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United States

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

or

UNIVEST CORPORATION OF PENNSYLVANIA

14 North Main Street, Souderton, Pennsylvania 18964

Registrant’s telephone number, including area code (215) 721-2400

     Not applicable

Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]  No [  ].

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X]  No [  ].

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

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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES

INDEX

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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

NOTE: THE CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2002 HAS BEEN DERIVED FROM THE AUDITED FINANCIAL STATEMENTS AT THAT DATE BUT DOES NOT INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES.

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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

* PER SHARE DATA HAS BEEN RESTATED TO GIVE EFFECT TO A FIVE FOR FOUR STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND PAID ON FEBRUARY 28, 2003.

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Univest Corporation of Pennsylvania and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)

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UNIVEST CORPORATION OF PENNSYLVANIA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Financial Information

     The accompanying condensed consolidated financial statements include the accounts of Univest Corporation of Pennsylvania (Univest) and its wholly owned subsidiary, Univest National Bank and Trust Co., referred to herein as the “Bank”. On January 18, 2003 the two banking subsidiaries, Union National Bank and Trust Company of Souderton, PA and Pennview Savings Bank, combined to form Univest National Bank and Trust Co. The condensed consolidated financial statements included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The accompanying condensed consolidated financial statements reflect all adjustments which are of a normal recurring nature and are, in the opinion of management, necessary to present a fair statement of the results and condition for the interim periods presented. Operating results for the nine-month period ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, which has been filed with the Securities and Exchange Commission.

     Certain prior year amounts have been reclassified to conform to current year presentation.

Note 2. Earnings Per Share

     The following table sets forth the computation of basic and diluted earnings per share. Per share data has been restated to give effect to a five for four stock split in the form of a stock dividend paid on February 28, 2003.

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Note 3. Accumulated Other Comprehensive Income

     The following shows the accumulated comprehensive income, net of income taxes, for the periods presented:

Note 4. Stock-Based Compensation – SFAS 148

     Had compensation expense for stock option awards been determined consistent with SFAS No. 123, net income and earnings per share would be reduced to the pro forma amounts indicated as follows:

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Note 5. FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”

     In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation expands the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requires the guarantor to recognize a liability for the fair value of an obligation assumed under certain specified guarantees. FIN 45 applies to contingent obligations that require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or equity security of the guaranteed party. Certain guarantee contracts are excluded from both the disclosure and recognition requirements of this interpretation, including, among others, guarantees related to commercial letters of credit, loan commitments, and subordination arrangements. The disclosure requirements include the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the guarantor’s obligations under the guarantee. The accounting recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified after December 31, 2002.

     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 support commercial paper, medium and long-term notes and debentures, including industrial revenue obligations. The approximate term is usually one year but some can be up to five years. Historically, substantially all standby letters of credit expire unfunded.

     The maximum potential amount of future payments under the guarantee is $35.7 million.

     The current carrying amount of the contingent obligation, beginning January 2003, is $63 thousand.

     This arrangement has credit risk essentially the same as that involved in extending loans to customers and is subject to the Bank’s normal credit policies. Collateral is obtained based on management’s credit assessment of the customer.

Note 6. FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51.”

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     In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51 (the Interpretation). The Interpretation requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. The new accounting provisions of this interpretation became effective upon issuance for all new VIE’s created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. This pronouncement also must be applied effective December 31, 2003, to existing VIE’s acquired prior to February 1, 2003.

     The Corporation has investments in three limited partnerships established for the purpose of providing low-income housing.

     The Corporation has investments in two limited liability companies established for the purpose of operating a title insurance company. The Corporation accounts for these investments on the equity method of accounting, recording its share of the net income or loss based upon the terms of the LLC membership agreements.

     At September 30, 2003, the company’s aggregate net investment in these partnerships totaled $1.6 million. These amounts represent the Corporation’s maximum exposure to loss at September 30, 2003 as a result of its involvement with these limited partnerships. The impact of the adoption of FIN 46 is not expected to be material.

