and liabilities. The related amount payable to or receivable from
   counterparties is included in other liabilities or assets. The fair values of
   the swap agreements are not recognized in the financial statements. On
   December 31, 1996, the Bank was not a party to any interest rate swap
   agreements.

k. Cash Equivalents: Cash equivalents include amounts due from banks and federal
   funds sold. Generally, federal funds are purchased and sold for periods of
   less than thirty days.

l. Per Share Data: Primary earnings per common share are computed by dividing
   net income applicable to common shareholders by the weighted average number
   of common shares outstanding, including common stock equivalents, during each
   year (3,066,847 in 1996; 2,547,787 in 1995; and 2,508,906 in 1994). Fully
   diluted earnings per common share are computed by dividing net income by the
   weighted average number of common shares outstanding, including common stock
   equivalents, plus the additional common shares resulting from the assumed
   conversion of Series A-1 preferred stock into common shares (3,382,564 in
   1996; 3,352,087 in 1995; and 3,313,232 in 1994). On May 1, 1995, the
   Corporation declared a three-for-two stock split. The share and per share
   data have been restated to reflect this stock split.

m. Reclassifications: Certain reclassifications have been made to amounts
   previously reported in order to conform with current year presentation.

================================================================================
2. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------------------------------------------------------
a. Accounting for Stock-Based Compensation: In October 1995, the Financial
   Accounting Standard Board (FASB) issued SFAS No. 123, "Accounting for
   Stock-Based Compensation." SFAS No. 123 defines a fair-value-based method of
   accounting for stock-based employee compensation plans. Under the
   fair-value-based method, compensation cost is measured at the grant date
   based upon the value of the award and recognized over the service period. The
   Corporation has elected, as the standard allows, to continue to measure
   compensation costs for its plans as prescribed in Accounting Principles Board
   (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," because the
   alternative fair value accounting provided under SFAS No. 123 requires the
   use of option valuation models that were not developed for use in valuing
   employee stock options. Under APB No. 25, because the exercise price of the
   Corporation's employee stock options equals the market price of the
   underlying stock on the date of grant, no compensation expense is recognized.
   Pro forma disclosure of net income and earnings per share is made in the
   accompanying footnotes as if the fair value method of accounting, as defined
   by SFAS No. 123, had been adopted.

b. Accounting for Transfers and Servicing of Financial Assets and
   Extinguishments of Liabilities: In June 1996, the FASB issued SFAS No. 125,
   "Accounting for Transfers and Servicing of Financial Assets and
   Extinguishments of Liabilities." The Statement provides consistent standards
   for distinguishing transfers of financial assets that are sales from
   transfers that are secured borrowings based on a control-oriented
   "financial-components" approach. Under this approach, after a transfer of
   financial assets, an entity recognizes the financial and servicing assets it
   controls and the liabilities it has 

                                       29
<PAGE>   31


   incurred, derecognizes financial assets when control has been surrendered and
   derecognizes liabilities when extinguished. The provisions of SFAS No. 125
   are effective for transactions occurring after December 31, 1996, except
   those provisions relating to repurchase agreements, securities lending, and
   other similar transactions and pledged collateral which have been delayed
   until after December 31, 1997 by SFAS No. 127, Deferral of the Effective Date
   of Certain Provisions of FASB Statement No. 125, an amendment of FASB
   Statement No. 125. The adoption of these statements is not expected to have a
   material impact on financial position or results of operations.

================================================================================
3. RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
--------------------------------------------------------------------------------
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The average amount of those reserve balances for the year ended
December 31, 1996 was approximately $3,155, which includes a $1,750 compensating
balance for services provided by the Federal Reserve Bank during 1996.



                                       30
<PAGE>   32


4. SECURITIES
<TABLE>
<CAPTION>

The following is a summary of securities:

                                                                         Gross           Gross        Estimated
                                                       Amortized       Unrealized     Unrealized       Market
December 31, 1996                                         Cost           Gains          Losses          Value
--------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>          <C>           <C>       
U.S. Treasury securities and obligations of other
    U.S. Government agencies and corporations         $   76,764         $   134      $    (371)     $  76,527
Obligations of states and political subdivisions          50,727           1,149           (126)        51,750
Corporate securities                                       1,003               0             (1)         1,002
Mortgage-backed securities                                96,648             371         (1,465)        95,554
--------------------------------------------------------------------------------------------------------------------
       Total debt securities                             225,142           1,654         (1,963)       224,833
Equity securities                                          6,219             272              0          6,491
--------------------------------------------------------------------------------------------------------------------
       Total securities                                 $231,361          $1,926        $(1,963)      $231,324
--------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                                         Gross           Gross        Estimated
                                                       Amortized       Unrealized     Unrealized       Market
December 31, 1995                                         Cost           Gains          Losses          Value
--------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of other
--------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                <C>          <C>            <C>      
    U.S. Government agencies and corporations         $  103,946         $ 1,892      $    (115)     $ 105,723
Obligations of states and political subdivisions          33,568           1,167            (55)        34,680
Corporate securities                                       7,069               0            (39)         7,030
Mortgage-backed securities                                84,981             872           (307)        85,546
--------------------------------------------------------------------------------------------------------------------
       Total debt securities                             229,564           3,931           (516)       232,979
Equity securities                                          3,563               0             (8)         3,555
--------------------------------------------------------------------------------------------------------------------
       Total securities                                 $233,127          $3,931       $   (524)      $236,534
--------------------------------------------------------------------------------------------------------------------
</TABLE>


