LEESPORT FINANCIAL CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(X) Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the Quarterly Period
Ended September 30, 2002,
or
( ) Transition report pursuant to Section 13 or 15(d) of the
Exchange Act for the Transition Period from
_________________ to _________________.

No. 0-14555
(Commission File Number)

LEESPORT FINANCIAL CORP.
------------------------
(Exact name of Registrant as specified in its charter)

PENNSYLVANIA 23-2354007
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.)

1240 Broadcasting Road, Wyomissing, Pennsylvania 19610
(Address of principal executive offices) (Zip Code)

(610) 208-0966
(Registrant's telephone number, including area code)

Check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date.

Number of Shares Outstanding
as of November 1, 2002
COMMON STOCK ($5.00 Par Value) 3,240,796
(Title of Class) (Outstanding Shares)

Forward-looking Statements

Leesport Financial Corp. (the "Company") may from time to
time make written or oral "forward-looking statements,"
including statements contained in the Company's filings with the
Securities and Exchange Commission (including this Quarterly
Report on Form 10-Q and the exhibits hereto and thereto), in its
reports to shareholders and in other communications by the
Company, which are made in good faith by the Company pursuant to
the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.

These forward-looking statements include statements with
respect to the Company's beliefs, plans, objectives, goals,
expectations, anticipations, estimates and intentions, that are
subject to significant risks and uncertainties, and are subject
to change based on various factors (some of which are beyond the
Company's control). The words "may," "could," "should," would,
"believe," "anticipate," "estimate," "expect," intend, "plan"
and similar expressions are intended to identify forward-looking
statements. The following factors, among others, could cause
the Company's financial performance to differ materially from
the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements: the strength of
the United States economy in general and the strength of the
local economies in which the Company conducts operations; the
effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies of the Board of
Governors of the Federal Reserve System; inflation, interest
rate, market and monetary fluctuations; the timely development
of and acceptance of new products and services of the Company
and the perceived overall value of these products and services
by users, including the features, pricing and quality compared
to competitors' products and services; the willingness of users
to substitute competitors' products and services for the
Company's products and services; the success of the Company in
gaining regulatory approval of its products and services, when
required; the impact of changes in financial services' laws and
regulations (including laws concerning taxes, banking,
securities and insurance); technological changes; the Company's
ability to successfully integrate any assets, customs, systems
and management personnel acquired by the Company; changes in
consumer spending and saving habits; the effects of attacks upon
or armed conflicts involving the United States or its interests;
and the success of the Company at managing the risks involved in
the foregoing.

The Company cautions that the foregoing list of important
factors is not exclusive. Readers are also cautioned not to
place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date of this
report. The Company does not undertake to update any forward-
looking statement, whether written or oral, that may be made
from time to time by or on behalf of the Company.

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

LEESPORT FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

September 30, December 31,
2002 2001
------------ -----------
ASSETS
Cash and Due from Banks $ 14,661 $ 18,885
Interest-bearing Deposits in Other
Banks 232 831
Federal Funds Sold 1,300 -
-------- --------
Total Cash & Cash Equivalents 16,193 19,716
Mortgage Loans Held for Sale 7,323 12,209
Securities Available for Sale 160,523 146,957
Loans, Net of Allowance for Loan Losses
9/02 - $4,468; 12/01 - $3,723 333,106 298,200
Premises and Equipment, Net 10,721 9,623
Goodwill 4,309 4,309
Accrued Interest Receivable and Other
Assets 16,936 12,495
------- --------
TOTAL ASSETS $549,111 $503,509
======== ========
LIABILITIES:
DEPOSITS:
Non-interest Bearing $ 53,872 $ 43,476
Interest Bearing 327,546 288,101
-------- -------
TOTAL DEPOSITS 381,418 331,577
Federal Funds Purchased - 32,500
Securities Sold Under Agreements
to Repurchase 21,999 21,074
Long-term Debt 75,800 62,200
Mandatory Redeemable Capital
Securities Of Subsidiary Trusts 15,000 5,000
Accrued Interest Payable
and Other Liabilities 5,492 5,937
-------- --------
TOTAL LIABILITIES 499,709 458,288
-------- --------

SHAREHOLDERS' EQUITY
Common Stock, $5.00 Par Value; 15,540 15,397
Authorized 10,000,000 shares,
Issued and outstanding,
3,107,954 in 2002
3,079,338 in 2001
Surplus 13,833 13,510
Retained Earnings 17,894 16,055
Accumulated Other Comprehensive
Income 2,135 259
-------- --------

TOTAL SHAREHOLDERS' EQUITY 49,402 45,221
-------- --------

TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $549,111 $503,509
======== ========

The accompanying notes are an integral part of these financial
statements.

LEESPORT FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)

The accompanying notes are an integral part of these financial
statements.

LEESPORT FINANCIAL CORP AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Amounts in thousands, except share data)

The accompanying notes are an integral part of these financial statements.

LEESPORT FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

The accompanying notes are an integral part of these financial
statements.