Note 7. Acquisitions

     On May 16, 2003, Univest Corporation of Pennsylvania, parent company of Univest National Bank and Trust Co., completed the acquisition of First County Bank. Subsequent to this acquisition, First County merged with and into Univest National Bank and Trust Co. Univest acquired First County Bank to further expand into the Bucks County market. First County’s results of operations are inclusive in the earnings of Univest National Bank from date of acquisition. The acquisition is expected to be accretive to Univest National Bank and Trust Co. earnings in the first full year.

     In this transaction, Univest paid First County shareholders $19.312 for each outstanding share of common stock held immediately prior to the date of acquisition resulting in a cash payment of $29.5 million.

     The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition.

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     In accordance with FAS 141, Univest used the purchase method of accounting to record this transaction. The $21.1 million of goodwill recorded in connection with the acquisition of First County Bank is calculated below. The goodwill recorded will be allocated to the Univest National Bank reporting unit in accordance with FAS 142 as all of the assets and liabilities acquired are related to the banking reporting unit.

     The following table reflects the results of operations for Univest Corporation had First County Bank been acquired as of January 1, 2002:

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Note 8. Subordinated Debt

     Univest Corporation secured two subordinated term loan notes during the second quarter of 2003. The first note was issued for $5.0 million at the fixed rate of 5.5% per annum. This note converts to a floating rate in second quarter 2008 based upon the published Libor rate plus 1.40% per annum. Quarterly principal and interest payments are made on this note. The second note was issued for $10.0 million at a floating rate based upon the published Libor rate plus 1.40% per annum. Quarterly principal and interest payments are made on this note. Both of these notes mature in second quarter 2013.

Note 9. Trust Preferred Securities

     On August 27, 2003, the Corporation issued $20 million of Capital Securities of Univest Capital Trust I, a Delaware statutory trust formed by Univest Corporation. This issuance constitutes trust-preferred securities, which were completed through a placement with Wells Fargo in Junior Subordinated Debentures of the Corporation. The 30-year term securities were issued on a variable rate based upon the published Libor rate plus 3.05% per annum. The initial interest rate of the securities is 4.19% and is callable by Univest during the first five years at a price equal to 105.0% of par. Quarterly interest payments are made on this note. At September 30, 2003, the $20 million in capital securities qualified as Tier 1 capital under capital guidelines of the Federal Reserve. The proceeds are being used to support the future growth of Univest Corporation and its banking subsidiary, Univest National Bank and Trust Co.

Note 10. Subsequent Events

     On October 6, 2003, Univest Corporation announced the completion of the merger of Suburban Community Bank, which has merged with and into Univest National Bank and Trust Co. In this transaction, Univest acquired all of the outstanding shares of Suburban Community Bank common stock, warrants and options for total consideration of $24.1 million. As a result of this acquisition, Univest will operate 2 additional branches in Bucks County.

Note 11. Recent Accounting Pronouncements

     In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. In addition, except as stated below, all provisions of this Statement should be applied prospectively. The provisions of this Statement that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The adoption of SFAS No. 149 did not have any impact on the Corporation’s financial position and results of operations.

     In May 2003, the FASB issued SFAS 150 - “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS 150 is effective for

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financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a freestanding financial instrument that is within its scope as a liability or an asset in some circumstances. Many of those instruments were previously classified as equity. Some of the provisions of this Statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements. The adoption of SFAS No. 150 did not have any impact on the Corporation’s financial position and results of operations.

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Item 2.

Management’s Discussion and Analysis
of Financial Condition and
Results of Operations

     The information contained in this report may contain forward-looking statements. When used or incorporated by reference in disclosure documents, the words “believe,” “anticipate,” “estimate,” “expect,” “project,” “target,” “goal” and similar expressions are intended to identify forward-looking statements within the meaning of section 27A of the Securities Act of 1933. Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including those set forth below:

	•		Operating, legal and regulatory risks
	•		Economic, political and competitive forces impacting various lines of business
	•		The risk that our analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful
	•		Volatility in interest rates
	•		Other risks and uncertainties

     Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected or projected. These forward-looking statements speak only as of the date of the report. The Corporation expressly disclaims any obligation to publicly release any updates or revisions to reflect any change in the Corporation’s expectations with regard to any change in events, conditions or circumstances on which any such statement is based.