The amortized cost and estimated market value of securities on December 31, 1996
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 prepayment penalties.
<TABLE>
<CAPTION>

                                                                                                     Estimated
                                                                                      Amortized        Market
                                                                                         Cost           Value

<S>                                                                                  <C>            <C>       
Under 1 year                                                                         $   28,064     $   28,040
1 to 5 years                                                                             48,883         49,037
5 to 10 years                                                                            45,225         45,807
Over 10 years                                                                             6,322          6,395
--------------------------------------------------------------------------------------------------------------------
                                                                                        128,494        129,279

Mortgage-backed securities                                                               96,648         95,554
Equity securities                                                                         6,219          6,491
--------------------------------------------------------------------------------------------------------------------
                                                                                       $231,361       $231,324
--------------------------------------------------------------------------------------------------------------------
</TABLE>

Information relating to sales of available-for-sale securities for the three
years ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>

                                                                            1996           1995           1994
--------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>            <C>    
Proceeds from sales of securities                                        $60,299        $66,232        $42,045

Gross realized gains                                                     $   590        $ 1,022        $   490
Gross realized losses                                                       (128)          (388)          (473)
Income tax associated with net gains                                         157            216              6
After tax gain                                                           $   305        $   418        $    11
--------------------------------------------------------------------------------------------------------------------
Impact on earnings per share                                             $  0.10        $  0.16        $  0.01
</TABLE>

On December 31, 1996 and 1995, securities with a carrying value of $185,753 and
$177,907, respectively, were pledged to secure repurchase agreements, deposits
of public funds and for other purposes.



                                       31
<PAGE>   33



5. LOANS
<TABLE>
<CAPTION>

Loans consist of the following:

                                                                                              December 31
----------------------------------------------------------------------------------------------------------------
                                                                                        1996            1995
----------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>            <C>      
Commercial                                                                            $ 297,347      $ 269,248
Consumer                                                                                205,409        195,752
Real estate                                                                              62,981         69,190
----------------------------------------------------------------------------------------------------------------
                                                                                       $565,737       $534,190
----------------------------------------------------------------------------------------------------------------
</TABLE>

At December 31, 1996 and 1995, the Corporation serviced loans for others
totaling $44,570 and $44,326, respectively. Amounts capitalized as originated
mortgage servicing rights were $72 and $155 in 1996 and 1995, respectively.
Capitalized mortgage servicing rights amortized were $29 and $13 in 1996 and
1995, respectively.

The Bank has granted loans to the officers and directors of both the Corporation
and the Bank and their associates. Related-party loans are made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated persons. The aggregate
dollar amounts of these loans were $5,587 and $7,553 at December 31, 1996 and
1995, respectively. New loans and advances totaled $6,118, and payments were
$8,084 in 1996.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
6. ASSET QUALITY
--------------------------------------------------------------------------------------------------------------------
Reserve for loan losses:
Changes in the reserve for loan losses for each of the last three years ended
December 31 were as follows:

                                                                          1996            1995           1994
<S>                                                                      <C>            <C>            <C>    
Balance at beginning of year                                             $ 6,748        $ 6,126        $ 5,392
Charge-offs                                                               (5,180)        (3,000)        (2,254)
Recoveries                                                                   776            622            618
--------------------------------------------------------------------------------------------------------------------
    Net charge-offs                                                       (4,404)        (2,378)        (1,636)
Provision for loan losses                                                  4,956          3,000          2,370
--------------------------------------------------------------------------------------------------------------------
    Balance at end of year                                                $7,300         $6,748         $6,126
--------------------------------------------------------------------------------------------------------------------
Reserve for loan losses as a percent of gross loans                        1.29%           1.26%          1.21%
</TABLE>

Non-accrual, past-due, and restructured loans (non-performing loans):
Non-accrual loans are loans that are no longer earning interest at the
discretion of Management. This occurs when Management determines that the
borrower can no longer service the debt, but the loan is adequately secured with
collateral or the borrower is able to repay the principal portion of the loan in
the future. Past-due loans are loans with principal payments more than 90 days
past due. Both interest and principal are expected to be repaid. Restructured
loans include loans whose original terms were redesigned to allow the customer
to remain current and repay the loan. Also presented is other real estate owned
which represents real estate acquired through the default of loans. The Bank's
practice is to carry other real estate owned at the lower of cost or fair market
value, less estimated costs to sell.

For the year ended December 31, 1996, interest income that would have been
earned under the original terms of the loans classified in non-accrual and
restructured loans in the schedule below amounted to $665. No interest income
was realized on these loans for 1996. Loans considered to be impaired under SFAS
No. 114 totaled $5,233 and $2,073 as of December 31, 1996 and 1995,
respectively, all of which were included in non-performing assets as of those
dates.
<TABLE>
<CAPTION>

                                                                                              December 31
--------------------------------------------------------------------------------------------------------------------
                                                                                          1996            1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>            <C>
Non-accrual loans                                                                       $ 6,809        $ 2,673
Past-due loans                                                                            1,963          1,465
Restructured loans                                                                          171             25
--------------------------------------------------------------------------------------------------------------------
Total                                                                                   $ 8,943        $ 4,163
--------------------------------------------------------------------------------------------------------------------
    Percent of total loans at year end                                                     1.58%          0.78%
    Other real estate owned (net of reserve)                                            $     0        $    27
</TABLE>


