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 requirement for the past 90 days. YES [X] NO [_]

As of November 21, 2003, there were 2,730,882 shares outstanding of the issuer’s class of common stock.

See accompanying notes to the unaudited consolidated financial statements

See accompanying notes to the unaudited consolidated financial statements

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NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not necessarily include all information, which would be included in audited financial statements. The information furnished reflects all normal recurring adjustments, which are, in the opinion of management, necessary for fair statement of the results of the period. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

NOTE 2 – EARNINGS PER SHARE
There were no convertible securities which would affect the numerator in calculating basic and diluted earnings per share; therefore, net income as presented on the Consolidated Statement of Income will be used as the numerator. The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

Options to purchase 30,950 and 37,850 shares of common stock at prices from $18.50 to $19.30 were outstanding for the periods ended September 30, 2003 and 2002, respectively, but were not included in the computation of diluted EPS because to do so would have been anti-dilutive.

NOTE 3 – RECLASSIFICATION OF COMPARATIVE AMOUNTS
Certain comparative amounts for the prior periods have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or stockholders’ equity.

NOTE 4 – RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB") issued FAS No. 143, Accounting for Asset Retirement Obligations, which requires that the fair value of a liability be recognized when incurred for the retirement of a long-lived asset and the value of the asset be increased by that amount. The statement also requires that the liability be maintained at its present value in subsequent periods and outlines certain disclosures for such obligations. The adoption of this statement, which was effective January 1, 2003, did not have a material effect on the Company’s financial position or results of operations.

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In July 2002, the FASB issued FAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This statement replaces EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring). The new statement is effective for exit or disposal activities initiated after December 31, 2002. The adoption of this statement did not have a material effect on the Company’s financial position or results of operations.

On December 31, 2002, the FASB issued FAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, which amends FAS No. 123, Accounting for Stock-Based Compensation. FAS No. 148 amends the disclosure requirements of FAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. Under the provisions of FAS No. 123, companies that adopted the preferable, fair value based method were required to apply that method prospectively for new stock option awards. This contributed to a "ramp-up" effect on stock-based compensation expense in the first few years following adoption, which caused concern for companies and investors because of the lack of consistency in reported results. To address that concern, FAS No. 148 provides two additional methods of transition that reflect an entity’s full complement of stock-based compensation expense immediately upon adoption, thereby eliminating the ramp-up effect. FAS No. 148 also improves the clarity and prominence of disclosures about the pro forma effects of using the fair value based method of accounting for stock-based compensation for all companies—regardless of the accounting method used—by requiring that the data be presented more prominently and in a more user-friendly format in the footnotes to the financial statements. In addition, the statement improves the timeliness of those disclosures by requiring that this information be included in interim as well as annual financial statements. The transition guidance and annual disclosure provisions of FAS No. 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002.

The following table represents the effect on net income and earnings per share had the stock-based employee compensation expense been recognized:

In April, 2003, the FASB issued FAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FAS No. 133. The amendments set forth in FAS No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, this statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in FAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. FAS No.149 amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. This statement is effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. The guidance should be applied prospectively. The provisions of this statement that relate to FAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating

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to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003. The adoption of this statement is not expected to have a material effect on the Company’s financial position or results of operations.

In May 2003, the FASB issued FAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Such instruments may have been previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this statement has not and is not expected to have a material effect on the Company’s reported equity.

In November, 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. This interpretation clarifies that a guarantor is required to disclose (a) the nature of the guarantee, including the approximate term of the guarantee, how the guarantee arose, and the events or circumstances that would require the guarantor to perform under the guarantee; (b) the maximum potential amount of future payments under the guarantee; (c) the carrying amount of the liability, if any, for the guarantor’s obligations under the guarantee; and (d) the nature and extent of any recourse provisions or available collateral that would enable the guarantor to recover the amounts paid under the guarantee. This interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the obligations it has undertaken in issuing the guarantee, including its ongoing obligation to stand ready to perform over the term of the guarantee in the event that the specified triggering events or conditions occur. The objective of the initial measurement of that liability is the fair value of the guarantee at its inception. The initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in this interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this interpretation did not have a material effect on the Company’s financial position or results of operations.

In January, 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, in an effort to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. The objective of this interpretation is not to restrict the use of variable interest entities but to improve financial reporting by companies involved with variable interest entities. Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. This interpretation changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity's residual returns or both. The consolidation requirements of this interpretation apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of this interpretation has not and is not expected to have a material effect on the Company’s financial position or results of operations. In October, 2003, the FASB decided to defer to the fourth quarter from the third quarter the implementation date for Interpretation No. 46. This deferral only applies to variable interest entities that existed prior to February 1, 2003.

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The Private Securities Litigation Act of 1995 contains safe harbor provisions regarding forward-looking statements. When used in this discussion, the words "believes," "anticipates," "contemplates," "expects," and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Those risks and uncertainties include changes in interest rates, the ability to control costs and expenses, and general economic conditions. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Total interest income was $4,367,000 for the three-month period ended September 30, 2003 compared to $5,095,000 for the same three-month period in 2002, a decrease of $728,000 or 14.3%. The overall decrease in total interest income is attributed principally to a decrease in interest and fees on loans of $726,000 or 17.0%. This is partially offset by an increase in taxable interest income from investments of $30,000. Income from interest and fees on loans decreased due to decreases in both volume and yields within the loan portfolio.

Average gross loans, including loans available for sale, at September 30, 2003 were $225.6 million, a decrease of $15.5 million or 6.4% from $241.1 million at September 30, 2002. Virtually all major segments within the loan portfolio reflected net declines in average balances compared to September 30, 2002. The most significant declines occurred within the home equity, residential real estate, and dealer loan segments. Average home equity loans decreased $6.1 million or 12.7%, average residential real estate loans decreased $5.2 million or 15.8%, and average dealer loans decreased $2.4 million or 14.1%. Partially offsetting these declines was an increase in average commercial real estate loans of $3.6 million or 5.2%. The decline within the average loan portfolio was brought about by general market activity. With the low interest rate environment over the past year, the Company has seen a record number of refinances. Many customers have chosen to refinance or consolidate their home equity loans into fixed rate 1-4 family loans with a first lien position, which the Company generally sells to Freddie Mac. This is the primary cause of the decline in the home equity loans. The dealer loan segment also declined in its average balance compared to last year. Financing promotions being offered by automobile manufacturers was the primary cause of the decline.

Interest and fees on loans also decreased due to a decline in the net yield on interest earning assets as a result of the historically low interest rate environment as discussed in the nine month comparison below.

While interest and fee income from loans decreased, taxable investment interest income increased due to an increase in volume within the investment portfolio. Average total investments were $89.6 million at September 30, 2003, an increase of $22.7 million. Average mortgage-backed securities represented the largest increase within the taxable investment securities of $15.9 million. As the interest rate on overnight funds decreased throughout 2002, management felt it prudent to invest in higher yielding, short-term duration, mortgage-backed securities, which also provide liquidity to the Company through monthly repayments of principal and interest.

Total interest expense of $1,536,000 for the three-month period ended September 30, 2003 represented a decrease of $558,000 from the $2,094,000 reported for the same three-month period in 2002. The change is due to a decrease in interest expense on deposits of $572,000 resulting from both a decline in the Bank’s cost of funds and a decrease in average interest-bearing deposits as discussed below.

Net interest income of $2,831,000 for the three months ended September 30, 2003 compared to $3,001,000 for the same three-month period in 2002, a decrease of $170,000.

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The provision for loan losses for the three months ended September 30, 2003 was $826,000, an increase of $676,000 from September 30, 2002. Management determined the increase in the provision expense was warranted as a result of its recurring quarterly analysis of loan loss reserve adequacy. For details of the analysis and methodology, see "Risk Elements".

Total other income for the three-month period ended September 30, 2003 of $646,000 compared to $624,000 for the three-month period ended September 30, 2002, an increase of $22,000. This increase is the result of an increase in service charges on deposit accounts of $138,000, and is partially offset by a decrease in gains on loan sales of $133,000. Service charge fee income increased primarily due to the new "Bounce Protection" program implemented in October 2002.

Gains of $44,000 were recorded on the sale of $8.1 million of fixed rate, 1-4 family residential mortgages to Freddie Mac for the three-month period ended September 30, 2003. For the three-month period ended September 30, 2002, $4.6 million of fixed rated, 1-4 family residential mortgages were sold resulting in a net gain of $177,000. Although the volume of loans sold increased for 2003, gains resulting from these sales decreased due to the lower interest rate environment.

Total other expense of $2,624,000 for the three months ended September 30, 2003 compared to $2,640,000 for the same three-month period in 2002. This represented a decrease of $16,000 or 0.6%. The decrease was primarily derived from decreases in professional fees and other expenses of $81,000 and $83,000, respectively. Partially offsetting these decreases was an increase in salaries and employee benefits expense of $133,000. The increases in salaries and employee benefits resulted principally from additional personnel as well as an increase in the cost of employee benefits.

The decrease in legal and professional fees of $81,000 was due to elevated expenses in the third quarter of 2002 resulting from various projects the Company was involved in, including a previous OCC examination. The Company has since completed many of these projects resulting in lower legal and professional fees in 2003. The decrease in other expense of $83,000 was primarily due to a decrease in contributions expense of $33,000 resulting from the reduction and discontinuation of one time contributions that occurred in 2003.

Net income for the three-month period ended September 30, 2003 was $92,000, a decrease of $505,000 from the $597,000 reported at September 30, 2002. Earnings per share for the three-month period ended September 30, 2003 were $0.03, compared to earnings per share of $0.21 during the same three-month period in 2002.

Total interest income of $13.4 million for the nine month period ended September 30, 2003 compared to $15.5 million for the same nine month period in 2002, a decrease of $2.1 million or 13.4%. The overall decrease in total interest income is attributed principally to a decrease in interest and fees on loans of $2.2 million or 16.8%. Interest and fees on loans decreased due to a decline in the net yield on interest earning assets as a result of the historically low interest rate environment. The tax equivalent yield on interest earning assets fell from 6.89% at September 30, 2002 to 5.84% at September 30, 2003. Yields on interest-earning assets have been computed on a taxable-equivalent basis using the federal income tax statutory rate of 34%. As interest rates fell throughout 2001, 2002, and 2003, the Bank’s variable rate earning assets repriced downward, and continue to do so, while new loans with lower yields are being added to the portfolio. The net yield on interest earning assets also decreased due to a shift in the earning asset composition. Average investments, which generally have a lower yield than loans, as a percent of average earning assets at September 30, 2003 were 28.4% compared to 21.7% at September 30, 2002.

Total interest expense of $4.9 million for the nine month period ended September 30, 2003 represented a decrease of $1.5 million from the $6.4 million reported for the same nine month period in 2002. The change is due to a decrease in interest expense on deposits resulting from both a decline in the Bank’s cost of funds and a

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decrease in average interest-bearing deposits as discussed below. The Bank’s cost of deposits decreased from 3.10% at September 30, 2002 to 2.18% at September 30, 2003. Average interest-bearing deposits decreased $1.7 million from 2002. Due to the low interest rate environment, the Bank continued to see a shift in consumer preference within the interest bearing deposits from time deposits with fixed maturities to more liquid products such as savings and interest-bearing demand deposits. Average time deposits decreased $14.6 million from September 30, 2002, while the average savings products increased $8.2 million or 16.2% and average interest-bearing demand deposits increased $6.1 million.

Net interest income of $8.5 million for the nine months ended September 30, 2003 compared to $9.1 million for the same nine month period in 2002, a decrease of $542,000.

The provision for loan losses for the nine months ended September 30, 2003 was $1,126,000, an increase of $365,000 from September 30, 2002. Management determined the increase in the provision expense was warranted as a result of its recurring quarterly analysis of loan loss reserve adequacy. For details of the analysis and methodology, see "Risk Elements".

Total other income for the nine month period ended September 30, 2003 of $3.4 million compared to $1.8 million for the nine month period ended September 30, 2002, an increase of $1.6 million. The increase is primarily due to an increase in service charges of $386,000, and an increase in net gains on the sale of loans of $921,000 and investment securities of $259,000. The increase in the service charges was primarily due to the "Bounce Protection" program discussed above.

Gains of $1,242,000 were recorded on the sale of $40.2 million of fixed rate, 1-4 family residential mortgages to Freddie Mac for the nine month period ended September 30, 2003. For the nine month period ended September 30, 2002, $31.2 million of fixed rated, 1-4 family residential mortgages were sold resulting in a gain of $420,000. In addition to the sale of mortgages, the Company also sold $6.6 million in student loans during the first quarter of 2003 which resulted in a gain of $99,000.

Total other expense of $8.0 million for the nine months ended September 30, 2003 compared to $7.3 million for the same nine month period in 2002. This represented an increase of $631,000 or 8.6%. The increase is primarily derived from an increase in salaries and employee benefits expense of $465,000 and an increase in other expense of $100,000. The increases in salaries and employee benefits resulted principally from additional personnel as well as an increase in the cost of employee benefits. Additional personnel were needed due to the centralization of loan functions and the expansion of the credit administration department. Additional senior management positions were also created to supervise these areas.

Other expense increased due to a variety of reasons. Although the bounce protection program increased the Company’s fee income for the nine months ended September 30, 2003, it also contributed to the increases in other expenses of $91,000 due to commissions paid to the program provider and $39,000 for a provision to establish a reserve for potential losses from demand deposit overdrafts as a result of this program. The Company also saw an increase in examination fees and federal deposit insurance of $36,000 and $59,000, respectively. Partially offsetting these increases in other expense was a decrease in contributions of $104,000 due to the discontinuation and reduction of one time contributions that occurred in 2003. Credit bureau fees also decreased $32,000 for the nine months ended September 30, 2003 due to a decline in volume based expenses.

Net income for the nine month period ended September 30, 2003 was $2,035,000, an increase of $56,000 from the $1,979,000 reported at September 30, 2002. Earnings per share for the nine month period ended September 30, 2003 were $0.74, an increase of $0.03 from $0.71 per share earned during the same nine month period in 2002.

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Total assets increased $7.2 million or 2.1% from December 31, 2002 to $344.7 million at September 30, 2003. The increase in total assets was primarily due to an increase in federal funds sold and cash and due from banks of $3.7 million and $2.6 million, respectively. The bank also purchased bank owned life insurance totaling $6.0 million in June 2003. Partially offsetting these increases were decreases in gross loans (including loans available for sale) and held to maturity securities of $6.6 million and $2.2 million, respectively. The decrease in held to maturity securities was principally due to contractually scheduled maturities in the third quarter of 2003. Total gross loans (including loans available for sale) decreased due to general economic conditions and the sale of $6.6 million in student loans discussed above.

Premises and equipment also increased from December 31, 2002 to $8.5 million, an increase of $1.1 million. This increase is a result of additional fixed assets in relation to the expansion of the Company’s data center. The Company anticipates recording additional fixed assets in the fourth quarter.

In June 2003, the Company purchased bank-owned life insurance ("BOLI") totaling $6.0 million. The BOLI yields an average rate of 4.90% and was purchased through two different insurance companies. BOLI provides the Company with tax-free income which is being utilized by the Company to offset the rising cost of employee benefits. BOLI also provides the Company with additional life insurance coverage for its key employees.

Total deposits of $275.5 million at September 30, 2003 represented an increase of $4.2 million or 1.6% from $271.3 million at December 31, 2002. Interest-bearing demand deposits had the largest increase at $8.5 million, followed by noninterest-bearing demand with an increase of $7.7 million. All other deposit accounts decreased from December 31, 2002. The most significant decrease within deposit products was time deposits which decreased $9.0 million from December 31, 2002. This decrease was due to consumer preference resulting from the economic decline and low interest rate environment as customers moved funds from time deposits to the more liquid deposit products described above, while awaiting an increase in the interest rates and equities markets. The decrease in time deposits was followed by decreases in savings and money markets of $1.7 million and $1.2 million, respectively.

Short term borrowings increased $3.9 million from December 31, 2003 to $6.7 million. This increase is due to an increase in short term repurchase agreements.

At September 30, 2003, the Company serviced approximately $88.9 million in sold fixed rate mortgages. Sales of fixed rate mortgages for the nine month period ended September 30, 2003 totaled $40.2 million with net gains of $1,242,000. Although management anticipates future sales of fixed rate mortgages, the extent to which the Company participates in the secondary market will be dependent upon demand for fixed rate mortgages in the market place, liquidity needs of the Company and interest rate risk exposure. Management will continue to obtain the necessary documentation to allow loans to be sold in the secondary market, so that if liquidity or market conditions dictate, management will be able to respond to these conditions.

As the above table illustrates, the Company exceeds both the minimum and well-capitalized regulatory capital requirements at September 30, 2003. The Bank’s regulatory capital amounts, as of the report date, did not differ significantly from that of the Company.

On October 18, 2002, the Company announced that its subsidiary bank had entered into an agreement with the Bank’s primary regulator, the Office of the Comptroller of the Currency ("OCC"). The agreement is designed to evaluate and enhance certain areas of the Bank's operations, including management, credit administration, audit, information technology and regulatory compliance. There are no stipulations that limit or restrict the Bank's ability to pay dividends or require the Bank to increase its capital position. Management is committed to addressing the concerns identified within the agreement and is working diligently to implement the suggestions in a timely and effective manner. Exclusive of additional personnel expenses, exam related expenditures were approximately $278,000, of which $227,000 were recorded in 2002. The Company anticipates incurring additional operating expenses in connection with complying with the agreement throughout 2003. Potentially impacted areas include: staffing levels, legal and consulting fees and higher deposit insurance premiums.

A copy of the agreement was included as an exhibit to a Form 8-K filed by the Company on October 18, 2002.

The principal functions of the Company’s asset/liability management program are to provide adequate liquidity and to monitor interest rate sensitivity. Liquidity represents the ability to meet the cash flow requirements of both depositors and customers requesting bank credit. Asset liquidity is provided by repayments and the management of maturity distributions for loans and securities. An important aspect of asset liquidity lies in maintaining adequate levels of adjustable rate, short term, or relatively risk free interest earning assets. Management evaluates the Company’s liquidity position over 30 day, 60 day, and 90+ day time horizons. The analysis not only identifies liquidity within the balance sheet, but off balance sheet as well. It identifies anticipated sources and uses of funds as well as potential sources and uses. Anticipated needs include liquidity for credit demand, commitments to purchase assets, and anticipated deposit decreases. Anticipated sources include cash (net of reserve requirements), maturing investment securities, daily fed funds sold, anticipated deposit increases, and the repayment of loans and mortgage backed securities. Potential uses include unfunded loan commitments available on lines of credit. Potential sources include borrowing capacity available to the Company through the Federal Home Loan Bank ("FHLB"). At September 30, 2003, for the 30-day horizon, the Company had a net anticipated funding position of 3.4% of total assets. This ratio was 1.3% at December 31, 2002. Based on current conditions, management views this ratio to be at an adequate level.

Management also monitors its liquidity by the loans to deposits ratio. The gross loans (including loans held for sale) to deposits ratio was 82.4% at September 30, 2003 as compared to 86.1% at December 31, 2002 and 83.0% at September 30, 2002.

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The Company's liquidity plan allows for the use of long-term advances or short-term lines of credit with the FHLB as a source of funds. Borrowing from the FHLB not only provides a source of liquidity for the Company, but also serves as a tool to reduce interest rate risk. The Company may structure borrowings from FHLB to match those of customer credit requests, and therefore, lock in interest rate spreads over the lives of the loans. At September 30, 2003, the Company continued to have three such matched funding loans outstanding totaling $121,000.

The Company continues to also have short-term borrowing availability through FHLB "RepoPlus" advances. "RepoPlus" advances are short-term borrowings maturing within one year, bearing a fixed rate of interest and subject to prepayment penalty. At September 30, 2003 and 2002, the Company had no "RepoPlus" advances outstanding. The Company’s remaining borrowing capacity with FHLB was $118.1 million at September 30, 2003.

In March 2001, the Company entered into a Convertible Select with a Strike Rate advance with the FHLB for general liquidity purposes in the amount of $30.0 million at a rate of 5.11%. The 10year/1year advance has a 10 year maturity with the opportunity to reprice quarterly, if the strike rate is attained, beginning 1 year from the original advance date. The strike rate of 7.50% is tied to the 3-month London Inter-bank Offering Rate ("LIBOR"); accordingly, the advance will maintain at its fixed rate unless 3-month LIBOR rises to 7.50%. At September 30, 2003 the 3-month LIBOR was 1.16%. Interest is paid quarterly to the FHLB at a rate of 5.11%. The advance will mature in March 2011 and is subject to prepayment penalties.

In addition to borrowing from the FHLB as a source for liquidity, as mentioned earlier, the Company also continued activity in the secondary mortgage market. Specifically, the Company sold fixed rate residential real estate mortgages to Freddie Mac. The sales to Freddie Mac not only provide an opportunity for the Company to remain competitive in the market place by allowing it to offer a fixed rate mortgage product, but also provide an additional source of liquidity. Loan sales on the secondary market also provide management an additional tool to use in managing interest rate risk exposure within the balance sheet. The Company continues to service all loans sold to Freddie Mac.

The Statement of Cash Flows for the nine months ended September 30, 2003 indicated an increase in cash and cash equivalents of $6.4 million. Cash was provided from proceeds from sales of mortgage loans and student loans of $41.0 million and $6.7 million, respectively, proceeds from sales, maturities, and repayments of available for sale securities of $35.1 million, and a net increase in total deposits of $4.2 million. Cash was used during the period primarily for the origination of loans held for sale of $44.9 million, the purchase of available for sale investments of $37.4 million, and the purchase of bank owned life insurance of $6.0 million. Cash dividends paid during the nine month period ended September 30, 2003 totaled $1,235,000. The Company also repurchased 49,000 shares of its common stock during the first nine months of 2003 for $771,000. Cash and cash equivalents totaled $19.9 million at September 30, 2003, an increase of $6.4 million from $13.5 million at December 31, 2002.

Management is not aware of any conditions, including any regulatory recommendations or requirements, which would adversely affect its liquidity or ability to meet its funding needs in the normal course of business.

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Schedule of Non-performing Assets
The following schedule presents the non-performing assets for the last five quarters:

Allowance for Loan Losses
The allowance for loan losses at September 30, 2003 totaled $3,456,000 or 1.52% of total gross loans (including loans held for sale) as compared to $3,110,000 or 1.33% at December 31, 2002. Provisions for loan losses were $1,126,000 and $761,000 for the nine months ended September 30, 2003 and 2002.

In determining the level at which the allowance for loan losses should be maintained, management relies on in-house quarterly reviews of significant loans and commitments outstanding, including a continuing review of problem or non-performing loans and overall portfolio quality. Commercial and commercial real estate loans are risk-rated by the credit administration department, the special asset committee and the loan review committee. Consumer and residential real estate loans are generally reviewed in the aggregate due to their relative smaller dollar size and homogeneous nature. Specific provision and allowance allocations are made for risk-rated loans that have gone before the loan review committee. These allocations are based upon specific borrower data, such as non-performance, delinquency, financial performance, capacity to repay, and collateral valuation. Non-account specific allocations are made for all remaining loans within the portfolio based on recent charge-off history, other known trends and expected losses. In addition, allocations are made for qualitative factors such as changes in the local, regional and national economies, industry trends, loan growth, and loan administration. A quarterly report and recommendation is presented to and approved by the Board of Directors.

Based on this analysis management's review of updated financial information provided by the borrowers

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indicating deterioration in the financial condition of certain borrowers due to the current economic environment, Management determined to lower the risk ratings on approximately 5% of the commercial and commercial real estate loans reviewed for the period ended September 30, 2003. The risk-rating changes in the third quarter resulted in increased provision expense of $636,000 and an increase in non-performing loans for the quarters presented in the table above.

Although, management believes the allowance is adequate to cover probable losses inherent within the loan portfolio, future adjustments may be necessary if economic conditions differ substantially from the economic assumptions used in making its determinations. In addition, no assurances can be made concerning the future financial condition of borrowers, the deterioration of which would require additional provisions in subsequent periods.

Non-accrual/Impaired Loans
A loan may be classified as non-accrual if, in the opinion of management, doubts as to the collectibility of the account arise. In addition, commercial, financial and agricultural loans are classified as non-accrual when the loans become 90 days or more past due, and all other loans 120 days or more past due. At the time the account is placed on non-accrual status, all previously accrued interest is charged against current earnings. At the time the accrual of interest is discontinued, future income is recognized only when cash is received depending on management’s assessment of the collectibility of principal. At September 30, 2003, the Company had nonaccrual loans of $3,977,000.

A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect all principal and interest amounts due according to the contractual terms of the loan agreement. Included in the non-accrual loans at September 30, 2003 were impaired loans totaling $3.2 million. The average balance in 2003 of impaired loans was $3.2 million. Impaired loans had a related allowance allocation of $794,000 and income recognized in 2003 for impaired loans totaled $75,000.

Two borrowers represent approximately $1.5 million of total impaired loans:

• The largest of these borrowers has several credits totaling $794,000 which are secured by commercial property. These credits were classified as impaired and placed in non-accrual status in the third quarter of 2003 due to the deteriorating financial condition and subsequent bankruptcy filing of the borrower.
  
• The second largest borrower continues to be a $700,000 participated loan for a dairy operation. The loan was cross-collateralized with cattle, feed, and real estate, including facilities. In 1999, the Bank recorded a $300,000 charge off pertaining to the cattle portion of the loan. The borrower subsequently filed for bankruptcy relief, and the Company continues to pursue foreclosure proceedings on the real estate portion of the loan through the bankruptcy court. As a result of collateral valuations subsequent to the original charge off, the Company has recorded charge offs of $100,000, $190,000, and $101,000 in 2000, 2001, and 2002, respectively, resulting principally from valuations on the remaining feed stored on the property. Management will continue its collateral valuations until final resolution of the matter, which may result in additional charge-offs.

Management does not consider any of the remaining non-performing loans to pose any further significant risk to the capital position or future earnings of the Company.

Management believes none of the non-performing assets, including other real estate owned, at September 30, 2003, pose any significant risk to the operations, liquidity or capital position of the Company.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk for the Company is comprised primarily from interest rate risk exposure and liquidity risk. Since virtually all of the interest-earning assets and paying liabilities are at the Bank, virtually all of the interest rate risk and liquidity risk lies at the Bank level. The Bank is not subject to currency exchange risk or commodity price risk, and has no trading portfolio, and therefore, is not subject to any trading risk. In addition, the Bank does not participate in hedging transactions such as interest rate swaps and caps. Changes in interest rates will impact both income and expense recorded and also the market value of long-term interest-earning assets. Interest rate risk and liquidity risk management is performed at the Bank level. Although the Bank has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the immediate trade area.

One of the principal functions of the Company's asset/liability management program is to monitor the level to which the balance sheet is subject to interest rate risk. The goal of the asset/liability program is to manage the relationship between interest rate sensitive assets and liabilities, thereby minimizing the fluctuations in the net interest margin, which achieves consistent growth of net interest income during periods of changing interest rates.

Interest rate sensitivity is the result of differences in the amounts and repricing dates of a bank's rate sensitive assets and rate sensitive liabilities. These differences, or interest rate repricing "gap", provide an indication of the extent that the Company's net interest income is affected by future changes in interest rates. During a period of rising interest rates, a positive gap, a position of more rate sensitive assets than rate sensitive liabilities, is desired. During a falling interest rate environment, a negative gap is desired, that is, a position in which rate sensitive liabilities exceed rate sensitive assets.

At September 30, 2003, the Company had a cumulative negative gap of $32.5 million at the one-year horizon. The gap analysis indicates that if interest rates were to rise 100 basis points (1.00%), the Company's net interest income would decline at the one-year horizon because the Company's rate sensitive liabilities would reprice faster than rate sensitive assets. Conversely, if rates were to fall 100 basis points, the Company would earn more in net interest income. However, not all assets and liabilities with similar maturities and repricing opportunities will reprice at the same time or to the same degree. The pricing on all deposit products, for example, is determined by management, and therefore can be controlled as to the extent and timing of repricing. As a result, the Company’s gap position does not necessarily predict the impact on interest income given a change in interest rate levels.

Management also manages interest rate risk with the use of simulation modeling which measures the sensitivity of future net interest income as a result of changes in interest rates. The analysis is based on repricing opportunities for variable rate assets and liabilities and upon contractual maturities of fixed rate instruments.

The simulation also calculates net interest income based upon rate increases or decreases of + or- 300 basis points (or 3.00%) in 100 basis point (or 1.00%) increments. The analysis reprices the balance sheet and forecasts future cash flows over a one-year horizon at the new interest rate levels. The cash flows are then totaled to calculate net interest income. Assumptions are made for loan and investment pre-payment speeds and are incorporated into the simulation as well. Loan and investment pre-payment speeds will increase as interest rates decrease and slow as interest rates rise. The current analysis indicates that, given a 300 basis point overnight decrease in interest rates, the Company would experience a potential $2,382,000 or 20.0% decline in net interest income. If rates were to increase 300 basis points, the analysis indicates that the Company’s net interest income would increase $470,000 or 4.0%. It is important to note, however, that this exercise would be of a worst-case scenario. It would be more likely to have incremental changes in interest rates, rather than a single significant increase or decrease. When management believes interest rate movements will occur, it can restructure the balance sheet and thereby the ratio of rate sensitive assets to rate sensitive liabilities, which in turn will affect the net interest income. It is important to note; however, that in gap analysis and simulation modeling not all assets and liabilities with similar maturities and repricing opportunities will reprice at the same time or to the same degree and therefore, could effect forecasted results.

Much of the Company's deposits have the ability to reprice immediately; however, deposit rates are not tied to an external index. As a result, although changing market interest rates impact repricing, the Company retains

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much of the control over repricing by determining itself the extent and timing of repricing of deposit products. In addition, the Company maintains a significant portion of its investment portfolio as available for sale securities and also has a significant variable rate loan portfolio, which is used to offset rate sensitive liabilities.

Changes in market interest rates can also affect the Company's liquidity position through the impact rate changes may have on the market value of the available for sale portion of the investment portfolio. Increases in market rates can adversely impact the market values and therefore, make it more difficult for the Bank to sell available for sale securities needed for general liquidity purposes without incurring a loss on the sale. This issue is addressed by the Company with the use of borrowings from the Federal Home Loan Bank ("FHLB") and the selling of fixed rate mortgages as a source of liquidity to the Company.

The Company's liquidity plan allows for the use of long-term advances or short-term lines of credit with the FHLB as a source of funds. Borrowing from FHLB not only provides a source of liquidity for the Company, but also serves as a tool to reduce interest risk as well. The Company may structure borrowings from FHLB to match those of customer credit requests, and therefore, lock in interest rate spreads over the lives of the loans.

In addition to borrowing from the FHLB as a source for liquidity, the Company also participates in the secondary mortgage market. Specifically, the Company sells fixed rate, residential real estate mortgages to Freddie Mac. The sales to Freddie Mac not only provide an opportunity for the Bank to remain competitive in the market place, by allowing it to offer a fixed rate mortgage product, but also provide an additional source of liquidity and an additional tool for management to limit interest rate risk exposure. The Bank continues to service all loans sold to Freddie Mac.

As of the quarter ended September 30, 2003, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company’s President and Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. There have been no significant changes in the Company’s internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected, and, thus, the Company's management cannot provide absolute assurance that the Company's disclosure controls will prevent all errors and all fraud.

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.

Slippery Rock Financial Corporation

            (Registrant)

Exhibit 31(i)

SECTION 302 CERTIFICATION

I, William C. Sonntag, President and Chief Executive Officer of Slippery Rock Financial Corporation (the "Company"), certify that:

Exhibit 31(ii)

SECTION 302 CERTIFICATION

I, Mark A. Volponi, Chief Financial Officer of Slippery Rock Financial Corporation (the "Company"), certify that:

Exhibit 32(i)

In connection with the Quarterly Report of Slippery Rock Financial Corporation (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William C. Sonntag, Chief Executive Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William C. Sonntag_______
Chief Executive Officer

November 21, 2003

Exhibit 32(ii)

In connection with the Quarterly Report of Slippery Rock Financial Corporation (the "Company") on Form 10-Q for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark A. Volponi, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mark A. Volponi_______
Chief Financial Officer

November 21, 2003

Exhibit 99.0

Board of Directors and Stockholders
Slippery Rock Financial Corporation

We have reviewed the accompanying consolidated balance sheet of Slippery Rock Financial Corporation and subsidiary as of September 30, 2003, and the related consolidated statements of income and comprehensive income for the three and nine-month periods ended September 30, 2003 and 2002, and the consolidated statement of cash flows for the nine-month periods ended September 30, 2003 and 2002, and the consolidated statement of changes in stockholders’ equity for the nine-month period ended September 30, 2003. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2002, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated January 31, 2003 we expressed an unqualified opinion on those consolidated financial statements.

/s/ S.R. Snodgrass, A.C.
Wexford, PA
November 20, 2003