Net Income

     Net income increased $0.7 million from $5.3 million for the three months ended September 30, 2002 to $6.0 million for the three months ended September 30, 2003. Net income for the nine months ended September 30, 2002 increased 8.5% or $1.3 million from $15.3 million for the nine months ended September 30, 2002 to $16.6 million for the nine months ended September 30, 2003. The net income growth was due mainly to a decrease in interest expense that was larger than the decrease in interest income because the deposits reprice faster than the loans. An increase in noninterest income was offset by an increase in other operating expenses and income taxes.

     On May 16, 2003, Univest Corporation announced the merger of First County Bank with and into Univest National Bank in a cash transaction for $29.5 million. The impact of this merger to the consolidated balance sheet is discussed in the Financial Condition of this Management’s Discussion and Analysis. The following discusses the average balance or volume comparisons of September 30, 2003 to September 30, 2002. The impact of the merger to the average balances for the year ended September 30, 2003, is approximately one-half of the acquired balance.

Net Interest Income

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     In general, while the average loan volume continues to grow compared to last year, the average yield continues to decline due to market conditions. Interest and fees on loans increased $0.2 million from $13.5 million for the three months ended September 30, 2002 to $13.7 million for the three months ended September 30, 2003. For the nine months ended September 30, 2003, interest and fees on loans decreased $0.7 million from $40.3 million at September 30, 2002 to $39.6 million at September 30, 2003. The growth in the average balance of the loan portfolio when comparing the quarter ended September 30, 2003 to the quarter ended September 30, 2002 was $149.9 million and when comparing year to date September 30, 2003 to year to date September 30, 2002 was $92.1 million. The Corporation acquired approximately $97.0 million of loans as part of the First County acquisition. Commercial loans and commercial real estate loans showed the most significant average volume growth compared to the quarter ended September 30, 2002 and nine months ended September 30, 2002. The average volume of the home equity line of credit loans increased $9.1 million this year compared to last year due to special promotions. Consumer loans and mortgage loans decreased in average volume.

     Interest on investment securities decreased $0.5 million from $4.8 million for the three months ended September 30, 2002 to $4.3 million for the three months ended September 30, 2003. Interest on investments decreased $1.6 million from $14.6 million for the nine months ended September 30, 2002 to $13.0 million for the nine months ended September 30, 2003. Approximately $202.6 million of investment securities were sold, called or matured during the nine months ended September 2003. Reinvestments were made in a variety of mortgage-backed, agency and tax-exempt securities as well.

     Other interest income decreased $0.1 million for the three-month period ended September 30, 2003 and for the nine-month period ended September 30, 2003. This is due to the fluctuation in average volume of federal funds sold and the decline in the federal funds rate.

     Interest expense decreased $1.3 million from $6.4 million for the three months ended September 30, 2002 to $5.1 million for the three-month period ended September 30, 2003. Interest expense decreased $4.2 million from $20.0 million for the nine months ended September 30, 2002 to $15.8 million for the nine-month period ended September 30, 2003. The decrease in both periods is primarily attributed to deposit volume growth offset by a decline in average rate. Interest-bearing checking accounts, money market savings accounts, savings accounts and certificates of deposit volumes grew while jumbo certificates of deposit volumes declined. Interest expense on borrowings increased due to the new subordinated debt, trust preferred securities and the long-term debt assumed from First County Bank. The Corporation assumed $113.0 million of deposits and $15.0 million in long-term debt in connection with the First County acquisition.

     The asset/liability management process continues with its goal of providing stable reliable earnings through varying interest rate environments. Net interest income is the amount by which interest income on interest-earning assets exceeds interest paid on interest-bearing liabilities. Changes in interest rates, account balances or volume, and the mix of interest-earning assets and interest-bearing liabilities affect the amount of net interest income. The nine months ended September 30, 2003 shows net interest income of $36.9 million, which is an increase of $1.8 million compared to the $35.1 million recorded for the nine months ended September 30, 2002. Average interest-earning assets increased by $121.8 million for the nine months ended September 30, 2003 as compared to the nine months ended September 30, 2002. Average interest-bearing liabilities increased $95.9 million for the nine months ended September 30, 2003

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as compared to the same period in 2002. Interest-earning assets yield declined from 6.3% to 5.4%. The average rate paid on interest-bearing liabilities decreased 80 basis points. The net interest margin decreased to 3.8% for the nine months ended September 30, 2003 from 4.0% for the nine months ended September 30, 2002.