                                       32
<PAGE>   34


7. FAIR VALUES OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
that the Corporation disclose estimated fair values for its financial
instruments. The market value of securities, as presented in Note 3, is based
primarily upon quoted market prices. For substantially all other financial
instruments, the fair values are Management's estimates of the values at which
the instruments could be exchanged in a transaction between willing parties. In
accordance with SFAS No. 107, fair values are based on estimates using present
value and other valuation techniques in instances where quoted prices are not
available. These techniques are significantly affected by the assumptions used,
including discount rates and estimates of future cash flows. As such, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, furthermore, may not be realizable in an immediate
settlement of the instruments. SFAS No. 107 also excludes certain items from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent, and should not be construed to represent, the underlying value
of the Corporation. The following table presents the estimates of fair value of
financial instruments:
<TABLE>
<CAPTION>

                                                          December 31, 1996               December 31, 1995
----------------------------------------------------------------------------------------------------------------
                                                        Carrying         Fair          Carrying         Fair
                                                         Value          Value           Value           Value
----------------------------------------------------------------------------------------------------------------
<S>                                                    <C>             <C>            <C>            <C>      
Assets:
    Cash and cash equivalents                          $  37,934       $  37,934      $  32,461      $  32,461
    Securities                                           231,324         231,324        236,534        236,534
    Loans                                                565,697         556,714        534,121        516,917
    Allowance for loan losses                             (7,300)                        (6,748)

Liabilities:
    Demand deposits--non-interest bearing                 80,328          80,328         78,906         78,906
    Demand deposits--interest bearing                     69,326          69,326         72,785         72,785
    Savings deposits                                     156,180         156,180        172,183        172,183
    Time deposits                                        363,563         365,187        333,977        336,132
    Federal funds purchased and securities sold
       under agreements to repurchase                     86,787          86,787         86,942         86,942
    Note payable                                           5,000           5,000          5,000          5,000
    Other borrowed funds                                   3,989           3,989          3,164          3,164
    FHLB advances                                         26,557          25,679          7,396          7,249

Off-balance sheet instruments                                  0               0              0              0
</TABLE>

Fair value estimates, methods and assumptions are set forth below for the
Corporation's financial instruments:

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

Securities: Fair values for securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.

Loans: The fair values for other loans are estimated using a discounted cash
flow calculation. Variable-rate loans that reprice frequently are assumed to
have a short-duration period, yielding a fair value that approximates the
carrying value.

Liabilities: The fair values disclosed for demand deposits and savings accounts
are, by definition, equal to the amount payable on demand at the reporting date
(i.e., their carrying amounts). The carrying amounts for time deposits and FHLB
advances are estimated using a discounted cash flow calculation that applies
interest rates used to price risk-free instruments of like term, adjusting for
credit risks and operating expenses. Variable-rate time deposits that reprice
frequently are assumed to have a short-duration period, yielding a fair value
that approximates the carrying value.

Federal funds purchased, securities sold under agreements to repurchase, notes
payable, and other short-term borrowings: The carrying amounts of federal funds
purchased, securities sold under agreements to repurchase, and other short-term
borrowings approximate their fair values.

Off-balance sheet instruments: The amounts to be reported for off-balance sheet
instruments relate to accruals or deferred income (fees) arising from the
off-balance sheet instrument, including futures, swaps, forwards, options,
guarantees, and lending commitments. The Corporation has no amounts that are
reportable for these instruments.




                                       33
<PAGE>   35

<TABLE>
<CAPTION>


8. PREMISES AND EQUIPMENT

The following is a summary of bank premises and equipment accounts as of
December 31:

                                                                                          1996           1995
----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>            <C>    
Land and buildings                                                                      $ 1,207        $ 1,237
Leasehold improvements                                                                    4,575          4,025
Furniture and equipment                                                                  11,413          9,494
                                                                                         17,195         14,756

Less:
Accumulated depreciation and amortization                                                 8,277          7,480
----------------------------------------------------------------------------------------------------------------
                                                                                         $8,918         $7,276
----------------------------------------------------------------------------------------------------------------

</TABLE>
================================================================================
9. FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
--------------------------------------------------------------------------------
The Bank had outstanding $5 million and $16 million in federal funds purchased
at the end of 1995 and 1994 at rates of 6.0% and 6.75%, respectively. There were
no federal funds purchased at December 31, 1996. The Bank has repurchase
agreements with corporate customers. These borrowings are collateralized with
securities owned by the Bank and held in the safekeeping account at the Federal
Reserve Bank. The following table summarizes certain information relative to
both these borrowings:
<TABLE>
<CAPTION>

                                                                            1996           1995           1994
----------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>              <C>    
Outstanding at December 31                                             $  86,787      $  86,942        $94,756
Weighted-average interest rate at December 31                               4.31%          4.40%          5.22%
Maximum amount outstanding as of any month-end                          $101,182       $101,215        $94,756
Average amount outstanding                                             $  89,601      $  89,026        $68,311
Approximate weighted-average interest rate during the year                  4.37%          4.84%          3.81%

</TABLE>

================================================================================
10. NOTE PAYABLE
--------------------------------------------------------------------------------
The Corporation has a $5 million unsecured note with a correspondent bank. The
note is for a two-year term with a maturity of September 15, 1997 and bears
interest at a floating rate based on either the federal funds rate plus 2% or
the prime rate. In addition, the Corporation has available a $5 million
unsecured line of credit with another correspondent bank. There were no
borrowings outstanding under the line of credit at December 31, 1996 or 1995.
Management intends to repay the outstanding note through one of several means,
including replacing the line with a term note or utilizing the available unused
line of credit.
================================================================================
11. OTHER BORROWED FUNDS AND FEDERAL HOME LOAN BANK ADVANCES
--------------------------------------------------------------------------------
The Bank has a Treasury Note Option Agreement with the Federal Government which
allows the Bank to hold funds deposited by customers for treasury and tax
payments to the Government up to a self-imposed limit of $6 million. Federal
Home Loan Bank (FHLB) advances are collateralized by all shares of FHLB stock
and a portion of the Bank's qualified mortgage loan portfolio (approximately
$40,332 of loans at December 31, 1996), and are used to fund mortgage loan
originations of the Bank and as a regular funding source. The detail of these
borrowings on December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
                                                                         Current
                                                                        Interest                 Balance
----------------------------------------------------------------------------------------------------------------
Description                                                              Rates             1996           1995
----------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>             <C>   
Treasury note option account                                             5.09%          $ 3,989         $3,164
Fixed-rate FHLB advances, with monthly principal and
       interest payments
       Advances due February 1998 to August 2009                     5.15% to 6.85%     $26,557         $7,396
</TABLE>




                                       34
<PAGE>   36


12. SHAREHOLDERS' EQUITY

The Corporation is authorized to issue 1,500,000 shares each of preferred stock,
Series A and B. On June 25 and July 7, 1992, the Corporation issued a total of
718,750 shares of $1.50 Cumulative Convertible Preferred Stock, Series A-1 (the
"preferred stock"), generating net proceeds of $13,235,000. Effective June 25,
1996, the Corporation called for the redemption of all the outstanding shares of
the Series A $1.50 preferred stock. The preferred stock was convertible into
1.1177 shares of Second Bancorp, Inc. common stock per preferred share.
Virtually all preferred stockholders exercised their conversion rights prior to
the redemption date. The net effect was a transfer of approximately $12.7
million in capital from preferred stock to common stock. In 1995, certain
preferred stockholders exercised their conversion rights, resulting in an amount
transferred from preferred stock to common stock within shareholders' equity of
$504.

Dividends are paid by the Corporation from its assets, which are mainly provided
by dividends from the Bank. However, certain restrictions exist regarding the
ability of the Bank to transfer funds to the Corporation in the form of cash
dividends, loans, or advances. The approval of the Comptroller of the Currency
is required to pay dividends in excess of the Bank's earnings retained in the
current year plus retained net profits from the preceding two years. As of
December 31, 1996, the Bank had retained earnings of $38,618, of which $8,378
was available for distribution to the Corporation as dividends without prior
regulatory approval.

On March 7, 1996 the Board of Directors authorized the Corporation to repurchase
up to 70,000 shares of its common stock. As of December 31, 1996, the
Corporation had repurchased 10,000 shares. The repurchase of any more than
70,000 shares of stock must first be approved by creditors.

The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the Corporation's and the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Corporation's and the Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined by the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1996, that the Corporation and the Bank meet all capital adequacy requirements
to which it is subject.

As of December 31, 1996, the most recent notification from the Federal Reserve
Bank and the Office of the Comptroller of the Currency categorized the
Corporation and the Bank as well-capitalized under the regulatory framework for
prompt corrective action. To be categorized as well-capitalized, the Corporation
and the Bank must maintain minimum total risk-based, Tier I risk-based and Tier
I leverage ratios as set forth in the table. There are no conditions or events
since that notification that Management believes have changed the Corporation's
or the Bank's category.

The consolidated Corporation's and the subsidiary Bank's actual capital amounts
and ratios are also presented in the table on the following page.




                                       35
<PAGE>   37
<TABLE>
<CAPTION>


                                                                                                    To Be Well-
                                                                                                 Capitalized Under
                                                                         For Capital             Prompt Corrective
                                               Actual                  Adequacy Purposes         Action Provisions
--------------------------------------------------------------------------------------------------------------------
As of December 31, 1996:                       Amount     Ratio       Amount        Ratio       Amount        Ratio
    Total capital (to risk-weighted assets):
<S>                                            <C>        <C>       <C>            <C>       <C>                     
       Second Bancorp                          $72,951    11.8%     (3)$49,348     (3)8.0%               n/a
       Second National Bank                     72,567    11.8      (3) 49,205     (3)8.0    (3)$61,507      (3)10.0%
    Tier I capital (to risk-weighted assets):
       Second Bancorp                           65,651    10.6      (3) 24,674     (3)4.0                n/a
       Second National Bank                     56,547     9.2      (3) 24,603     (3)4.0    (3) 36,904       (3)6.0
    Tier I leverage:
       Second Bancorp                           65,651     7.8      (3) 33,882     (3)4.0                n/a
       Second National Bank                     56,547     6.7      (3) 33,809     (3)4.0    (3) 42,261       (3)5.0
As of December 31, 1995:
--------------------------------------------------------------------------------------------------------------------
    Total capital (to risk-weighted assets):
       Second Bancorp                           66,083    11.4      (3) 46,313     (3)8.0                n/a
       Second National Bank                     69,162    12.0      (3) 46,204     (3)8.0    (3) 57,755      (3)10.0
    Tier I capital (to risk-weighted assets):
       Second Bancorp                           59,335    10.3      (3) 23,157     (3)4.0                n/a
       Second National Bank                     55,414     9.6      (3) 23,102     (3)4.0    (3) 34,653      (3) 6.0
    Tier I leverage:
       Second Bancorp                           59,335     7.4      (3) 32,111     (3)4.0                n/a
       Second National Bank                     55,414     6.9      (3) 32,082     (3)4.0    (3) 40,103      (3) 5.0
</TABLE>
<TABLE>
<CAPTION>

====================================================================================================================
13. FEDERAL INCOME TAXES
--------------------------------------------------------------------------------------------------------------------
The Corporation's federal income tax provision in the accompanying statements of
income differs from the statutory rate as follows:

                                                                          1996            1995           1994
--------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>            <C>
Statutory rate                                                                34%            34%            34%
Income before federal income taxes                                       $11,108        $10,260         $9,033
Tax at statutory rate                                                    $ 3,777        $ 3,488         $3,071
Tax effect of non-taxable interest                                        (1,001)          (831)          (790)
Other items, net                                                            (220)            38            109
--------------------------------------------------------------------------------------------------------------------
                                                                         $ 2,556        $ 2,695         $2,390
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

Significant components of the Corporation's deferred tax liabilities and assets
as of December 31 are as follows:

                                                                                          1996           1995
----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>            <C>    
Deferred tax liabilities:
    SFAS No. 115 adjustment                                                             $   n/a        $ 1,160
    Other                                                                                   337            175
----------------------------------------------------------------------------------------------------------------
       Total deferred tax liabilities                                                       337          1,335
Deferred tax assets:
    Provision for loan losses                                                             2,482          2,294
    SFAS No. 115 adjustment                                                                  12            n/a
    Non-accrual interest                                                                    468            375
    Goodwill and intangible amortization                                                    402            303
    Deferred loan fees                                                                      257            313
    Other                                                                                   272            199
----------------------------------------------------------------------------------------------------------------
       Total deferred tax assets                                                          3,893          3,484
----------------------------------------------------------------------------------------------------------------
Net deferred tax assets                                                                  $3,556         $2,149
----------------------------------------------------------------------------------------------------------------
</TABLE>



                                       36

<PAGE>   38


14. EMPLOYEE BENEFIT PLANS

The Corporation has a non-contributory, defined-benefit pension plan covering
substantially all of its employees. The benefits are based on a percentage of
the employee's average annual earnings multiplied by completed years of
continuous service. The Corporation's funding policy is to contribute annually
an amount between the minimum required and the maximum amount that can be
deducted for federal income tax purposes. Contributions are intended to provide
not only for benefits attributed to service to date but also for those expected
to be earned in the future. The plan assets at December 31, 1996 are invested
primarily in common stock, preferred stock, and corporate bonds.

The following table sets forth the plan's funded status and amounts recognized
in the Corporation's statements of financial position on December 31:
<TABLE>
<CAPTION>

                                                                                          1996           1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>            <C>   
Actuarial present value of benefit obligations:
    Accumulated benefit obligation, including vested
       benefits of $2,796 in 1996 and $2,072 in 1995                                     $3,210         $2,745

    Projected benefit obligation for service rendered to date                            $5,624         $5,232
Plan assets at fair value, primarily listed stocks and corporate bonds                    5,864          5,365
--------------------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation                                      (240)          (133)
Unrecognized net gain (loss) from past experience different from that
    assumed and effects of changes in assumptions                                            67           (514)
Unrecognized net assets at January 1                                                        135            157
--------------------------------------------------------------------------------------------------------------------
Prepaid pension costs included in other assets                                          $    38         $  490
--------------------------------------------------------------------------------------------------------------------

Net pension cost included the following components:

                                                                           1996           1995            1994
--------------------------------------------------------------------------------------------------------------------
Service cost-benefits earned during the period                             $ 532        $   398         $  416
Interest cost on projected benefit obligation                                408            351            298
Actual return on plan assets                                                (645)        (1,385)           277
Net amortization and deferral                                                157            969           (623)
--------------------------------------------------------------------------------------------------------------------
Net periodic pension expense                                               $ 452         $  333          $ 368
====================================================================================================================


Assumptions used in determining the actuarial present value of the projected benefit obligation are as follows:
================================================================================================================
<CAPTION>
                                                                           1996            1995           1994
--------------------------------------------------------------------------------------------------------------------
Rates used for calculation of expense:
<S>                                                                         <C>            <C>            <C>  
    Interest rate for obligations                                           7.5  %         7.0  %         8.25%
    Long-term rate of investment return                                     9.75           9.25           9.0
    Salary increase rate                                                    5.0            5.5            5.5
</TABLE>

The Bank also has a supplemental retirement deferred-benefit plan for certain
employees which provides benefits in excess of the defined benefit plan
discussed above. As of December 31, 1996 and 1995, the accumulated benefit
obligation recorded in the financial statements was $430 and $316, respectively.