LEESPORT FINANCIAL CORP. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Nine Months Ended
-----------------
Sept 30, 2002 Sept 30, 2001
------------- -------------

CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $ 3,316 $ 1,925
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for loan losses 1,050 740
Provision for depreciation and
amortization 678 363
Net amortization of securities
premiums and discounts 462 35
Deferred income taxes 7 -
Net realized (gain) loss on sale of
foreclosed real estate (7) 49
Amortization of goodwill - 199
Amortization of mortgage servicing
rights 82 27
Earnings on investment in life
insurance (247) (297)
Increase in mortgage servicing rights (240) (44)
Net gain on loans held for sale (813) (592)
Loans originated for sale (37,749) (18,503)
Proceeds from sale of loans 43,448 18,986
Net realized gain on sale of
securities (53) (50)
Net realized (gain) loss on property
and equipment (5) 38
(Increase) decrease in accrued
interest receivable and other
assets (791) 187
Increase (decrease) in accrued interest
payable and other liabilities (145) 690
-------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 8,993 3,753
-------- --------

CASH FLOWS FROM INVESTING
ACTIVITIES:
Available for sale securities:
Principal repayments, maturities
and calls 44,916 9,349
Purchases (73,223) (60,322)
Proceeds from sales 12,951 23,396
Loans made to customers, net of
repayments (36,117) (18,548)
Net decrease in Federal
Home Loan Bank stock 169 837
Proceeds from sale of foreclosed
real estate 180 441
Purchases of premises and equipment (1,817) (2,316)
Proceeds from sale of premises
and equipment 46 819
Acquisition OF assets (175) -
-------- --------
NET CASH USED IN INVESTING
ACTIVITIES (53,070) (46,344)
-------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in deposits 49,841 33,593
Net decrease in federal funds
purchased (32,500) (600)
Net increase in securities sold
under agreements to repurchase 925 4,150
Proceeds from long-term debt 19,100 10,000
Repayment of long-term debt (5,500) -
Net proceeds from issuance of Trust
Preferred Securities 9,700 -
Issuance of common stock 466 315
Cash dividends paid (1,478) (845)
-------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 40,554 46,613
-------- --------
Increase (decrease) in cash and
cash equivalents (3,523) 4,022
Cash and cash equivalents:
Beginning 19,716 12,160
-------- --------
Ending $ 16,193 $ 16,182
======== ========
Cash payments for:
Interest $ 11,220 $ 13,156
======== ========
Income taxes $ 1,600 $ 875
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Other real estate acquired in
settlement of loans $ 161 $ 434
======== ========
The accompanying notes are an integral part of these financial
statements.

LEESPORT FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The unaudited consolidated financial statements
contained herein have been prepared in accordance with the
instructions to Form 10-Q of Regulation S-X. All significant
intercompany accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of
management, all adjustments (including normal recurring
adjustments) considered necessary for a fair presentation of the
results for the interim periods have been included. For
comparative purposes, the prior year's consolidated financial
statements have been reclassified to conform with report
classifications of the current year.

2. The results of operations for the three and nine month
periods ended September 30, 2002 are not necessarily indicative
of the results to be expected for the full year.

3. For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks, interest-bearing
deposits in other banks, and federal funds sold.

4. For further information, refer to the Consolidated
Financial Statements and Footnotes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2001.

5. Earnings Per Common Share

Basic earnings per share represents income available to
common shareholders divided by the weighted-average number of
common shares outstanding during the period. Diluted earnings
per share reflects additional common shares that would have been
outstanding if dilutive potential common shares (stock options)
had been issued, as well as any adjustments to income that would
result from the assumed issuance. The effect of stock options
was not dilutive for all periods presented.

Earnings per common share for the three months and nine
months ended September 30, 2002 and 2001 have been computed
based upon the following:

During the first nine months of 2002, there were 19,156
shares of common stock issued under the Company's employee and
director stock plans.

6. In the ordinary course of business, the Company enters
into off-balance sheet financial instruments consisting of
commitments to extend credit, letters of credit and commitments
to sell loans. Such financial instruments are recorded in the
consolidated balance sheets when they become receivable or
payable.

7. Recently Issued Accounting Standards

The Company adopted Statement No. 142, "Goodwill and Other
Intangible Assets" on January 1, 2002 and has accordingly ceased
amortization of all goodwill. During the first quarter of 2002,
the Company completed the transitional impairment test of
goodwill. In all instances, the estimated fair values of the
reporting segments exceeded their book values; and therefore, no
write-down of goodwill was required as of January 1, 2002.
Goodwill as of September 30, 2002 was allocated by segment as
follows: insurance services - $3.8 million; investment services
- - $0.5 million.

The Company's net income and earnings per share for the
three months and nine months ended September 30, 2002 and 2001,
adjusted to exclude goodwill amortization are as follows (in
thousands, except per share data):

In June 2001, the Financial Accounting Standards Board
issued Statement No. 143, "Accounting for Asset Retirement
Obligations," which addresses the financial accounting and
reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. This Statement requires that the fair value of a
liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated assets retirement costs
are capitalized as part of the carrying amount of the long-lived
asset. This Statement will become effective for the Company on
January 1, 2003 and is not expected to have a significant impact
on the Company's financial condition or results of operations.

In April 2002, the Financial Accounting Standards Board
issued Statement No. 124, "Rescission of Statements No. 4, 44
and 64, Amendment of Statement No. 13." This Statement requires
that debt extinguishment no longer be classified as an
extraordinary item since debt extinguishment has become a risk
management strategy for many companies. It also eliminates the
inconsistent accounting treatment for sale-leaseback
transactions and certain lease modifications that have economic
effects similar to sale-leaseback transactions. This Statement
became effective May 15, 2002 and did not have a significant
impact on the Company's financial condition or results of
operations.

In June 2002, the Financial Accounting Standards Board
issued Statement No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," which nullifies EITF Issue 94-3,
"Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." This Statement delays
recognition of these costs until liabilities are incurred and
requires fair value measurement. It does not impact the
recognition of liabilities incurred in connection with a
business combination or the disposal of long-lived assets. The
provisions of this Statement are effective for exit or disposal
activities initiated after December 31, 2002 and are not
expected to have a significant impact on the Company's financial
condition or results of operations.

In October 2002, the Financial Accounting Standards Board
issued Statement No. 147, "Acquisitions of Certain Financial
Institutions." This Statement provides guidance on accounting
for the acquisition of a financial institution, including the
acquisition of part of a financial institution. The Statement
defines criteria for determining whether the acquired financial
institution meets the conditions for a "business combination."
If the acquisition meets the conditions of a "business
combination," the specialized accounting guidance under
Statement No. 72, "Accounting for Certain Acquisitions of
Banking or Thrift Institutions" will not apply after
September 30, 2002 and the amount of the unidentifiable
intangible asset will be reclassified to goodwill upon adoption
of Statement No. 147. The transition provisions were effective
on October 1, 2002 and did not have an impact on the Company's
financial condition or results of operations.

8. Segment Information

The Company's insurance operations and investment
operations are managed separately from the traditional banking
and related financial services that the Company also offers.
The insurance operation provides commercial, individual and
group benefit plans and personal coverage. The investment
operation provides individual financial and estate planning,
investment advice and services, corporate and small business
pension and retirement planning services.

9. Acquisitions

On August 30, 2002, the Company completed its purchase of
certain assets of First Affiliated Investment Group, an
investment management and brokerage firm located in State
College, Pennsylvania. In addition to cash payments of
$175,000, the Company issued 9,460 shares of its common stock at
a price of $18.50, resulting in a deal value of $350,010.

Subsequent Event

On October 1, 2002, the Company completed its acquisition
of The Boothby Group, Inc., a full service insurance agency
headquartered in Blue Bell, Pennsylvania. In addition to cash
payments of $3.6 million, the Company has issued 132,448 shares
of its common stock at a price of $18.12 resulting in a deal
value of $6.0 million. Contingent payments totaling up to $1.6
million, payable in stock at the then current market values, are
based on The Boothby Group, Inc. achieving certain earnings
levels over the next five years.

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Results of Operations

Overview

Net income for the quarter ended September 30, 2002 was
$1,108,000, an increase of 38%, as compared to $802,000 for the
same period in 2001. For the first nine months of 2002, net
income was $3.3 million or 74% above the $1.9 million reported
for the first nine months of 2001. Basic and diluted earnings
per share were $.36 and $1.07 for the third quarter and first
nine months of 2002, respectively, compared to $.43 and $1.03
for the third quarter and first nine months of 2001.

The following are the key ratios for the periods:

Net Interest Income

Net interest income continues to be a primary source of
revenue for the Company. Net interest income results from the
difference between the interest and amortizable fees earned on
loans and investments and the interest paid on deposits to
customers and other non-deposit sources of funds, such as
repurchase agreements and short and long-term borrowed funds.
Net interest margin is the difference between the gross (tax-
effected) yield on earning assets and the cost of interest
bearing funds as a percentage of earning assets. All discussion
of net interest margin is on a fully taxable equivalent basis
using a 34% tax rate.

Net interest income for the third quarter of 2002 was $4.4
million, an increase of 33% as compared to the $3.3 million
reported for the third quarter of 2001. For the first nine
months of 2002, net interest income was $12.7 million, an
increase of 37% as compared to $9.3 million for the first nine
months of 2001. The net interest margin improved to 3.52% for
the third quarter of 2002 from 3.21% for the third quarter of
2001 and to 3.58% for the nine months ended September 30, 2002
from 3.17% for the nine months ended September 30, 2001.

The following summarizes net interest margin information:

(1) Loan fees have been included in the interest income
totals presented. Nonaccrual loans have been included
in average loan balances.
(2) Interest income on loans and investments is presented
on a taxable equivalent basis using an effective tax
rate of 34%.

The increase in net interest income for the three and nine
month periods is primarily the result of the growth in earning
assets. Average earning assets for the quarter ended
September 30, 2002 increased to $493 million from $405 million
for the quarter ended September 30, 2001 and to $473 million for
the nine months ended September 30, 2002 from $392 million for
the nine months ended September 30, 2001.

Also contributing to the increase in net interest income is
the fact that the decline in the yield on average earning assets
between the two quarters and nine month periods was less than
the decline in the cost of average supporting liabilities for
the same periods. The overall declines in interest rates are
mainly the result of the declining interest rate environment in
2001 and 2002. However, the Company's cost of supporting
liabilities was also impacted favorably by the repricing of
guaranteed-rate promotional deposit programs run to increase
money market deposits and previously run certificate of deposit
promotional programs instituted to provide liquidity after the
first quarter of 2001. In addition, average non-interest
bearing deposits increased to $57 million for the third quarter
of 2002 from $40 million for the third quarter of 2001 and to
$50 million for the nine months ended September 30, 2002 from
$38 million for the nine months ended September 30, 2001.

Therefore, on a fully taxable equivalent basis, the $1.1
million dollar increase in net interest income for the third
quarter of 2002, as compared to the third quarter of 2001, can
be attributed to the net positive effect of $1.0 million related
to the increase in volume and the net positive effect of $0.1
million related to the decline in interest rates. On a fully
taxable equivalent basis, the $3.4 million increase in net
interest income for the nine months ended September 30, 2002, as
compared to the nine months ended September 30, 2001, can be
attributed to the net positive effect of $3.0 million related to
the increase in volume and the net positive effect of $0.4
million related to the decline in interest rates.

Provision for Loan Losses

The provision for loan losses for the quarter ended
September 30, 2002 was $390,000 compared to $225,000 for the
third quarter of 2001, a 73% increase. For the first nine
months of 2002, the provision for loan losses was $1,050,000
compared to $740,000 for the first nine months of 2001. The
provision reflects the amount deemed appropriate by management
to provide an adequate reserve to meet the present risk
characteristics of the loan portfolio. The $310,000 increase in
the provision between the nine-month period ended September 30,
2002 and the nine-month period ended September 30, 2001 is the
result of the Company's efforts to maintain its asset quality
ratios in light of the continued growth in the Company's loan
portfolio, to $337.6 million at September 30, 2002 from $300.5
million at September 30, 2001. The ratio of the allowance for
loan losses to loans outstanding at September 30, 2002 and
September 30, 2001 was 1.32% and 1.30%, respectively. Please
see further discussion under the caption "Allowance for Loan
Losses."

Other Income

Total other income for the three months ended September 30,
2002 increased 9.5% over the same period in 2001, to $2.3
million from $2.1 million and 15.8% for the nine-month period to
$6.6 million in 2002 from $5.7 million in 2001.

Included in other income for 2002 is a $44,000 gain on the
sale of approximately $3.3 million in portfolio mortgage loans
in July, a $16,000 gain on the sale of approximately $5.0
million in portfolio mortgage loans in June, a $17,000 loss on
the replacement of several ATMs for technological reasons in
May, a $109,000 gain on the sale of approximately $9.2 million
in portfolio mortgage loans in January, and a $22,000 gain on
the sale of a single-family home owned by the Company in March.
Included in other income for 2001 is a $40,000 net gain on the
sale of approximately $4.9 million of portfolio mortgage loans
in May and the loss on the sale of a former administrative
office of $38,000 in July.

Customer service fees increased 3.0% for the third quarter
of 2002, as compared to the same period in 2001, to $309,000
from $300,000. For the nine-month period ended September 30,
2002, customer service fees increased 15.8%, as compared to the
same period in 2001, to $893,000 from $771,000. These increases
are primarily due to an expanded customer base, new services,
and a new fee-pricing schedule which was instituted in June of
2001.

The Company's primary source of other income is commissions
and other revenue generated through sales of insurance products
by the Bank's insurance subsidiary, Essick & Barr. Revenues
from insurance operations totaled $1,139,000 million for the
third quarter of 2002 compared to $1,078,000 for the same period
in 2001, an increase of 5.7%. Revenues for the nine-month
period ended September 30, 2002 totaled $3,221,000 compared to
$2,966,000 for the same period in 2002, an increase of 8.6%.
These increases are attributable to the Company's continuing
efforts to cultivate new business relationships.

Income from mortgage banking activities increased slightly
for the third quarter of 2002 as compared to the third quarter
of 2001, to $377,000 from $345,000. However, income from
mortgage banking activities for the nine months ended September
30, 2002 increased to $862,000 from $764,000 for the nine months
ended September 30, 2001, or by 12.8%. These increases are
primarily due to continuing customer demand for mortgage loans
as a result of lower interest rates and the Bank's continuing
ability to sell the mortgages in the secondary market.

Revenues generated by the Bank's investment subsidiaries
decreased slightly for the third quarter of 2002 as compared to
the third quarter of 2001, to $174,000 from $186,000. For the
nine months ended September 30, 2002 overall revenues declined,
when compared to the nine months ended September 30, 2001, by
8.5%, to $520,000 from $568,000. This decline is primarily the
result of continued difficulties in generating investment
revenues in light of market conditions and continued negative
investor sentiment.

Other Expense

Other expense for the three months ended September 30, 2002
was $4.7 million compared to $3.8 million for 2001, an increase
of 23.7%. Other expense for the first nine months of 2002 was
$13.2 million compared to $11.1 million in 2001, an increase of
18.9%.

Salary and benefits expense, the largest component in the
other expense category, increased by $0.4 million, or 20.0%, for
the third quarter of 2002 as compared to the third quarter of
2001, to $2.4 million from $2.0 million. For the nine months
ended September 30, 2002, salary and benefits expense increased
by $1.0 million, or 16.9%, to $6.9 million from $5.9 million for
the nine months ended September 30, 2001. These increases are
primarily the result of an increase in the number of full time
equivalent employees, to 205 at September 30, 2002 from 175 at
September 30, 2001, as the Company continues to grow; overall
merit increases applied to base salaries; and increases in
employee health insurance costs consistent with national trends.

Occupancy and equipment expense for the third quarter of
2002 was $742,000, a $254,000 or 52.0% increase over the
$488,000 for the third quarter of 2001. For the first nine
months of 2002, occupancy and equipment expense was $2.1
million, a $0.5 million, or 31.3%, increase over the first nine
months of 2001. This increase is primarily attributable to the
addition and related renovations of three financial service
centers opened in July 2001, December 2001, and May 2002 and
costs associated with the Company's newly-constructed, leased
executive and administrative office building, which was occupied
in June 2001.

Computer & processing services expenses increased 11.5%, to
$368,000 for the third quarter of 2002 from $330,000 for the
same period in 2001. For the nine months ended September 30,
2002, computer & processing services expenses increased 15.9%,
to $1,050,000 from $906,000 for the same period in 2001. Costs
incurred during the first nine months of 2002 to convert and
improve data communication lines among all the Company's
locations contributed to the majority of this increase. The
process was completed during the third quarter of 2002 and the
Company expects future data communication costs to decline.
Also contributing to the increase is the overall growth of the
Company and the accompanying increases in demand for services,
and fee increases imposed by outside processors.

Advertising and marketing expenses increased 30.2%, to
$250,000 for the third quarter of 2002 from $192,000 for the
same period in 2001. For the nine months ended September 30,
2002, advertising and marketing expenses increased 46.5%, to
$807,000 from $551,000 for the same period in 2001. Promotions
associated with the opening of the new financial service centers
and to take advantage of local market opportunities created by
bank consolidations accounted for most of this increase. Also
contributing to the increase were expenditures associated with
the creation of our new corporate logo.

Other operating expenses increased 20.4% to $832,000 for
the third quarter of 2002 from $691,000 for the same period in
2001. For the nine months ending September 30, 2002, other
operating expenses increased 23.8%, to $2.4 million from $1.9
million for the same period in 2001. Increases in business
insurance, corporate sponsorships and donations, travel
expenses, professional services, directors fees and state taxes
accounted for most of the increase.

Also impacting non-interest expenses for the third quarter
of 2002 and the nine months ended September 30, 2002 were
$66,000 and $199,000 decreases, respectively, as a result of the
cessation of goodwill amortization in connection with the
adoption of Financial Accounting Standards Board Statement No.
142 on January 1, 2002.

Income Taxes

The effective income tax rate for the Company for the
quarter ended September 30, 2002 was 27.9% compared to 35.3% for
the quarter ended September 30, 2001. For the first nine months
of 2002, the effective income tax rate was 27.6% compared to
29.5% for the first nine months of 2001. The effective tax
rates for the third quarter of 2002 and the nine-month period
ended September 30, 2002 were lower than the rates for the
comparable periods in 2001 as the result of a one-time addition
to the provision for taxes of $100,000 in September 2001 and a
decline in tax-advantaged interest income as a percentage of net
income before taxes throughout 2002 as compared to 2001.
Excluding this $100,000, the effective income tax rates for the
third quarter of 2001 and the nine months ended September 30,
2001 would have been 27.3% and 25.8%, respectively.

For the third quarter of 2002, tax-advantaged interest
income as a percentage of net income before taxes was 15.0% as
compared to 23.5% for the third quarter of 2001. For the nine
months ended September 30, 2002, tax-advantaged interest income
as a percentage of net income before taxes was 15.9%, as
compared to 28.2% for the same period in 2001.

In addition, adoption of FAS No. 142, Goodwill and Other
Intangible Assets, on January 1, 2002 decreased the Company's
effective tax rate by 1.4% for the third quarter of 2002 as
compared to the third quarter of 2001 and by 1.4% for the nine
months ended September 30, 2002 as compared to the same period
in 2001.

Financial Condition

The total assets of the Company at September 30, 2002 were
$549.1 million, an increase of approximately $45.6 million, or
9.1%, since December 31, 2001.

Securities Available for Sale

Investment securities available for sale increased 9.2% to
$160.5 million at September 30, 2002 from $147.0 million at
December 31, 2001. Investment securities are used to supplement
loan growth as necessary, to generate interest and dividend
income, to manage interest rate risk, and to provide liquidity.

Loans

Total loans increased to $337.6 million at September 30,
2002 from $301.9 million at December 31, 2001, an increase of
$35.7 million, or 11.8%.

The following summarizes the components of the Company's
loan portfolio:

September 30,2002 December 31, 2001
----------------- -----------------
(In thousands)

Residential real estate $ 98,466 $109,435
Commercial 111,779 111,772
Commercial, secured by real
estate 96,029 54,799
Consumer, net of unearned
income 8,454 11,376
Home equity lines of credit 22,846 14,541
-------- --------
Total Loans 337,574 301,923

Allowance for loan losses (4,468) (3,723)
-------- --------
Loans, net of allowance
for loan losses $333,106 $298,200
======== ========

Commercial loans increased to $207.8 million at
September 30, 2002 from $166.6 million at December 31, 2001, an
increase of $41.2 million, or 24.7%. This increase underscores
the Company's continuing focus on making higher yielding
commercial loans to small and medium sized businesses in our
market area.

In addition, home equity lines of credit increased to
$22.8 million at September 30, 2002 from $14.5 million at
December 31, 2001, an increase of $8.3 million, or 57.2%. This
increase is primarily the continuing result of successful home
equity lending promotions.

Loans secured by residential real estate (including fixed-
term home equity lending products) decreased $10.9 million, or
10%, between December 31, 2001 and September 30, 2002, from
$109.4 million to $98.5 million. This decline is mainly the
result of the sale of approximately $8.3 million of fixed-rate,
portfolio residential mortgages into the secondary market in the
second and third quarters of 2002. The sale of these mortgages
in the secondary market reflects the Company's continuing
financial management strategy of de-emphasizing the retention of
such loans for its portfolio.

Allowance for Loan Losses

The allowance for loan losses at September 30, 2002 was
$4.5 million compared to $3.7 million at December 31, 2001.
Additions to the allowance are made from time to time based upon
management's assessment of credit quality factors existing at
that time. The Company performs a review of the credit quality
of its loan portfolio on a monthly basis to determine the
adequacy of the allowance for loan losses. The allowance at
September 30, 2002 was 1.32% of outstanding loans compared to
1.30% of outstanding loans at September 30, 2001, and 1.23% of
outstanding loans at December 31, 2001.

The allowance for loan losses is an amount that management
believes to be adequate to absorb potential losses in the loan
portfolio. Additions to the allowance are charged through the
provision for loan losses. Loans deemed to be uncollectible are
charged against the allowance for loan losses, and subsequent
recoveries, if any, are credited to the allowance. Management
regularly assesses the adequacy of the allowance by performing
an ongoing evaluation of the loan portfolio, including such
factors as charge-off history, the level of delinquent loans,
the current financial condition of specific borrowers, the value
of any underlying collateral, risk characteristics in the loan
portfolio, local and national economic conditions, and other
relevant factors. Significant loans are individually analyzed,
while other smaller balance loans are evaluated by loan
category. This evaluation is inherently subjective as it
requires material estimates that may be susceptible to change.
Based upon the results of such reviews, management believes that
the allowance for loan losses at September 30, 2002 was adequate
to absorb credit losses inherent in the portfolio at that date.

The following table shows the activity in the Company's
allowance for loan losses:

The following table summarizes the Company's non-performing
assets:

Premises & Equipment

Premises and equipment, net of accumulated depreciation and
amortization, increased $1.1 million, or 11.5%, between
December 31, 2001 and September 30, 2002, to $10.7 million from
$9.6 million.

Major additions to this category in 2002 include: the
purchase of property adjacent to the Hamburg financial center
for $202,000 for much needed expansion; the purchase of property
in Exeter Township, Berks County, Pennsylvania for $740,000 for
the construction of a new financial center; expenditures for
furniture and equipment totaling approximately $87,000 for the
temporary financial center established in Exeter Township until
the aforementioned construction is completed.

In addition, the Company received approval during the
second quarter of 2002 from the Federal Deposit Insurance
Corporation and the Pennsylvania Department of Banking to
construct a new branch in South Heidelberg Township, Berks
County, Pennsylvania. Costs incurred to date for this project
total $31,000.

Deposits

Total deposits at September 30, 2002 were $381.4 million
compared to $331.6 million at December 31, 2001, an increase of
$49.8 million, or 15.0%.

The following summarizes the components of the Company's
deposit liabilities:

Factors contributing to the overall increase in total
deposits include: successful promotional programs run throughout
the first nine months of 2002; the opening of new branches in
December 2001, and May 2002; and merger activity in our market
area. The modest increase in total time deposits of $3.8
million, or 2.5%, reflects our customers' uncertainty about
longer-term interest rate movement and our efforts to reduce the
cost of funds by reducing our reliance on higher rate
certificates of deposit accounts.

Borrowings

Total debt decreased $8.0 million, or 6.6%, to $112.8
million at September 30, 2002 from $120.8 million at December
31, 2001. Federal funds purchased declined to $0 at September
30, 2002 from $32.5 million at December 31, 2001. The average
balance of federal funds purchased for the first nine months of
2002 was $3.5 million. The repayment of these funds throughout
the nine-month period ended September 30, 2002 was accomplished
using the proceeds of long-term debt and increases in deposit
accounts.

Long-term debt, composed of borrowings with the Federal
Home Loan Bank, increased $13.6 million between December 31,
2001 and September 30, 2002. The additional borrowings were
made to take advantage of relatively low long-term interest
rates.

In addition, in September 2002, the Company received
funding of $10 million from a pooled Trust Preferred Capital
Securities offering.

Off Balance Sheet Commitments

The Bank is a party to financial instruments with off-
balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments
include commitments to extend credit and letters of credit.
Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized
in the balance sheets.

The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and letters of credit is
represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments.

A summary of the contractual amount of the Bank's financial
instrument commitments is as follows:

September 30, December 31,
2002 2001
------------- ------------
(In thousands)

Commitments to grant loans $104,487 $62,516
Outstanding letters of credit 4,932 2,070

Investment in Leesport Mortgage LLC

In May 2002, the Company's subsidiary, Leesport Bank,
jointly formed Leesport Mortgage LLC with a real estate company.
Leesport Mortgage LLC was formed to provide mortgage brokerage
services, including, without limitation, any activity in which a
mortgage broker may engage. It is operated as a permissible
"affiliated business arrangement" within the meaning of the Real
Estate Settlement Procedures Act of 1974. Leesport Bank's
initial investment was $15,000.

Capital

Total shareholders' equity increased $4.2 million to
$49.4 million at September 30, 2002 from $45.2 million at
December 31, 2001. The increase is the net result of net income
for the period of $3.3 million less dividends declared of
$1.5 million, proceeds of approximately $293,000 from the
issuance of shares of common stock under the Company's employee
and director stock plans, $175,000 from the issuance of shares
of stock in connection with the acquisition of First Affiliated
Investment Group, and net unrealized gains on securities
available for sale, net of tax, of $1.9 million.

Federal bank regulatory agencies have established certain
capital-related criteria that must be met by banks and bank
holding companies. The measurements that incorporate the
varying degrees of risk contained in the Banks' balance sheets
and exposure to off-balance sheet commitments were established
to provide a framework for comparing different institutions.

As required by federal banking regulatory authorities,
guidelines have been adopted to measure capital adequacy. Under
the guidelines, certain minimum ratios are required for core
capital and total capital as a percentage of risk-weighted
assets and other off-balance sheet instruments. For the
Company, Tier 1 capital consists of common stockholders' equity
plus mandatory redeemable capital securities less intangible
assets, and Tier II capital includes Tier I capital plus the
allowable portion of the allowance for loan losses, currently
limited to 1.25% of risk-weighted assets. By regulatory
guidelines, the separate component of equity for unrealized
appreciation or depreciation on available for sale securities is
excluded from Tier I and Tier II capital.

The adequacy of the Company's capital is reviewed on an
ongoing basis with regard to size, composition and quality of
the Company's resources. An adequate capital base is important
for continued growth and expansion in addition to providing an
added protection against unexpected losses.

An important indicator in the banking industry is the
leverage ratio, defined as the ratio of Tier I capital less
intangible assets, to average quarterly assets less intangible
assets. The leverage ratio at September 30, 2002, was 10.91%
compared to 10.03% at December 31, 2001. The increase in this
ratio primarily is due to the increase in Tier I capital as a
result of the $10.0 million increase in mandatory redeemable
securities. The mandatory redeemable securities are included
for regulatory purposes as Tier I capital with certain limiting
restrictions. At September 30, 2002, the entire amount of these
securities was allowable to be included as Tier I capital for
the Company. For both periods, the capital ratios were above
minimum regulatory guidelines to be "well capitalized."

On March 23, 2000 and September 26, 2002, the Company
established First Leesport Capital Trust I and Leesport Capital
Trust II, respectively, in which the Company owns all of the
common equity. First Leesport Capital Trust I issued $5 million
of mandatory redeemable capital securities carrying an interest
rate of 10.875%, and Leesport Capital Trust II issued $10
million of mandatory redeemable capital securities carrying a
floating interest rate of LIBOR plus 3.45%. These debentures
are the sole assets of the Trusts. These securities must be
redeemed in March 2030 and September 2032, respectively, but
may be redeemed earlier in the event that the interest expense
becomes non-deductible for federal income tax purposes or if the
treatment of these securities is no longer qualified as Tier I
capital for the Company.

The Company is not aware of any pending recommendations by
regulatory authorities that would have a material impact on the
Company's capital, resources, or liquidity if they were
implemented, nor is the Company under any agreements with any
regulatory authorities.

The following table sets forth the Company's capital
ratios:

Liquidity and Interest Rate Sensitivity

The banking industry has been required to adapt to an
environment in which interest rates may be volatile and in which
deposit deregulation has provided customers with the opportunity
to invest in liquid, interest rate-sensitive deposits. The
banking industry has adapted to this environment by using a
process known as asset/liability management.

Adequate liquidity means the ability to obtain sufficient
cash to meet all current and projected needs promptly and at a
reasonable cost. These needs include deposit withdrawal,
liability runoff, and increased loan demand. The principal
sources of liquidity are deposit generation, overnight federal
funds transactions with other financial institutions, investment
securities portfolio maturities and cash flows, and maturing
loans and loan payments. The Bank can also package and sell
residential mortgage loans into the secondary market. Other
sources of liquidity are term borrowings from the Federal Home
Loan Bank, and the discount window of the Federal Reserve Bank.
In view of all factors involved, the Bank's management believes
that liquidity is being maintained at an adequate level.

At September 30, 2002, the Company had a total of $112.8
million or 20.5% of total assets in borrowed funds. These
borrowings included $22.0 million of repurchase agreements with
customers, $15.0 million in mandatory redeemable capital
securities and $75.8 million of term borrowings with the Federal
Home Loan Bank having final maturities ranging from November
2002 through December 2009 at interest rates ranging from 2.06%
to 6.63%. At September 30, 2002, the Company had a maximum
borrowing capacity with the Federal Home Loan Bank of
approximately $146 million.

Asset/liability management is intended to provide for
adequate liquidity and interest rate sensitivity by matching
interest rate-sensitive assets and liabilities and coordinating
maturities on assets and liabilities. With the exception of the
majority of residential mortgage loans, loans generally are
written having terms that provide for a readjustment of the
interest rate at specified times during the term of the loan.
In addition, interest rates offered for all types of deposit
instruments are reviewed weekly and are established on a basis
consistent with funding needs and maintaining a desirable spread
between cost and return. The Bank does not use reverse
repurchase agreements, interest rate swaps, or other derivative
products in its asset/liability management practices at this
time.

Item 3. Quantitative and Qualitative Disclosures about Market
Risk

There have been no material changes in the Company's
assessment of its sensitivity to market risk since its
presentation in the Annual Report on Form 10-K for the year
ended December 31, 2001, filed with the SEC.

Item 4. Controls and Procedures

Within ninety days prior to filing this report, the
Company, under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and
the Chief Financial Officer, evaluated the effectiveness of the
design and operation of the Company's disclosure controls and
procedures. Based on that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective.
There were no significant changes to the Company's internal
controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.

Securities and Exchange Commission Rule 13a-14 defines
"disclosure controls and procedures" as controls and other
procedures of an issuer that are designed to ensure that
information required to be disclosed by the issuer in the
reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Commission's rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that such
information is accumulated and communicated to the issuer's
management, including its principal executive officer and
principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings - None

Item 2. Changes in Securities

On August 30, 2002, the Company acquired certain assets of First
Affiliated Investment Group, an investment management and
brokerage firm located in State College, Pennsylvania. The
Company issued a total of 9,460 shares of common stock to First
Affiliated in the transaction at a price of $18.50 per share.
On October 1, 2002, the Company acquired The Boothby Group,
Inc., a full-service insurance agency located in Blue Bell,
Pennsylvania. The Company issued a total of 132,448 shares of
common stock to the five shareholders of The Boothby Group, Inc.
in connection with the acquisition at a price of $18.12 per
share. The shares of common stock issued in these transactions
were issued in reliance on the exemption from registration
contained in Section 4(2) of the Securities Act of 1933, as
amended, for transactions not involving any public offering and
are "restricted securities" within the meaning of Rule 144 under
such Act.

Item 3. Defaults Upon Senior Securities - None

Item 4. Submission of Matters to Vote of Security Holders -
None

Item 5. Other Information - None

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit No. Title

3.1 Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to
the Company's Annual Report on Form 10-K
for the year ended December 31, 2000.)

3.2 Bylaws of the Company (Incorporated by
reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year
ended December 31, 2000.)

99.1 Certification of Chief Executive Officer
under Section 906 of the Sarbanes-Oxley Act
of 2002.

99.2 Certification of Chief Financial Officer
under Section 906 of the Sarbanes-Oxley Act
of 2002.

(b)Reports on Form 8-K - None

SIGNATURES

In accordance with the requirements of the Exchange Act,
the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

LEESPORT FINANCIAL CORP.
(Registrant)

Dated: November 14, 2002 By /s/ Raymond H. Melcher, Jr.
-------------------------------
Raymond H. Melcher, Jr.
Chairman, President and Chief
Executive Officer

Dated: November 14, 2002 By /s/ Stephen A. Murray
-------------------------------
Stephen A. Murray
Senior Vice President and
Chief Financial Officer

CERTIFICATIONS

I, Raymond H. Melcher, Jr., Chairman, President, and Chief
Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of
Leesport Financial Corp;

2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit
to state a material fact necessary to make the
statements made, in light of the circumstances under
which such statements were made, not misleading with
respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
report, fairly present in all material respects the
financial condition, results of operations and cash
flows of the registrant as of, and for, the periods
presented in this quarterly report;

4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for and registrant and we
have:

a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated
subsidiaries, is made known to us by others within
those entities, particularly during the period in
which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing
the equivalent function):

a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report financial
data and have identified for the registrant's
auditors any material weakness in internal
controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a
significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there
were significant changes in internal controls or in
other factors that could significantly affect internal
controls subsequent to the date of our most recent
evaluation, including any corrective actions with
regard to significant deficiencies and material
weaknesses.

Date: November 14, 2002

/s/ Raymond H. Melcher, Jr.
---------------------------
Raymond H. Melcher, Jr.
Chairman, President and
Chief Executive Officer

I, Stephen A. Murray, Senior Vice President and Chief
Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of
Leesport Financial Corp;

2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit
to state a material fact necessary to make the
statements made, in light of the circumstances under
which such statements were made, not misleading with
respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
report, fairly present in all material respects the
financial condition, results of operations and cash
flows of the registrant as of, and for, the periods
presented in this quarterly report;

4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for and registrant and we
have:

a) designed such disclosures and procedures to ensure
that material information relating to the
registrant, including its consolidated
subsidiaries, is made known to us by others within
those entities, particularly during the period in
which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing
the equivalent function):

a) all significant deficiencies in the design or
operation of internal controls which could
adversely affect the registrant's ability to
record, process, summarize and report financial
data and have identified for the registrant's
auditors any material weaknesses in internal
controls; and

b) any fraud, whether or not material, that involves
management or other employees who have a
significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there
were significant changes in internal controls or in
other factors that could significantly affect internal
controls subsequent to the date of our most recent
evaluation, including any corrective actions with
regard to significant deficiencies and material
weaknesses.

Date: November 14, 2002

/s/ Stephen A. Murray
-----------------------
Stephen A. Murray
Senior Vice President and
Chief Financial Officer