     The following table demonstrates the aforementioned effects:

     The Corporation uses interest-rate swap agreements that convert a portion of its floating rate commercial loans to a fixed rate basis. In these swaps, the Corporation agrees to exchange, at specified intervals, the difference between fixed and floating-interest rates calculated on an agreed upon notional principal amount. Interest-rate swaps in which the Corporation pays a floating rate and receives a fixed rate are used to reduce the impact of changes in interest rates on the Corporation’s net interest income.

     At September 30, 2003, the total notional amount of “Pay Floating, Receive Fixed” swaps outstanding was $10.0 million. At September 30, 2002 and December 31, 2002, the total notional amount of “Pay Floating, Receive Fixed” swaps outstanding was $30.0 million. The net payable or receivable from interest-rate swap agreements is accrued as an adjustment to interest income. The $10.0 million in notional amount of interest-rate swaps outstanding at September 30, 2003 expire in the first quarter 2004.

     The impact of interest-rate swaps on net interest income for the quarter ended September 30, 2003 was a positive $118 thousand as compared to a positive $172 thousand for the quarter ended September 30, 2002. For the nine months ended September 30, 2003 the impact was a positive $465 thousand as compared to a positive $551 thousand for the nine months ended September 30, 2002.

     The Corporation’s current credit exposure on swaps is limited to the value of interest-rate swaps that have become favorable to the Corporation. As of September 30, 2003, the market value of interest-rate swaps in a favorable position was $65 thousand and there were no interest-rate swaps with a market value in an unfavorable position. As of September 30, 2002, the market value of interest-rate swaps in a favorable position was $634 thousand and there were no interest-rate swaps with a market value in an unfavorable position. Credit risk exists because the counterparty to a derivative contract with an unrealized gain might fail to perform according to the terms of the agreement.

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Provision For Loan Losses

     The reserve for loan losses is determined through a periodic evaluation that takes into consideration the growth of the loan portfolio, the status of past-due loans, current economic conditions, various types of lending activity, policies, real estate and other loan commitments, and significant changes in the charge-off activity. Loans are also reviewed for impairment based on discounted cash flows using the loans’ initial effective interest rate or the fair value of the collateral for certain collateral dependent loans as provided for under SFAS No. 114. Any of the above criteria may cause the provision to fluctuate. While there was no provision for the quarter ended June 30, 2003 due to the favorable resolution of certain problem credits, the decline in the status of certain past-due loans determined the need for a provision for the quarter ended September 30, 2003. The provision for the quarter ended September 30, 2003 was $0.5 million and the provision for the quarter ended September 30, 2002 was $0.4 million. The provision for the nine months ended September 30, 2003 was $0.9 million and for the nine months ended September 30, 2002 was $1.2 million. Growing loan volumes, current economic conditions and a migration of credit risk assessments towards weaker loan grades indicated the need for an increase to the reserve for the third quarter of 2003. The acquisition of First County Bank added $1.2 million to the reserve.

Noninterest Income

     Noninterest income consists mainly of trust department fee income, service charge income, commission income and other miscellaneous types of income. It also includes various types of service charges, such as ATM fees and changes in the cash surrender value of bank-owned insurance. Total noninterest income increased $1.4 million or 28.6% from $4.9 million for the three months ended September 30, 2002 to $6.3 million for the three months ended September 30, 2003. The growth is primarily attributed to an increase in the value of mortgage servicing rights and an increase in the cash surrender values of bank owned insurance policies. For the nine months ended September 30, 2003, total noninterest income increased $2.0 million or 13.2% from $15.2 million for the nine months ended September 30, 2002 to $17.2 million. The growth is primarily attributed to increases in commission income, the value of mortgage servicing fees and the cash surrender values of bank owned insurance policies as described below.

     Trust income increased $0.1 million for the three months ended September 30, 2003 compared to the three months ended September 30, 2002. Trust income for the nine months ended September 30, 2003 of $3.4 million was $0.3 million more than the $3.1 million reported for the nine months ended September 30, 2002. The fees for certain trust services were increased.