The Bank also sponsors a defined contribution benefit plan covering
substantially all eligible employees of the Bank. The Bank voluntarily
contributes 75% of the participants' contribution to a maximum of 4.5% of the
participants' compensation. Participants, at their discretion, may invest in
several investment funds or a stock fund consisting solely of the Corporation's
common stock. The Bank's contribution is limited solely to the stock fund.
Contributions in 1996, 1995, and 1994 were $286, $257, and $202, respectively.
The Board of Directors of the Corporation has authorized the issuance of 49,500
shares of the Corporation's common stock for use in the Bank's defined
contribution benefit plan. As of December 31, 1996, none of the shares
authorized have been issued.

The Corporation has a benefit plan which offers postemployment benefits such as
short-term disability to employees. The Corporation recognized an expense of
$158 in 1994 with the adoption of the new rules and expenses of $25 and $22 in
1996 and 1995, respectively.





                                       37
<PAGE>   39



15. STOCK OPTIONS

The Corporation's incentive stock option plan authorizes the issuance of options
to purchase common stock to key officers primarily at the market price at the
date of grant. In May 1991, the plan was approved to provide 67,500 shares of
common stock to be used by the plan for a period of five years, limiting grants
to a maximum of 2,250 shares per officer per year. In May 1994, the plan was
amended to provide an additional 150,000 shares of common stock and an increase
of the maximum annual grant to 3,750 shares. The term of the plan was extended
to May 2000. The options are exercisable one year after issuance and expire
after ten years.

Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Corporation had accounted for
its employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for both 1995 and 1996: risk-free interest rates of 6.0%; dividend
yields of 3.0%; volatility factors of the expected market price of the
Corporation's common stock of .137; and a weighted-average expected life of six
years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Corporation's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in Management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of the pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Corporation's pro forma information follows:
<TABLE>
<CAPTION>

                                                                                          1996           1995
----------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>            <C>   
Pro forma net income                                                                    $8,473          $7,525
Pro forma earnings per share:
    Primary                                                                             $ 2.61          $ 2.54
    Fully diluted                                                                       $ 2.50          $ 2.24

A summary of stock option activity is as follows:
<CAPTION>

                                                                       Number of       Option Price
                                                                         Shares         Per Share        Total
--------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>        <C>               <C>    
Outstanding at December 31, 1993                                          39,750     $8.67--$18.42      $  610
    Granted                                                               26,550          21.17            562
    Exercised                                                             (4,050)          8.67            (35)
--------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1994                                          62,250       8.67--21.17       1,137
    Granted                                                               26,600          21.13            562
    Exercised                                                             (2,250)         14.67            (33)
--------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1995                                          86,600       8.67--21.17       1,666
    Granted                                                               31,650          26.88            850
    Exercised                                                            (14,850)     14.67--21.17        (275)
--------------------------------------------------------------------------------------------------------------------
Outstanding at December 31, 1996                                         103,400     $8.67--$26.88      $2,241
--------------------------------------------------------------------------------------------------------------------

Exercisable at December 31, 1996                                          71,750     $8.67--$21.17      $1,391
The weighted-average fair value of the options granted during 1995 and 1996 were $3.78 and $4.80,
respectively.

The weighted-average remaining contractual life of the outstanding options is
7.9 years.
----------------------------------------------------------------------------------------------------------------
</TABLE>

Due to the inclusion of only 1995 and 1996 option grants, the effects of
applying SFAS No. 123 in 1995 and 1996 may not be representative of the pro
forma impact in future years.





                                       38
<PAGE>   40

<TABLE>
<CAPTION>

16. PARENT COMPANY

Condensed financial information of Second Bancorp, Inc. (parent company only) is as follows:

CONDENSED BALANCE SHEETS

                                                                                               December 31
--------------------------------------------------------------------------------------------------------------------
                                                                                         1996            1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>            <C>      
Assets:
    Cash                                                                              $   3,505      $     540
    Available-for-sale securities                                                         1,154            699
    Loans                                                                                   703            722
    Investment in and advances to subsidiary, at equity in underlying
       value of their net assets                                                         69,048         69,231
    Fixed assets                                                                             64             27
    Other assets                                                                            769            890
--------------------------------------------------------------------------------------------------------------------
       Total assets                                                                     $75,243        $72,109
--------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
    Accrued and other liabilities                                                      $  1,006       $  1,076
    Note payable                                                                          5,000          5,000
    Shareholders' Equity:
       Preferred stock, no par value;
       Series A: 1,500,000 shares authorized;
            718,750 shares issued and 300 and 691,366
            shares outstanding, respectively                                                  6         12,731
       Series B: 1,500,000 shares authorized                                                  0              0
    Common stock, no par value; 10,000,000
       shares authorized; 3,358,587 and 2,562,041 shares
       issued, respectively                                                              27,398         14,155
    Treasury stock, 10,000 and 0 shares, respectively                                      (319)             0
    Net unrealized holding (losses) gains on
       available-for-sale securities                                                        (24)         2,248
    Retained earnings                                                                    42,176         36,899
--------------------------------------------------------------------------------------------------------------------
       Total Liabilities and Shareholders' Equity                                       $75,243        $72,109
--------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

CONDENSED STATEMENTS OF INCOME

Years ended December 31                                                   1996            1995           1994
--------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>            <C>    
Income:
    Cash dividends from subsidiary                                       $ 8,384        $ 3,384        $ 3,168
    Interest income                                                          750            757            134
    Other income                                                              19             10              2
--------------------------------------------------------------------------------------------------------------------
    Total income                                                           9,153          4,151          3,304
Expenses:
    Interest expense                                                         371            432            121
    Other expenses                                                           559            663            407
--------------------------------------------------------------------------------------------------------------------
    Total expenses                                                           930          1,095            528
--------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity in
    undistributed earnings of subsidiary                                   8,223          3,056          2,776
Income tax benefit                                                            60            116            163
--------------------------------------------------------------------------------------------------------------------
Income before and equity in undistributed earnings of subsidiary           8,283          3,172          2,939
Equity in undistributed earnings of subsidiary                               269          4,393          3,704
--------------------------------------------------------------------------------------------------------------------
       Net income                                                         $8,552         $7,565         $6,643
--------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       39

<PAGE>   41

<TABLE>
<CAPTION>

CONDENSED STATEMENTS OF CASH FLOWS

Years ended December 31                                                     1996           1995           1994
--------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>            <C>            <C>   
Operating Activities:
    Net income                                                            $8,552         $7,565         $6,643
    Less: Equity in undistributed net income of subsidiary                  (269)        (4,393)        (3,704)
    Provision for depreciation                                                26             15              9
    Accretion of temporary investment discount                                 0              0            (13)
    Amortization of security premium                                           0              0             54
    Loss on sale of securities                                                 0              0              3
    Gain on sale of fixed assets                                               0              0             (5)
    Other (net)                                                              (42)           136             70
--------------------------------------------------------------------------------------------------------------------
Cash provided by operations                                                8,267          3,323          3,057

Investing Activities:
    Increase in investment in subsidiary                                       0              0         (2,500)
    Increase in loan to subsidiary                                        (2,000)             0         (7,000)
    Net decrease (increase) in loans                                          19           (722)             0
    Net decrease in temporary investments                                      0              0          1,007
    Sale of securities                                                       300              0          3,515
    Purchase of securities                                                  (482)          (186)          (519)
    Purchase of premises and equipment                                       (63)             0            (46)
    Proceeds from sales of premises and equipment                              0              0             14
--------------------------------------------------------------------------------------------------------------------
Cash used by investing activities                                         (2,226)          (908)        (5,529)

Financing Activities:
    Issuance of note payable                                                   0          5,000          5,000
    Repayment of note payable                                                  0         (5,000)             0
    Redemption and conversion of preferred stock                             (32)             0              0
    Issuance of common stock                                                 547            511            377
    Purchase of treasury stock                                              (319)             0              0
    Payment of dividend                                                   (3,272)        (2,994)        (2,679)
Cash (used by) provided by financing activities                           (3,076)        (2,483)         2,698
--------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash                                                2,965            (68)           226
Cash at beginning of year                                                    540            608            382
--------------------------------------------------------------------------------------------------------------------
Cash at end of year                                                       $3,505         $  540         $  608
--------------------------------------------------------------------------------------------------------------------
</TABLE>






                                       40
<PAGE>   42



17. COMMITMENTS AND CONTINGENT LIABILITIES

LOAN COMMITMENTS:
Loan commitments are made to accommodate the financial needs of the Bank's
customers; however, there are no long-term, fixed-rate loan commitments that
result in market risk. Standby letters of credit commit the Bank to make
payments on behalf of customers when certain specified future events occur. They
primarily are issued to facilitate customers' trade transactions.

Both arrangements have credit risk essentially the same as that involved in
extending loans to customers and are subject to the Bank's normal credit
policies. Collateral (e.g., securities, receivables, inventory and equipment) is
obtained based on Management's credit assessment of the customer.

The Bank's maximum obligation to extend credit for loan commitments (unfunded
loans and unused lines of credit) and standby letters of credit outstanding on
December 31, 1996 were as follows:

Commercial                          $102,756
Real Estate                            2,986
Consumer                               6,374
Standby Letters of Credit              6,236
--------------------------------------------------------------------------------
                                    $118,352

--------------------------------------------------------------------------------

Lease agreements: The Bank has entered into lease agreements covering its main
office, several branch locations, and equipment for various periods through
2011, with options to renew. Also, the Bank has the option to purchase the main
office facility before two optional renewal periods at the fair market value in
existence at that time.

The Bank also has an electronic data processing agreement with an outside data
processing center that terminates in 1997.

Future minimum commitments under noncancelable operating leases and future
estimated commitments under the electronic data processing agreement are as
follows:

1997                                  $2,001
1998                                   1,586
1999                                   1,475
2000                                   1,460
2001                                   1,431
thereafter                             9,398

Rentals under operating leases and data processing costs amounted to $2,981,
$2,888 and $2,770 in 1996, 1995 and 1994, respectively. The Bank plans to
perform the data processing in-house after the termination of the agreement.

Low Income Housing Project: In 1993, the Bank began investing in low-income
housing tax credit projects designed to provide affordable housing for Ohio
communities. The Bank has invested $787 to date and has begun to realize tax
credits and tax savings from the investments. The Bank is committed to invest
another $713 in the fund over the next several years.

================================================================================
18. SIGNIFICANT CONCENTRATION OF CREDIT RISK
--------------------------------------------------------------------------------
Most of the Bank's business activity is with customers located within the state
of Ohio. As of December 31, 1996, the Bank had a concentration in commercial
real estate loans totaling approximately $191,000, approximately 69% of which
were owner-occupied businesses, including medical office buildings, retail and
fast-food restaurants, and automobile dealerships within the Bank's market area.
Of the $191,000 of commercial real estate loans, $5,595 or 2.9% were on
non-accrual status as of December 31, 1996.




                                       41
<PAGE>   43


TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF SECOND BANCORP, INC.

We have audited the accompanying consolidated balance sheets of Second Bancorp,
Inc. and subsidiary as of December 31, 1996 and 1995 and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Corporation's Management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
Management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Second Bancorp,
Inc. and subsidiary at December 31, 1996 and 1995 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.

                                                             Ernst & Young, LLP

Cleveland, Ohio
January 23, 1997





                                       42

<PAGE>   44



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.

Not Applicable.

                                    PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Directors of the registrant information is incorporated herein by reference to
the definitive proxy statement for the annual meeting of shareholders to be held
May 13, 1997 (the "Proxy Statement"). Such Proxy Statement will be filed with
the Securities and Exchange Commission within 120 days of December 31, 1996.
Information regarding executive officers is included under item 4a hereof.

ITEM 11. EXECUTIVE COMPENSATION.

Executive compensation information is incorporated herein by reference to the
Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Security ownership of certain beneficial owners and management information is
incorporated herein by reference to the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Certain relationships and related transactions information is incorporated
herein by reference to the Proxy Statement.

                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) The following consolidated financial statements of Second Bancorp,
Incorporated and subsidiary are incorporated herein by reference in Item 8:

Consolidated Balance Sheets - December 31, 1996 and 1995.

Consolidated Statements of Income - years ended December 31, 1996, 1995 and
1994.

Consolidated Statements of Shareholders' Equity - years ended December 31, 1996,
1995 and 1994.

Consolidated Statement of Cash Flows - years ended December 31, 1996, 1995 and
1994.

Notes to Consolidated Financial Statements.

Report of Independent Auditors.



                                       43
<PAGE>   45

(2) Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.

(3) Listing of Exhibits. The exhibits listed on the accompanying Index to
Exhibits immediately following the financial statement schedules are filed as
part of, or incorporated by reference into, this report.

3.1(1)      Articles of Incorporation of the Registrant.

3.2(1)      Code of Regulations of the Registrant.

4.1(1)      Amendment to the Articles of Incorporation of the Company, as
            amended, providing the terms of the $1.50 Cumulative Convertible
            Preferred Stock, Series A-1.

10.1(1)     Amended Stock Option Incentive Plan.

10.2(1)     Form of Incentive Stock Option Agreement.

10.3(1)     Stock Appreciation Rights Agreement by and between the Company and
            Alan G. Brant, dated April 1, 1986, as amended.

10.4(1)     Stock Appreciation Rights Agreement by and between the Company and
            Alan G. Brant, dated April 1, 1987, as amended.


10.5(1)     Employment Agreement by and between the Company and Alan G. Brant,
            dated April 1, 1985.

10.6(2)     Amendments to Employment Agreement by and between the Company and
            Alan G. Brant, dated April 1, 1985.

10.7(1)     Consulting Agreement by and between the Company and Alan G. Brant,
            dated April 1, 1985.

10.8(2)     Amendment to Consulting Agreement by and between the Company and
            Alan G. Brant, dated April 1, 1985.

10.9(2)     Deferred Compensation Agreement between the Company and Alan G.
            Brant, dated November 9,1995.

10.10(1)    Lease Agreement between Arden Associates Limited Partnership and the
            Bank, dated October 1, 1979.

10.11(2)    Amendment to Lease Agreement between Arden Associates Limited
            Partnership and the Bank.




                                       44
<PAGE>   46

10.12(2)    Form of Amended Management Severance Agreement with executive
            officers.

11          Computation of Per Share Earnings.

21          Subsidiaries of the registrant.

23.1        Consent of Ernst & Young.

27          Financial Data Schedule.

(1) Incorporated by reference to the exhibit filed with the Company's annual
report on Form 10-K for the year ended December 31, 1994.

(2) Incorporated by reference to the exhibit filed with the Company's annual
report on Form 10-K for the year ended December 31, 1995.

(b) The Corporation did not file any reports on Form 8-K during the three months
ended December 31, 1996.

(c) Exhibits - The response to this portion of Item 14 is submitted as a
separate section of this report.

(d) Financial Statement Schedules - None.




                                       45

<PAGE>   47



                                   SIGNATURES

Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                          SECOND BANCORP, INCORPORATED

                          /s/ DAVID  L. KELLERMAN
                         ------------------------------------------------------
                         David L. Kellerman, Treasurer     (date)

Pursuant to the requirements of the Securities Exchange Act of 1934, 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/ ALAN G. BRANT                       
   ------------------------------------------------------------------
   A. G. Brant, Chairman and President              (date)

By: /s/ DAVID L. KELLERMAN                  
   ------------------------------------------------------------------
   D. L. Kellerman, Principal Financial             (date)
   Officer and Principal Accounting Officer

By: /s/
   ------------------------------------------------------------------
                      , Director                    (date)

By: /s/
   ------------------------------------------------------------------
                      , Director                    (date)

By: /s/
   ------------------------------------------------------------------
                      , Director                    (date)





                                       46