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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       

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

The number of shares outstanding of the Registrant's Common Stock, $1 par value, as of November 4, 2003, was 23,690,844 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," "should," "will" and 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. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future even ts or otherwise.

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 laws and 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; changes in the national and local economies; the local and global effects of the ongoing war on terrorism and other military actions, including actions in Iraq; and the Corporation's ability to successfully integrate acquired businesses. These are representative of the risk factors that could cause a difference between an ultimate actual outcome and a preceding forward-looking statement.

PART I.  FINANCIAL INFORMATION

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

See accompanying notes to consolidated financial statements.

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

See accompanying notes to consolidated financial statements.

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

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2003

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, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. 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, 2002.

On December 9, 2002, the Corporation declared a 5% stock dividend that was paid January 24, 2003 to shareholders of record on January 6, 2003. 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 exclude any dilutive effect of stock options. Basic earnings per share for the Corporation are 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, 2003

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 months ended September 30, 2003 and 2002 are as follows (in thousands of dollars):

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2003

Comprehensive Income (continued)

The components of accumulated other comprehensive income, net of related tax, at September 30, 2003, December 31, 2002 and September 30, 2002 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 title insurance company and a property and casualty insurance company, each as a separate subsidiary of the Corporation, as of September 30, 2003. 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 Corporation's subsidiary banks i s 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.

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2003

Goodwill

During 2002, the Corporation adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). Under SFAS 142, goodwill is no longer amortized, but is subject to annual impairment tests. The Corporation tested goodwill for impairment as of December 31, 2002. Based on these test results, the Corporation determined that there was no impairment of goodwill as of December 31, 2002. Goodwill was $27.94 million both at September 30, 2003 and 2002.

Other

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.

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, 2003

NOTE C: ALLOWANCE FOR LOAN LOSSES

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

The Corporation considers all nonaccrual commercial and commercial real estate loans to be impaired loans. Impaired loans as of September 30, 2003 and 2002 were $4.3 million and $6.6 million, respectively. The allowance for impaired loans was $200,000 and $550,000 as of September 30, 2003 and 2002, respectively.

NOTE D: ACQUIRED INTANGIBLE ASSETS

The following table sets forth the carrying amount, accumulated amortization and amortization expense of acquired intangible assets (in thousands):

Amortization expense for the:

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2003

Estimated amortization expense for the years ending December 31:

NOTE E: STOCK OPTIONS

The Corporation periodically grants stock options for a fixed number of shares with an exercise price equal to the market value of the shares on the date of grant. In accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the Corporation accounts for stock option grants under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25, because the exercise prices of the Corporation's stock options equal the market prices of the underlying stock at the dates of grant, no compensation expense is recognized at the date of grant.

If the Corporation had elected to recognize compensation cost for options outstanding in the three- and nine-month periods ended September 30, 2003 and 2002, based on the fair value of the options granted at the grant dates, net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):

CHEMICAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 2003

NOTE F: FINANCIAL GUARANTEES

In the normal course of business, the Corporation is a party to financial instruments containing credit risk that are not required to be reflected in the consolidated statement of financial position. For the Corporation, these financial instruments are financial and performance standby letters of credit. The Corporation has risk management policies to identify, monitor and limit exposure to credit risk. To mitigate credit risk for these financial guarantees, the Corporation generally determines the need for specific covenant, guarantee and collateral requirements on a case-by-case basis, depending on the nature of the financial instrument and the customer's creditworthiness. At September 30, 2003, the Corporation had $19.5 million of outstanding financial and performance standby letters of credit.

In 2002, the Financial Accounting Standards Board issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN No. 45"), which requires additional disclosures by a guarantor about its obligations under certain guarantees that it has issued. FIN No. 45 also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The instruments impacted for the Corporation are financial and performance standby letters of credit. The accounting pronouncements of FIN No. 45 became effective for the Corporation on January 1, 2003, on a prospective basis. The impact of adoption was not material to the Corporation's consolidated results of operations, financial position or cash flows.

NOTE G: OTHER

On September 25, 2003, the Corporation announced the signing of a definitive agreement for the acquisition of Caledonia Financial Corporation ("Caledonia"). Caledonia is a bank holding company headquartered in Caledonia, Michigan, with total assets of approximately $210 million, total deposits of $181 million and total shareholders' equity of $21.3 million, all as of June 30, 2003. Caledonia is the parent company of the State Bank of Caledonia, which will continue to operate as a separate subsidiary of the Corporation until the bank is restructured in the third quarter of 2004. Caledonia provides banking services through four offices located in Kent, Kalamazoo and Barry counties in Michigan. In the transaction, shareholders of Caledonia will receive $39.00 cash for each share of Caledonia common stock in a taxable transaction. The total value of the transaction is currently estimated at approximately $55.3 million. The Corporation expects the transaction to be slightly accretive to consolidated net income in 2004.

On September 30, 2003, the Corporation consolidated CFC Data Corp., its wholly-owned data processing subsidiary, into the parent. The data processing subsidiary primarily performs data processing functions for the Corporation's commercial bank subsidiaries.

NOTE H: PENDING ACCOUNTING PRONOUNCEMENTS

In January 2003, Financial Accounting Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46") which provides guidance on how to identify a variable interest entity ("VIE"), and when the assets, liabilities, noncontrolling interests and results of operations of a VIE need to be included in a company's consolidated financial statements.

In general, a VIE is an entity that lacks sufficient equity or its equity holders lack adequate decision making ability. If either of these characteristics is present, the entity is subject to FIN 46's variable interests consolidation model, and consolidation is based on variable interests, not on ownership of the entity's outstanding voting stock. Variable interests are defined as contractual, ownership, or other money interests in an entity that change with fluctuations in the entity's net asset value. The primary beneficiary consolidates the VIE; primary beneficiary is defined as the enterprise that absorbs a majority of expected losses or receives a majority of residual returns (if the losses or returns occur), or both. Entities not determined to be VIE's would continue to be subject to the guidance provided in ARB 51, "Consolidated Financial Statements", which generally requires consolidation based on ownership of the entity's outstanding voting stock.

In October 2003, the FASB issued FASB Staff Position ("FSP") No. FIN 46-6 "Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities." This FSP deferred the date the Corporation is required to adopt FIN 46 until December 31, 2003 for all interests in VIE's created before February 1, 2003. The FASB staff has announced that further guidance on FIN 46 will be issued in the fourth quarter of 2003. The adoption of FIN 46 is not expected to have a material impact on the Corporation's consolidated financial position or results of operations.

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 $14.5 million in the third quarter of 2003, up 3.2% over net income of $14.0 million in the third quarter of 2002. Earnings per share in the third quarter of 2003 were $.61, an increase of 3.4% over earnings per share of $.59 in the third quarter of 2002. The increase in net income was principally the result of higher noninterest income. This factor was partially offset by lower net interest income.

Return on average assets in the third quarter of 2003 was 1.60%, compared to 1.58% for the third quarter of 2002. Return on average equity in the third quarter of 2003 was 12.9%, compared to 13.5% in the third quarter of 2002.

The Corporation's net income was $42.2 million, or $1.78 per share in the first nine months of 2003, compared to net income of $41.3 million, or $1.74 per share in the first nine months of 2002. The increase in net income and earnings per share in the first nine months of 2003 was primarily due to an increase in noninterest income and a decrease in the provision for loan losses and operating expenses. These amounts were partially offset by a decrease in net interest income.

Return on average assets in the nine months ended September 30, 2003 was 1.58%, compared to 1.56% for the nine months ended September 30, 2002. Return on average equity in the nine months ended September 30, 2003 was 12.8%, compared to 13.8% in the first nine months of 2002.

Total assets were $3.59 billion as of September 30, 2003, up $22 million, or .6%, from total assets of $3.57 billion as of December 31, 2002, and down $8 million, or .2%, from total assets of $3.60 billion as of September 30, 2002.

Total loans increased $202 million, or 9.7%, from December 31, 2002, and $214 million, or 10.4%, from September 30, 2002 to $2.28 billion as of September 30, 2003. The increase in total loans was primarily due to growth in residential and commercial real estate loans. During the first half of 2003, the Corporation held in its portfolio a portion of the fixed-rate residential real estate loan originations with maturities of fifteen to twenty years. The Corporation's general practice is to sell these types of loans in the secondary market. The growth in residential real estate loans was undertaken to achieve the Corporation's desired mix of residential loans to total loans and to partially offset the negative impact of a lower net interest margin. The outstanding residential real estate loan portfolio balance declined in 2002 as customers took advantage of the historically low long-term fixed interest rate environment by refinancing their existing residential mortgage loans. The increase in commercial real estate loans is due to increased emphasis by the Corporation on developing commercial relationships.

Shareholders' equity increased $27.4 million, or 6.5%, from September 30, 2002 to $448.6 million as of September 30, 2003, or $18.94 per share, representing 12.5% of total assets. The increase was primarily attributable to retained net income.

RESULTS OF OPERATIONS

Net Interest Income

The Corporation's net interest income in the third quarter of 2003 was $34.8 million, a $1.6 million, or 4.5%, decrease from the $36.4 million recorded in the third quarter of 2002. The decrease was primarily due to a lower net interest margin. Net interest margin decreased to 4.12% in the third quarter of 2003 from 4.40% in the third quarter of 2002. The decrease in net interest income was partially offset by an increase in average interest-earning assets, which increased $62 million, or 1.9%, in the third quarter of 2003, compared to the third quarter of 2002.

Net interest income was $104.9 million in the nine months ended September 30, 2003, a $4.4 million, or 4.0%, decrease from the $109.3 million recorded in the first nine months in 2002. The decrease was primarily due to a lower net interest margin. Net interest margin decreased to 4.20% in the first nine months of 2003 from 4.47% in the first nine months of 2002. The decrease in net interest income was partially offset by an increase in average interest-earning assets, which increased $71 million, or 2.1%, in the first nine months of 2003, compared to the first nine months of 2002.

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 $.54 million in the third quarter of 2003 and $2.1 million in the first nine months of 2003, compared to $.75 million in the third quarter and $2.8 million in the first nine months of 2002. Net loan losses were $.61 million in the third quarter and $2.36 million in the first nine months of 2003, compared to $.76 million in the third quarter and $2.75 million in the first nine months of 2002.

Noninterest Income

Noninterest income increased $1.7 million, or 19.6%, in the third quarter of 2003, compared to the third quarter of 2002. The increase was primarily due to higher mortgage banking revenue of $1.0 million and higher gains on investment securities of $516,000. Mortgage banking volume remained strong during the third quarter of 2003. The third quarter of 2003 was negatively impacted by higher

Noninterest income increased $4.4 million, or 17.5%, in the first nine months of 2003, compared to the first nine months of 2002. The increase was primarily due to higher service charges on deposit accounts of $2.7 million and higher gains on investment securities of $1.1 million. The increase in service charges was attributable to a higher level of customer activity in areas where fees and service charges are applicable.

Operating Expenses

Total operating expenses decreased $433,000, or 1.9%, in the third quarter of 2003, compared to the third quarter of 2002. The decrease in operating expenses was due to a decrease in employee benefit expense due to health insurance rebates related to prior years, Michigan Single Business taxes and other miscellaneous expenses.

Total operating expenses decreased $925,000, or 1.3%, in the first nine months of 2003, compared to the first nine months of 2002. The decrease in operating expenses was due to the same reasons explained in the above paragraph.

Income Tax Expense

The Corporation's effective federal income tax rate was 33.6% in the third quarter and 33.7% in the first nine months of 2003, compared to 33.6% in the third quarter and 33.4% in the first nine months of 2002. 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 $22.1 million, or .6%, from December 31, 2002 and decreased $7.9 million, or .2%, from September 30, 2002 to $3.59 billion as of September 30, 2003. Total deposits increased $22.5 million, or .8%, from December 31, 2002, and increased $10.0 million, or .3%, from September 30, 2002 to $2.87 billion as of September 30, 2003. 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 generally does not participate in syndicated loans, which is a method utilized by many financial institutions to increase the size of their loan portfolios. The Corporation's loan portfolio

Total loans as of September 30, 2003 were $2.28 billion, compared to $2.08 billion as of December 31, 2002 and $2.06 billion as of September 30, 2002.

Residential real estate loans increased $117.3 million, or 18.1%, from December 31, 2002 and $122.2 million, or 19.0%, from September 30, 2002 to $765.5 million as of September 30, 2003. Residential real estate loans represented 33.6%, 31.2% and 31.2% of the Corporation's loan portfolio as of September 30, 2003, December 31, 2002 and September 30, 2002, 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 $15.3 million, or 14.1%, from December 31, 2002 and $16.9 million, or 15.4%, from September 30, 2002 to $93.3 million as of September 30, 2003. Real estate construction loans represented 4.1%, 5.2% and 5.3% of the Corporation's loan portfolio as of September 30, 2003, December 31, 2002 and September 30, 2002, 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 loans increased $6.4 million, or 1.9%, from December 31, 2002, and $19.6 million, or 6.2%, from September 30, 2002 to $333.8 million as of September 30, 2003. Commercial loans represented 14.7%, 15.8% and 15.3% of the Corporation's loan portfolio as of September 30, 2003, December 31, 2002 and September 30, 2002, respectively.