     Service charges on deposit accounts increased $0.1 million for the three months ended September 30, 2003 and increased $0.2 million for the nine months ended September 30, 2003.

     Commission income is the primary source of income for Univest Investments, Inc. and Univest Insurance, Inc. Commission income increased $0.1 million from $1.1 million for the three months ended September 30, 2002 to $1.2 million for the three months ended September 30, 2003. Commission income for the nine months ended September 30, 2003 of $3.7 million was $0.3 million or 8.8% more than the $3.4 million reported for the nine months ended September 30, 2002. This growth was primarily due to a large increase in loss ratio based bonus

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for Univest Insurance, Inc., which is commonly received in the first quarter and cannot be planned for or anticipated on an annual basis.

     Other income increased $1.0 million from $1.5 million for the three months ended September 30, 2002 to $2.5 million for the three months ended September 30, 2003. The growth is primarily attributed to an increase in the value of mortgage servicing rights, an increase in the cash surrender values of bank owned insurance policies and the receipt of a liquidation distribution representing our membership interest in certain bank owned insurance policy. For the nine-month period, other income grew $1.3 million from $4.5 million at September 30, 2002 to $5.8 million at September 30, 2003. The growth for the nine months is also attributed to an increase in the value of mortgage servicing rights, an increase in the cash surrender values of bank owned insurance policies and the receipt of a liquidation distribution representing our membership interest in certain bank owned insurance policy. Also contributing to the growth is an increase in debit card usage that generated additional fees from the card origination system. As a result of changes to the pricing structure by the credit card companies that went into effect on August 1, 2003, debit card fee income will be adversely affected in future periods.

Noninterest Expense

     The operating costs of the Corporation include but are not limited to, salaries and benefits, equipment expense, and occupancy costs. This category is usually referred to as noninterest expense and receives ongoing management attention in an attempt to contain and minimize the growth of the various expense categories, while encouraging technological innovation in conjunction with the expansion of the Corporation. Total noninterest expenses increased from $9.4 million for the quarter ended September 30, 2002 to $10.8 million for the quarter ended September 30, 2003. Total noninterest expense increased from $28.2 million for the nine months ended September 30, 2002 to $30.7 million for the nine months ended September 30, 2003. Salaries and benefits, which include commission expense generated by Univest Investments, Inc. and Univest Insurance, Inc. increased due to the acquisition of First County Bank and increases in pension expense. Occupancy expense increased due to an increase in rent for the First County Bank properties and also due to increases in real estate taxes and insurance. Equipment expense increased primarily due to an increase in software expense. Other expenses grew due to increases in legal fees, capital shares taxes and a one-time application fee for NASDAQ. Lower advertising and marketing expense, public relations and community relations expense somewhat offset these increases.

Tax Provision

     The provision for income taxes was $2.0 million for the quarter ended September 30, 2003 and $1.9 million for the quarter ended September 30, 2002. The effective tax rates were 25.1% and 26.0% respectively. For the nine months ended September 30, 2003 the provision was $5.9 million as compared to $5.5 million for the nine months ended September 30, 2002. The effective tax rates were 26.4% and 26.6% respectively. The effective tax rates reflect the benefits of tax credits generated from investments in low-income housing projects and tax-free income from investments in municipal securities, loans and bank-owned life insurance.

Financial Condition

Assets

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     Total assets increased $255.3 million or 19.3% from $1,325.9 million at December 31, 2002 to $1,581.2 million at September 30, 2003. First County Bank assets at the time of the merger were $140.4 million as shown in the table below. As a result of the merger, $21.1 million was recorded as goodwill and $1.4 million was recorded as core deposit intangible. At September 30, 2003, total available-for-sale and held-to-maturity investment securities were $468.3 million, compared to $395.1 million at December 31, 2002, an increase of 18.5%. Approximately $202.6 million of investment securities were sold, called or matured during the nine months ended September 2003. Reinvestments were made in a variety of mortgage-backed, agency and tax-exempt securities as well as in an adjustable-rate mortgage mutual fund. Total loans increased from $825.4 million at December 31, 2002 to $981.9 million at September 30, 2003, an increase of $156.5 million. The majority of this growth was $150.0 million in commercial loans.

First County Bank assets at merger: