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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

Commission File Number:  000-08185

CHEMICAL FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)

Indicate by check mark whether the Registrant: (1) has filed all 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       

The number of shares outstanding of the Registrant's Common Stock, $1 par value, as of November 5, 2002, was 22,550,805 shares.

INDEX

CHEMICAL FINANCIAL CORPORATION
FORM 10-Q

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about the financial services industry, the economy, and the Corporation itself. Words such as "anticipates," "believes," "estimates," "judgment," "expects," "forecasts," "intends," "is likely," "plans," "predicts," "projects," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (Risk Factors) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements.

Risk Factors include, but are not limited to, changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulations; changes in tax laws; changes in prices, levies and assessments; the impact of technological advances and issues; governmental and regulatory policy changes; the outcomes of pending and future litigation and contingencies; trends in customer behavior as well as their ability to repay loans; completion of acquisitions and integration of acquired companies and changes in the national economy. In addition, events relating to the terrorist attacks on September 11, 2001 and the resulting war on terrorism have created significant global economic and political uncertainties that may have material and adverse effects on financial markets, the economy and demand for financial services and products. These are representative of the Risk Factors that could cause a difference be tween an ultimate actual outcome and a preceding forward-looking statement. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

PART I.  FINANCIAL INFORMATION

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income (Unaudited)

See accompanying notes to consolidated financial statements

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Financial Position (In thousands)

See accompanying notes to consolidated financial statements.

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Unaudited)

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002

NOTE A: BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Chemical Financial Corporation (the "Corporation") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial condition and results of operations of the Corporation for the periods presented. Operating results for the three and nine months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the consolidated financia l statements and footnotes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001.

On December 21, 2001, the Corporation paid a 5% stock dividend to shareholders of record on December 7, 2001. All per share amounts and shares outstanding, where appropriate, have been adjusted for this stock dividend.

Certain prior year amounts have been reclassified to place them on a basis comparable with the current period's financial statements.

Earnings Per Share

All earnings per share amounts have been presented to conform to the requirements of Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Basic earnings per share excludes any dilutive effect of stock options. Basic earnings per share for the Corporation is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share for the Corporation is computed by dividing net income by the sum of the weighted average number of common shares outstanding and the dilutive effect of outstanding employee stock options.

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002

Earnings Per Share (continued)

The following table summarizes the number of shares used in the numerator and denominator of the basic and diluted earnings per share computations:

Comprehensive Income

The components of comprehensive income, net of related tax, for the three- and nine-month periods ended September 30, 2002 and 2001 are as follows (in thousands of dollars):

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002

Comprehensive Income (continued)

The components of accumulated other comprehensive income, net of related tax, at September 30, 2002, December 31, 2001 and September 30, 2001 are as follows (in thousands of dollars):

Operating Segment

Under the provisions of Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," it is management's opinion that the Corporation operates in a single operating segment - commercial banking. The Corporation is a bank holding company that operated three commercial banks, a data processing company, a title insurance company and a property and casualty insurance company, each as a separate subsidiary of the Corporation, as of September 30, 2002. The Corporation's commercial bank subsidiaries operate as community banks and offer a full range of commercial banking and fiduciary products and services to the residents and business customers in their geographical market areas. The products and services offered by the commercial bank subsidiaries are generally consistent throughout the Corporation. Each of the Corporation's commercial bank subsidiaries operates within the state of Michigan. The marketing of products and services throughout the Corpo ration's subsidiary banks is generally uniform, as many of the markets served by the subsidiaries overlap. The distribution of products and services is uniform throughout the Corporation's commercial bank subsidiaries and is achieved primarily through retail branch banking offices, automated teller machines and electronically accessed banking products. The commercial bank subsidiaries are state-chartered commercial banks and operate under the same banking regulations. The data processing subsidiary primarily performs data processing functions for the Corporation's commercial bank subsidiaries.

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002

Other

Statements of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS 141"), and No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), were issued in June 2001. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. SFAS 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. SFAS 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite useful lives will continue to be amortized over their estimated useful lives.

The Corporation applied SFAS 142 beginning in the first quarter of 2002. Application of the nonamortization provisions of SFAS 142 will increase net income approximately $1 million or $.04 per share in 2002. Annually, the Corporation will test goodwill for impairment using the two-step process prescribed in SFAS 142. The first step is a screen for potential impairment, while the second step measures the amount of impairment, if any. The Corporation performed the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002 during the second quarter of 2002. Based on the results of these tests, the Corporation determined that there was no impairment of goodwill as of January 1, 2002. Therefore, there was no transition adjustment required to be recorded on the consolidated income and financial position of the Corporation in conjunction with the adoption of SFAS 142.

Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), became effective for the Corporation on January 1, 2001. SFAS 133 standardizes the accounting for derivative instruments by requiring the recognition of those items as assets or liabilities in the statement of financial position and measuring them at fair value. SFAS 133 requires that changes in a derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS 133 had no effect upon adoption and is not currently expected to have any material effect on the financial position, liquidity or results of operations of the Corporation. The Corporation's limited use of interest rate lock commitments resulted in no cumulative effect of the adoption of SFAS 133, and the impact on net income for the three and nine months ended September 30, 2002 was not material.

The Corporation and its subsidiary banks are subject to certain legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated income and financial position of the Corporation.

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002

NOTE B: LOANS AND NONPERFORMING ASSETS

The following summarizes loans and nonperforming assets at the dates indicated (in thousands of dollars):

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002

NOTE C: ALLOWANCE FOR LOAN LOSSES

The following summarizes the changes in the allowance for loan losses (in thousands of dollars):

Impaired loans as of September 30, 2002 and 2001 were $6,615,000 and $3,897,000, respectively. The allowance for impaired loans was $550,000 and $1,000,000 as of September 30, 2002 and 2001, respectively. During the first quarter of 2002, the Corporation changed its methodology of identifying loans as being of an impaired status. Previously, the Corporation analyzed all nonaccrual commercial and commercial real estate loans for impairment before determining which loans were impaired. Based on conservative management philosophies, as of January 1, 2002, the Corporation took the position that all nonaccrual commercial and commercial real estate loans are impaired loans. This change had no effect on the allowance allocated to impaired loans, as the additional loans classified as impaired did not require an impairment allowance as of January 1, 2002. See Management's Discussion and Analysis of Financial Condition and Results of Operations for further information.

NOTE D: ACQUISITIONS

On September 14, 2001, the Corporation completed the acquisition of Bank West Financial Corporation ("BWFC"). BWFC was the parent company of Bank West, a Michigan stock savings bank with six offices in Kent and Ottawa Counties and approximately $300 million of total assets, $194 million of total deposits and $232 million of total loans as of the date of acquisition. Bank West was merged into the Corporation's existing subsidiary, Chemical Bank West, headquartered in Cadillac, Michigan. The Corporation exchanged $29.8 million in cash for all of the outstanding stock of BWFC. The transaction was accounted for by the purchase method of accounting.

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002

Accordingly, the results of operations of BWFC are included in the consolidated statements of income since the date of acquisition.

On July 13, 2001, the Corporation completed the acquisition of four branch bank offices from Fifth Third Bank and Old Kent Bank in Holland, Zeeland, Grand Haven and Fremont, Michigan. The four branch bank offices had total deposits of approximately $144 million and total loans of $97 million as of the date of acquisition. The offices in Holland, Zeeland and Grand Haven are being operated as branches of Chemical Bank Shoreline and Chemical Bank West is operating the office in Fremont, both of which are wholly owned subsidiaries of the Corporation. The transaction was accounted for by the purchase method of accounting. Accordingly, the results of operations of the four branch bank offices are included in the consolidated statements of income since the date of acquisition.

On January 9, 2001, the Corporation merged with Shoreline Financial Corporation ("Shoreline"), a one-bank holding company headquartered in Benton Harbor, Michigan. As of the effective date of the transaction, Shoreline had total assets of approximately $1.1 billion, total deposits of approximately $.8 billion and total loans of approximately $.8 billion. Shoreline operated 30 branch banking offices and 2 loan production offices in southwest Michigan. The Corporation is operating Shoreline through a separate subsidiary of the Corporation, Chemical Bank Shoreline, with its headquarters remaining in Benton Harbor. The Corporation issued approximately 7.8 million shares of common stock for all of the outstanding stock of Shoreline. The transaction was accounted for as a pooling-of-interests business combination and, therefore, all prior period amounts included herein have been restated to include Shoreline as if it had always been a subsidiary of the Corporation.

The Corporation recorded merger related and consolidation expenses of $9.2 million in the first quarter of 2001. These expenses were included as a separate line item in operating expenses in the first quarter of 2001. These charges were recorded in connection with the completion of the merger of the Corporation and Shoreline on January 9, 2001 and the consolidation of nine of the Corporation's eleven subsidiary banks effective December 31, 2000. A summary of these costs follows: professional fees of $5,265,000; settlement of employment agreements of $2,479,000; severance awards of $311,000; and other costs of $1,112,000. The entire reserve was utilized and paid during 2001 and, accordingly, there was no reserve balance at December 31, 2001.

Severance awards were granted to 51 employees whose positions were eliminated in the internal bank consolidation project and who elected not to accept another position within the Corporation. The severance awards totaled approximately 3% of the total merger and consolidation expenses, and were primarily paid during the second quarter of 2001.

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002

NOTE E: GOODWILL

The Corporation adopted SFAS 142 effective January 1, 2002. The adoption of SFAS 142 created an inconsistency in the accounting for goodwill amortization between the three- and nine-month periods ended September 30, 2002 and September 30, 2001. Application of the nonamortization provisions of SFAS 142 is expected to result in an increase in net income of $960,000 or $.04 per share in 2002. The following analysis is provided for comparability purposes had SFAS 142 been in effect during 2001 (in thousands, except per share amounts):

The carrying amount of goodwill at September 30, 2002 was $27.94 million. There was no change in the carrying amount of goodwill during the nine months ended September 30, 2002.

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2002

NOTE F: ACQUIRED INTANGIBLE ASSETS (In thousands)

Amortization expense for the:

Estimated amortization expense for the years ending December 31:

The following is management's discussion and analysis of certain significant factors that have affected the Corporation's financial condition and results of operations during the periods included in the consolidated financial statements included in this filing.

SUMMARY

The Corporation's net income was $14.0 million in the third quarter of 2002, up 8.0% over net income of $13.0 million during the third quarter of 2001. Earnings per share in the third quarter of 2002 were $.62, an increase of 6.9% over earnings per share of $.58 in the third quarter of 2001. The increase in net income was principally the result of increases in both net interest income and noninterest income. These factors were partially offset by increases in the provision for loan losses and operating expenses.

Return on average assets in the third quarter of 2002 was 1.58%, compared to 1.58% during the third quarter of 2001. Return on average equity in the third quarter of 2002 was 13.5%, compared to 13.6% during the third quarter of 2001.

The Corporation's net income was $41.3 million, or $1.83 per share in the first nine months of 2002, compared to net income of $28.9 million, or $1.28 per share in the first nine months of 2001. Net income in the nine months ended September 30, 2001 included a $9.2 million charge for nonrecurring costs arising from the merger with Shoreline Financial Corporation on January 9, 2001 and the internal consolidation within the Corporation. The $9.2 million charge decreased net income by $7.1 million, or $.32 per diluted share in the nine months ended September 30, 2001. Excluding the $9.2 million charge, net operating income in the nine months ended September 30, 2001 was $36.0 million, or $1.60 per share. The Corporation's net income of $41.3 million for the nine months ended September 30, 2002 represented an increase of 14.5% over net operating income of $36.0 million for the comparable 2001 period (excluding the nonrecurring charge). The increases in net operating income and operating earnings per share dur ing the first nine months of 2002 were the result of increases in both net interest income and noninterest income. These factors were partially offset by increases in the provision for loan losses and operating expenses (excluding the $9.2 million charge discussed above).

Return on average assets was 1.56% and return on average equity was 13.8% in the first nine months of 2002, compared to 1.24% and 10.6%, respectively, in the first nine months of 2001. On a net operating income basis, return on average assets was 1.54% and return on average equity was 13.2% in the first nine months of 2001.

Total assets were $3.60 billion as of September 30, 2002, up $112 million, or 3.2%, from total assets of $3.49 billion as of December 31, 2001, and up $78 million, or 2.2%, from total assets of $3.52 billion as of September 30, 2001.

Total loans decreased $121 million, or 5.6%, from December 31, 2001, and decreased $161 million, or 7.3%, from September 30, 2001 to $2.06 billion as of September 30, 2002. The Corporation experienced a decrease in all loan categories from December 31, 2001, except commercial real estate and consumer loans which increased by $37.8 million and $13.3 million, respectively. The decrease in total loans was primarily due to a significant increase in refinancing activity of residential mortgage loans that occurred due to the reduction in overall market interest rates. Existing portfolio loans were refinanced primarily into fixed-rate loans which are generally sold in the secondary market.

The Corporation also experienced a decrease in all loan categories from September 30, 2001, except commercial real estate and consumer loans which increased by $42.8 million and $19.9 million, respectively.

Shareholders' equity increased $37.5 million, or 9.8%, from September 30, 2001 to $421.2 million as of September 30, 2002, or $18.67 per share, representing 11.7% of total assets. The increase was primarily attributable to retained net income and an increase in accumulated other comprehensive income.

RESULTS OF OPERATIONS

Net Interest Income

The Corporation's net interest income in the third quarter of 2002 was $36.4 million, a $3.1 million, or 9.1%, increase over the $33.3 million recorded in the third quarter of 2001. Excluding the impact of the 2001 bank and branch acquisitions, net interest income increased approximately 4.7% during the three months ended September 30, 2002 compared to the same time period in 2001. The remaining increase was due to the costs of deposits and other funding sources decreasing by more than the yield on interest-earning assets.

Average loans increased $51.3 million, or 2.5%, while average interest-earning assets increased $252 million, or 8.2%, in the third quarter of 2002, compared to the third quarter of 2001. The completion of the bank and branch acquisitions that took place during the second half of the third quarter of 2001 did not fully impact the average balance during that quarter. Net interest margin increased to 4.40% in the third quarter of 2002 from 4.38% in the third quarter of 2001.

Net interest income was $109.3 million in the nine months ended September 30, 2002, a $15.4 million, or 16.4%, increase over the $93.9 million recorded in the corresponding period in 2001. Excluding the impact of the 2001 bank and branch acquisitions, net interest income increased approximately 9.6% during the nine months ended September 30, 2002 compared to the same time period in 2001. The net

Provision for Loan Losses

The provision for loan losses ("provision") is the amount added to the allowance for loan losses ("allowance") to absorb loan losses in the loan portfolio. The allowance provides for probable losses that have been identified with specific customer relationships and for probable losses believed to be inherent in the remainder of the loan portfolio but that have not been specifically identified. The allowance is comprised of specific allowances (assessed for loans that have known credit weaknesses), general allowances based on an assigned risk rating and an unallocated allowance for imprecision in the subjective nature of the specific and general allowance methodology. Management continuously evaluates the allowance to ensure the level is adequate to absorb losses inherent in the loan portfolio. This evaluation is based on a continuous review of the loan portfolio, both individually and by category, and includes consideration of changes in the mix and volume of the loan portfolio, actual loan loss experienc e, the financial condition of the borrowers, industry and geographical exposures within the portfolio, economic conditions and employment levels of the Corporation's local markets, and other factors affecting business sectors. A formal evaluation of the allowance is prepared quarterly to assess the risk in the loan portfolio and to determine the adequacy of the allowance. The Corporation's loan review personnel, who are independent of the loan origination function, review this evaluation.

The provision for loan losses was $747,000 in the third quarter and $2,752,000 in the first nine months of 2002, compared to $432,000 in the third quarter and $1,274,000 the first nine months of 2001. Net loan losses were $758,000 in the third quarter and $2,746,000 in the first nine months of 2002, compared to $372,000 in the third quarter and $777,000 in the first nine months of 2001.

Noninterest Income

Noninterest income increased $712,000, or 9%, in the third quarter of 2002, compared to the third quarter of 2001. The increase was primarily attributable to an increase in service charges on deposit accounts of $1.4 million, or 54%. This increase was partially offset by a decrease in mortgage banking revenue of $400,000, or 23.2%. Mortgage banking volume remained strong during the third quarter of 2002. However, it was negatively impacted by higher amortization of servicing rights as well as a $513,000 impairment provision recorded to reflect the decline in the estimated value of mortgage servicing rights compared to the recorded book value. The decline in the estimated fair value of mortgage servicing rights was due to the continued decline in market interest rates for residential mortgages and the corresponding increase in prepayments of loans serviced for others. The combined amortization of mortgage servicing rights and the impairment provision was $936,000 during the quarter ended September 30, 2002 , versus $107,000 in the quarter ended September 30, 2001.

Noninterest income increased $2.7 million, or 12.1%, in the first nine months of 2002, compared to the first nine months of 2001. The increase was due both to an increase in mortgage banking revenue of

Operating Expenses

Total operating expenses increased $1.8 million, or 8.6%, in the third quarter of 2002, compared to the third quarter of 2001. The increase in operating expenses was due to increases in salaries, wages and employee benefits of $1.3 million, or 10.6%, and an increase in occupancy and equipment expense, combined, of $531,000, or 15.6%. Excluding purchase acquisitions, total operating expenses increased 2.7% in the third quarter of 2002, compared to the third quarter of 2001.

Total operating expenses increased $8.6 million, or 14.1%, in the first nine months of 2002, compared to the first nine months of 2001 (excluding the $9.2 million merger and consolidation charge). Salaries, wages and employee benefits increased $5.2 million, or 14.5%, occupancy and equipment expense, combined, increased $1.7 million, or 17.2%, and other operating expenses increased $1.7 million, or 11.2%. Excluding purchase acquisitions, total operating expenses increased 6.1% in the nine months ended September 30, 2002, compared to the same period in 2001.

Income Tax Expense

The Corporation's effective federal income tax rate was 33.6% during the quarter ended September 30, 2002, compared to 33.4% during the quarter ended September 30, 2001. Excluding the effect of the non-recurring merger and consolidation charges, the Corporation's effective federal income tax rate was 33.4% during the nine months ended September 30, 2002, compared to 33.3% during the nine months ended September 30, 2001. The Corporation is subject to the federal statutory income tax rate of 35%. The difference between the federal statutory income tax rate and the Corporation's effective federal income tax rate primarily is a function of the proportion of the Corporation's interest income exempt from federal taxation, nondeductible interest expense and other nondeductible expenses.

BALANCE SHEET CHANGES

Asset and Deposit Changes

Total assets increased $112 million, or 3.2%, from December 31, 2001 and increased $78 million, or 2.2%, from September 30, 2001 to $3.60 billion as of September 30, 2002. Total deposits increased $70.3 million, or 2.5%, from December 31, 2001 and increased $45.3 million, or 1.6%, from September 30, 2001 to $2.86 billion as of September 30, 2002. The growth in total assets was attributable to deposit and retained net income growth.

Loans

The Corporation's philosophy is such that it will not compromise on loan quality and generally does not make loans outside its banking markets to increase its loan portfolio. In addition, the Corporation

Total loans as of September 30, 2002 were $2.06 billion, compared to $2.18 billion as of December 31, 2001 and $2.22 billion as of September 30, 2001.

Residential real estate loans decreased $124 million, or 16.1%, from December 31, 2001 and $179 million, or 21.8%, from September 30, 2001 to $645.2 million as of September 30, 2002. Residential real estate loans represented 31.3%, 35.2% and 37.1% of the Corporation's loan portfolio as of September 30, 2002, December 31, 2001 and September 30, 2001, respectively. The Corporation's residential real estate loans primarily consist of one- to four-family residential loans with original terms of fifteen years or less. The loan-to-value ratio at time of origination is generally 80% or less. Loans with more than an 80% loan-to-value ratio generally require private mortgage insurance.

Real estate construction loans decreased $27.3 million, or 19.9%, from December 31, 2001 and $5.3 million, or 4.6%, from September 30, 2001 to $110.2 million as of September 30, 2002. Real estate construction loans represented 5.3%, 6.3% and 5.2% of the Corporation's loan portfolio as of September 30, 2002, December 31, 2001 and September 30, 2001, respectively. Construction lending is generally considered to involve a higher degree of risk than one- to four-family residential lending because of the uncertainties of construction, including the possibility of costs exceeding the initial estimates and the need to obtain a tenant or purchaser of the property if it will not be owner-occupied. The Corporation generally attempts to mitigate the risks associated with construction lending by, among other things, lending primarily in its market area, using conservative underwriting guidelines, and closely monitoring the construction process.

Commercial and agricultural loans decreased $21.0 million, or 6.3%, from December 31, 2001, and $39.1 million, or 11.2%, from September 30, 2001 to $311.1 million as of September 30, 2002. Commercial and agricultural loans represented 15.1%, 15.2% and 15.8% of the Corporation's loan portfolio as of September 30, 2002, December 31, 2001 and September 30, 2001, respectively.

Commercial real estate loans increased $37.8 million, or 8.7%, from December 31, 2001 and $42.8 million, or 10.0%, from September 30, 2001 to $470.5 million as of September 30, 2002. Commercial real estate loans represented 22.8%, 19.9% and 19.2% of the Corporation's loan portfolio as of September 30, 2002, December 31, 2001 and September 30, 2001, respectively.

Commercial lending and commercial real estate lending are generally considered to involve a higher degree of risk than one- to four-family residential lending. Such lending typically involves large loan balances concentrated in a single borrower for rental or business properties or for the operation of a business. In addition, the payment experience on loans secured by income-producing properties is typically dependent on the success of the operation of the related project and thus is typically affected by adverse conditions in the real estate market and in the economy. The Corporation generally attempts

Consumer loans increased $13.3 million, or 2.6%, from December 31, 2001, and $19.9 million, or 3.9%, from September 30, 2001 to $524.3 million as of September 30, 2002. Consumer loans represented 25.4%, 23.4% and 22.7% of total loans as of September 30, 2002, December 31, 2001 and September 30, 2001, respectively.

Consumer loans generally have shorter terms than mortgage loans but generally involve more credit risk than one- to four-family residential lending because of the type and nature of the collateral. However, consumer lending generally involves less credit risk than commercial lending. Consumer lending collections are dependent on the borrower's continuing financial stability, and thus are more likely to be adversely affected by adverse personal situations.

The Corporation's total loan to deposit ratio as of September 30, 2002, December 31, 2001 and September 30, 2001 was 72.1%, 78.2% and 79.0%, respectively.

Nonperforming loans consist of loans which are past due for principal or interest payments by 90 days or more and are still accruing interest, loans for which the accrual of interest has been discontinued, and other loans which have been restructured to less than market terms due to a serious weakening of the borrower's financial condition. Nonperforming loans were $13.9 million as of September 30, 2002, $13.1 million as of December 31, 2001 and $13.3 million as of September 30, 2001, and represented .68%, .60% and .60% of total loans, respectively. The increase in nonperforming loans since September 30, 2001 was due to softening economic conditions experienced during the past twelve months. The ratio of nonperforming loans to total loans has been stable over the past twelve months ranging between .59% and .68%.

A loan is considered impaired when management determines it is probable that all of the principal and interest due under the contractual terms of the loan will not be collected. In most instances, the impairment is measured based on the fair market value of the underlying collateral. Impairment may also be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. A portion of the allowance for loan losses may be allocated to impaired loans.

During the first quarter of 2002, the Corporation changed its methodology of identifying loans as being of an impaired status. Previously, the Corporation analyzed all nonaccrual commercial and commercial real estate loans for impairment before determining which loans were impaired. Based on conservative management philosophies, as of January 1, 2002, the Corporation took the position that all nonaccrual commercial and commercial real estate loans are impaired loans. This change had no effect on the allowance allocated to impaired loans, as the additional loans classified as impaired did not require an impairment allowance as of January 1, 2002.

Impaired loans under the new classification totaled $6.6 million as of September 30, 2002, $4.2 million as of December 31, 2001 and $3.9 million as of September 30, 2001. After analyzing the various

The allowance for loan losses at September 30, 2002 was $31.0 million and represented 1.50% of total loans, compared to $31.0 million, or 1.42% of total loans at December 31, 2001 and $31.1 million, or 1.40% of total loans at September 30, 2001.

Liquidity

The maintenance of an adequate level of liquidity is necessary to ensure that sufficient funds are available to meet customers' loan demands and deposit withdrawals and to capitalize on opportunities for business expansion. The banking subsidiaries' primary liquidity sources consist of investment securities, those maturing within one year and those classified as available for sale, loan payments and federal funds sold.

Capital Resources

As of September 30, 2002, shareholders' equity was $421.2 million, compared to $389.5 million as of December 31, 2001 and $383.7 million as of September 30, 2001, resulting in an increase of $31.7 million, or 8.2%, from December 31, 2001 and $37.5 million, or 9.8%, from September 30, 2001. Shareholders' equity as a percentage of total assets was 11.7% as of September 30, 2002, 11.2% as of December 31, 2001 and 10.9% as of September 30, 2001.

A statement of changes in shareholders' equity covering the nine-month periods ended September 30, 2002 and September 30, 2001 follows (in thousands of dollars):

The following table represents the Corporation's regulatory capital ratios as of September 30, 2002:

The Corporation's Tier 1 and Total capital ratios under the risk-based capital measure at September 30, 2002 are high due to the Corporation holding $353 million in investment securities and other assets which are assigned a 0% risk rating; $962 million in assets, primarily investment securities, which are assigned a 20% risk rating; and $749 million in residential real estate mortgages and other assets which are assigned a 50% risk rating. These three risk ratings (0%, 20% and 50%) represented 56% of the Corporation's total risk-based assets (including off-balance sheet items) as of September 30, 2002.

The information concerning quantitative and qualitative disclosures about market risk contained in the discussion regarding interest rate risk and sensitivity under the caption "Liquidity and Interest Sensitivity" on pages 16 through 17 of the Corporation's Annual Report to Shareholders for the year ended December 31, 2001 is here incorporated by reference. Such Annual Report was previously filed as Exhibit 13 to the Corporation's Annual Report on Form 10-K for the year ended December 31, 2001.

The Corporation does not believe that there has been a material change in the nature or categories of the Corporation's primary market risk exposures, or the particular markets that present the primary risk of loss to the Corporation. As of the date of this report, the Corporation does not know of or expect there to be any material change in the general nature of its primary market risk exposure in the near term. The methods by which the Corporation manages its primary market risk exposures, as described in the sections of its Annual Report to Shareholders incorporated by reference in response to this item, have not changed materially during the current year. As of the date of this report, the Corporation does not expect to make material changes in those methods in the near term. The Corporation may change those methods in the future to adapt to changes in circumstances or to implement new techniques.

The Corporation's market risk exposure is mainly comprised of its vulnerability to interest rate risk. Prevailing interest rates and interest rate relationships are primarily determined by market factors that are beyond the Corporation's control. All information provided in response to this item consists of forward-looking statements. Reference is made to the section captioned "Forward-Looking Statements" in this report for a discussion of the limitations on the Corporation's responsibility for such statements. In this discussion, "near term" means a period of one year following the date of the most recent statement of financial position contained in this report.

Within 90 days prior to the date of filing this report, an evaluation was performed under the supervision and with the participation of the Corporation's management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation's disclosure controls and procedures. Based on that evaluation, the Corporation's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Corporation's disclosure controls and procedures were effective as of the time of such evaluation. There have been no significant changes in the Corporation's internal controls or in other factors that could significantly affect internal controls subsequent to the time of such evaluation.

PART II. OTHER INFORMATION

SIGNATURES

Pursuant to the requirements 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.

CERTIFICATIONS

I, David B. Ramaker, certify that:

Date: 11-6, 2002

I, Lori A. Gwizdala, certify that:

Date: November 6, 2002

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