Commercial real estate loans increased $81.9 million, or 17.0%, from December 31, 2002 and $92.4 million, or 19.6%, from September 30, 2002 to $562.9 million as of September 30, 2003. Commercial real estate loans represented 24.7%, 23.2% and 22.8% of the Corporation's loan portfolio as of September 30, 2003, December 31, 2002 and September 30, 2002, 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 to mitigate the risks associated with commercial lending by, among other things, lending primarily in its market area and using conservative loan-to-value ratios in the underwriting process.

Consumer loans increased $11.5 million, or 2.3%, from December 31, 2002, and decreased $3.0 million, or .6%, from September 30, 2002 to $521.3 million as of September 30, 2003. Consumer loans represented 22.9%, 24.6% and 25.4% of total loans as of September 30, 2003, December 31, 2002 and September 30, 2002, 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 negatively affected by adverse personal situations.

The Corporation's total loan to deposit ratio as of September 30, 2003, December 31, 2002 and September 30, 2002 was 79.3%, 72.9% and 72.1%, 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 $9.0 million as of September 30, 2003, $7.3 million as of December 31, 2002 and $13.9 million as of September 30, 2002, and represented .40%, .35% and .68% of total loans, respectively. The increase in nonperforming loans since December 31, 2002 was due to an increase of $1.4 million in loans past due 90 days or more and still accruing interest. Real estate residential loans represented approximately one-half of the increase.

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. The Corporation has taken the position that all nonaccrual commercial and commercial real estate loans are considered to be impaired loans.

Impaired loans totaled $4.3 million as of September 30, 2003, $2.3 million as of December 31, 2002 and $6.6 million as of September 30, 2002. After analyzing the various components of the customer relationships and evaluating the underlying collateral of impaired loans, the allowance for loan losses allocated to impaired loans was as follows: $.2 million as of September 30, 2003, $.8 million as of December 31, 2002 and $.6 million as of September 30, 2002. The process of measuring impaired loans and the allocation of the allowance for loan losses requires judgment and estimation; therefore the eventual outcome may differ from the estimates used on these loans.

The allowance for loan losses at September 30, 2003 was $30.4 million and represented 1.34% of total loans, compared to $30.7 million, or 1.48% of total loans at December 31, 2002 and $31.0 million, or 1.50% of total loans at September 30, 2002.

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.

The Corporation has various commitments that may impact liquidity. The following table summarizes the Corporation's commitments and expected expiration dates by period at September 30, 2003. Since many of these commitments historically have expired without being drawn upon, the total amount of these commitments does not necessarily represent future cash requirements of the Corporation.

Commitments (in thousands)

Capital Resources

As of September 30, 2003, shareholders' equity was $448.6 million, compared to $430.3 million as of December 31, 2002 and $421.2 million as of September 30, 2002, resulting in an increase of $18.3 million, or 4.3%, from December 31, 2002 and $27.4 million, or 6.5%, from September 30, 2002. Shareholders' equity as a percentage of total assets was 12.5% as of September 30, 2003, 12.1% as of December 31, 2002 and 11.7% as of September 30, 2002.

A statement of changes in shareholders' equity covering the nine-month periods ended September 30, 2003 and September 30, 2002 follows (in thousands):

The following table represents the Corporation's regulatory capital ratios as of September 30, 2003:

The Corporation's Tier 1 and Total capital ratios under the risk-based capital measure at September 30, 2003 exceed the regulatory agencies ratios to be considered "well capitalized" partially due to the Corporation holding $306 million in investment securities and other assets which are assigned a 0% risk rating; $797 million in assets, primarily investment securities, which are assigned a 20% risk rating; and $876 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 53.3% of the Corporation's total risk-based assets (including off-balance sheet items) as of September 30, 2003.

During the nine months ended September 30, 2003, the Company repurchased 52,000 shares of its common stock at an average price of $29.06 per share under the 2001 Stock Repurchase Program. The 2001 Stock Repurchase Program allows for the repurchase of up to 441,000 shares, of which 361,779 shares were available for future repurchase at September 30, 2003.

The information concerning quantitative and qualitative disclosures about market risk contained in the discussion regarding interest rate risk and sensitivity under the caption "Liquidity Risk" and "Interest Rate Risk" on pages 16 through 20 of the Corporation's Annual Report to Shareholders for the year ended December 31, 2002 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, 2002.

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 consolidated statement of financial position contained in 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 and as of the time of such 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 end of the period covered by this report. There was no change in the Corporation's internal control over financial reporting that occurred during the three months ended September 30, 2003 that has materially affected, or that is reasonably likely to materially affect, the Corporation's internal control over financial reporting.

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.

EXHIBIT INDEX