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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

For the quarterly period ended          June 30, 2003

Commission File Number:          0-22374

Fidelity Southern Corporation

(404) 639-6500

Fidelity National Corporation

     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. [x] Yes [ ] 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

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

FIDELITY SOUTHERN CORPORATION

INDEX

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PART I — FINANCIAL INFORMATION
ITEM 1 – CONSOLIDATED FINANCIAL STATEMENTS

FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

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FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

See accompanying notes to consolidated financial statements.

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FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(UNAUDITED)

See accompanying notes to consolidated financial statements.

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FIDELITY SOUTHERN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying notes to consolidated financial statements.

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FIDELITY SOUTHERN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 2003

Note A — Basis of Presentation

     The accompanying unaudited consolidated financial statements of Fidelity Southern Corporation, formerly Fidelity National Corporation, and Subsidiaries (“Fidelity”) have been prepared in accordance with accounting principles generally accepted in the United States followed within the financial services industry for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and results of operations for the interim periods have been included. All such adjustments are normal recurring accruals. Operating results for the three month and six-month periods ended June 30, 2003, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These statements and the related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the consolidated financial statements and notes thereto included in Fidelity’s Annual Report on Form 10-K for the year ended December 31, 2002.

Note B — Shareholders’ Equity

     The Board of Governors of the Federal Reserve (the “FRB”) is the principal regulator of Fidelity Southern Corporation (“FSC”), a bank holding company. Fidelity Bank, formerly Fidelity National Bank, (the “Bank”) is a state chartered commercial bank subject to Federal and state statutes applicable to banks chartered under the banking laws of the State of Georgia, to members of the Federal Reserve System and to banks whose deposits are insured by the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is a wholly-owned subsidiary of Fidelity. The FRB, the FDIC and the Georgia Department of Banking and Finance (the “GDBF”) have established capital requirements as a function of their oversight of bank holding companies and state chartered banks. Each bank holding company and each bank must maintain the minimum capital ratios set forth in “Liquidity” and “Shareholders’ Equity”.

     The Bank is principally regulated by the GDBF and the FDIC. At periodic intervals, the GDBF and the FDIC (the Bank’s primary Federal regulator) examine and evaluate the financial condition, operations, policies and procedures of Georgia state chartered commercial banks, such as the Bank, as part of their legally prescribed oversight responsibilities.

     Note C – Regulatory Agreements

     Fidelity’s application to the GDBF for the conversion of the Bank’s national bank charter to a Georgia chartered commercial bank was approved on April 6, 2003. The Bank’s Board of Directors approved proceeding with the conversion. All required notices were made and the conversion took place as of the close of business on May 9, 2003, at which time the Bank became a Georgia chartered commercial bank, subject solely to the regulations of and supervision by the GDBF and the FDIC. At that time, the Bank’s name was changed from Fidelity National Bank to Fidelity Bank.

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     Pursuant to the approval of the GBDF, the Bank, within 90 days of the conversion, must submit for approval a: (1) loan policy; (b) investment policy; (c) internal audit program; (d) microcomputer policy; (e) conflict of interest policy on directors, officers and employees; (e) retirement policy for directors; (f) proposed by-laws; and, (g) three-year business plan. The Bank has such policies and business plan currently in effect. However, these documents will be reviewed and may be updated and revised before submission to the GDBF. The Bank also agreed, among other things, to maintain a leverage capital ratio of not less than 7.00% for the twenty-four month period following the conversion. The Bank’s leverage capital ratio as of June 30, 2003, was 9.03%. (See “Shareholders’ Equity”.)

     Agreement with the FRB

     On March 21, 2002, FNC’s Board of Directors adopted a resolution requested by the Federal Reserve Bank of Atlanta (“Board Resolution”). The Board Resolution, which related to the Federal Reserve Bank’s inspections of Fidelity as of December 31, 2000 and September 30, 2001, among other things, prohibited Fidelity from redeeming its common stock, paying dividends on its common stock or incurring debt without the prior approval of the FRB. With FRB authorization, the Board Resolution was lifted on June 11, 2003.

     Agreement with the OCC

     On September 5, 2001, the Bank entered into an agreement with the OCC stemming from the OCC’s examination as of December 31, 2000 (the “Letter Agreement”). The Bank’s Letter Agreement called for, among other things (i) the appointment of a Compliance Committee; (ii) total Bank capital of 11% of risk-weighted assets and a leverage ratio of 8% of adjusted total assets; (iii) three-year strategic and capital plans, revised as necessary; (iv) payment of Bank dividends only when there is no supervisory objection; (v) formalizing the process for reviewing new product offerings; (vi) the Board of Directors to review its current organization structure and management capabilities and strengthen management, as required; (vii) a review of loan policies, loan management information systems, and the internal loan review process especially related to criticized assets, nonaccrual loans and the allowance for loan losses; and (viii) revisions to the internal audit process. The Bank had substantially addressed the provisions of the Letter Agreement and was in compliance with most of its provisions. With the conversion of the Bank to a state charter, the Bank is no longer subject to the regulations of or supervision by the OCC, or subject to the Letter Agreement.

Note D – Discontinued Operations

     In December 2002, Fidelity sold its credit card line of business, including all of its credit card accounts and outstanding balances. In accordance with the terms of the sale, Fidelity provided interim servicing for a fee until the conversion to the purchaser’s system on May 15, 2003. In accordance with accounting principles generally accepted in the United States, the earnings and net liabilities of the credit card business were shown separately in the consolidated statements of income and the consolidated balance sheets, respectively, for all periods presented. Accordingly, all information in these consolidated financial statements reflected continuing operations only, unless otherwise noted.

     For purposes of calculating an imputed cost of funds during the 2002 periods in which credit card balances were outstanding, the average quarterly net assets of the credit card business were assumed to have been funded proportionately by all interest bearing liabilities of Fidelity at an interest rate equal to the quarterly cost of each applied to its average quarterly balance.

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Expenses included all direct costs of the credit card business and certain other allocated costs estimated to be eliminated as a result of the sale.

Note E – Contingencies

     Fidelity is a party to claims and lawsuits arising in the course of its normal business activities. Such claims and lawsuits included certain complaints filed against Fidelity’s securities broker subsidiary by former customers and others, seeking to assert claims regarding alleged breaches of duties to a former customer. These claims were settled through arbitration or agreements in 2002 and during the first half of 2003. The insurance receivable related to these claims was also settled during the second quarter of 2003.

     An additional provision of $125,000 was established as of March 31, 2003, for Securities and Exchange Commission (“SEC”) claims relating to an investigation by the SEC of the actions taken by the securities broker subsidiary which were the subject of the complaints.

     On April 15, 2003, the Bank began providing investment services to its customers to include brokerage and insurance services, mutual funds, annuities, and stocks and bonds through an affiliation with Raymond James Financial Services, an independent broker-dealer. As a result of this affiliation, on that date Fidelity’s brokerage subsidiary, Fidelity National Capital Investors, Inc. (“FNCI”), discontinued operations as a registered broker-dealer.

     Although the ultimate outcome of all claims and lawsuits outstanding as of June 30, 2003 cannot be ascertained at this time, it is the opinion of management that none of these matters when resolved will have a material adverse effect on Fidelity’s results of operations or financial condition.

Note F – Other Comprehensive Income

     Fidelity’s other comprehensive income item was related to unrealized gains and losses on investment securities classified as available-for-sale and reclassification adjustments for gains and losses on securities sales and calls included in net income. All other comprehensive income items were tax effected at a rate of 38%. For the second quarter of 2003, total other comprehensive income net of taxes was $158,000. For the first half of 2003, total other comprehensive loss net of taxes was $283,000. The total other comprehensive income net of taxes was $1,738,000 and $1,305,000, respectively, for the comparable periods of 2002.

Note G – Stock Based Compensation

     Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and No. 148 (see Note H), and has been determined as if Fidelity had accounted for its employee stock options under the fair value method of those statements. The effects of applying SFAS No. 123 and No. 148 for providing pro forma disclosures are not likely to be representative of the effects on reported net income for future periods.

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     The following schedule reflects the pro forma results, in thousands, for June 30, 2003 and 2002, respectively:

Note H – Variable Interest Entities

     FSC has three business trust subsidiaries, FNC Capital Trust 1 (“FNCCT1”), Fidelity National Capital Trust 1 (“FidNCT1”), and Fidelity Southern Statutory Trust 1 (“FSCST1”).

     During 2000 FNCCT1 and FidNCT1 and during 2003 FSCST1 issued common securities, all of which were purchased and are held by FSC, in the amount of $325,000, $309,000 and $464,000, respectively, and trust preferred securities in the amount of $10,500,000, $10,000,000 and $15,000,000, respectively, which were sold to investors, with thirty year maturities. The trust preferred securities are callable by the business trust subsidiaries on or after defined periods. The trust preferred security holders may only terminate the business trusts under defined circumstances such as default, dissolution or bankruptcy. The trust preferred security holders and other creditors, if any, of each business trust have no recourse to Fidelity and may only look to the assets of each business trust to satisfy all debts and obligations.

     The only assets of FNCCT1, FidNCT1 and FSCST1 are subordinated debentures of FSC, which were purchased with the proceeds from the issuance of the common and preferred securities. FNCCT1 and FidNCT1 have fixed interest rates of 10.875% and 11.045%, respectively, and FSCST1 has an initial interest rate of 4.16%, and reprices quarterly. FSC makes semi-annual interest payments on the subordinated debentures to FNCCT1 and FidNCT1 and quarterly interest payments to FSCST1, which use these payments to pay dividends on the common and preferred securities.

     These business trust subsidiaries are consolidated with FSC for financial reporting purposes. The trust preferred securities are eligible for regulatory Tier 1 capital, with a limit of 25% of the sum of all core capital elements. All amounts exceeding the 25% limit are includable in regulatory Tier 2 capital. (See “Shareholders’ Equity”.)

Note I — Recent Accounting Pronouncements

     In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including

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Indirect Guarantees of Indebtedness of Others,” to clarify accounting and disclosure requirements relating to a guarantor’s issuance of certain types of guarantees. FIN 45 requires entities to disclose additional information about certain guarantees, or groups of similar guarantees, even if the likelihood of the guarantor’s having to make any payments under the guarantee is remote. The disclosure provisions are effective for financial statements for fiscal years ended after December 15, 2002. For certain guarantees, the interpretation also requires that guarantors recognize a liability equal to the fair value of the guarantee upon its issuance. This initial recognition and measurement provision is to be applied only on a prospective basis to guarantees issued or modified after December 31, 2002. This recognition and measurement provision did not have a material impact on Fidelity’s financial condition or operating results.

     In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 addresses whether business enterprises must consolidate the financial statements of entities known as “variable interest entities”. A variable interest entity is defined by FIN 46 to be a business entity which has one or both of the following characteristics: (1) The equity investment at risk is not sufficient to permit the entity to finance its activities without additional support from other parties, which is provided through other interests that will absorb some or all of the expected losses of the entity; and (2) The equity investors lack one or more of the following essential characteristics of a controlling financial interest: (a) direct or indirect ability to make decisions about the entity’s activities through voting rights or similar rights, (b) the obligation to absorb the expected losses of the entity if they occur, which makes it possible for the entity to finance its activities, or (c) the right to receive the expected residual returns of the entity if they occur, which is the compensation for risk of absorbing expected losses. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Fidelity is currently assessing the impact of FIN 46, and has identified three entities that are considered Variable Interest Entities as discussed in Note H, all of which are currently consolidated into its results.

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following analysis reviews important factors affecting Fidelity’s financial condition at June 30, 2003, compared to December 31, 2002, and compares the results of operations for the three and six month periods ended June 30, 2003 and 2002. These comments should be read in conjunction with Fidelity’s consolidated financial statements and accompanying notes appearing in this report.

Assets

     Total assets were $1,047 million at June 30, 2003, compared to $1,066 million at December 31, 2002, a decrease of $19 million, or 1.8%. Loans increased $22 million or 2.9% to $777 million and loans held-for-sale increased $39 million or 111.1% to $75 million at June 30, 2003. The 7.8% increase in total loans to $852 million was a result of the growth in consumer loans including held-for-sale of $68 million or 17.1% to $466 million, the growth in commercial loans of $7 million or 9.4% to $81 million, the growth in construction loans of $1 million or 1.3% to $113 million, offset in part by a decline in mortgage loans including held-for-sale of $15 million or 7.3% to $192 million.

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     The increase in consumer loans was attributable to the management decision to retain additional indirect automobile loan balances in the consumer loan portfolio. The increase in the loans held-for-sale balance during the first half of 2003 was because no major loan sale occurred in the first half of 2003.

     The following schedule summarizes Fidelity ‘s total loans at June 30, 2003, and December 31, 2002 (dollars in thousands):

Asset Quality

     The following schedule summarizes Fidelity’s asset quality position at June 30, 2003, and December 31, 2002 (dollars in thousands):

     Management is not aware of any potential problem loans other than those disclosed in the table above, which includes all loans recommended for classification by regulators, which would have a material adverse impact on asset quality. (For additional information, see “Provision for Loan Losses.”)

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Deposits

     Total deposits at June 30, 2003, were $859 million compared to $906 million at December 31, 2002, a 5.2% decrease, as increases in interest-bearing demand and money market accounts and savings accounts were more than offset by decreases in noninterest-bearing demand deposit accounts and time deposit accounts. Interest-bearing demand and money market accounts increased $6 million or 4.1% to $164 million. Savings deposits increased $10 million or 9.0% to $115 million. Decreases in noninterest-bearing demand deposits totaled $7 million or 6.1% to $107 million. Time deposits $100,000 and over and other time deposits at June 30, 2003, totaled $472 million compared to $529 million at December 31, 2002, a decrease of $57 million or 10.6%. The program to redeploy the proceeds from the credit card sale included the decision to reduce the balances in low-yielding, short-term investments and reduce higher costing time deposits, particularly those balances related to maturing accounts with no other Fidelity relationships.

Other Borrowings

     Federal Home Loan Bank (“FHLB”) short-term borrowings totaled $24 million at June 30, 2003, consisting of a $10 million advance maturing March 15, 2004, and a $14 million advance maturing April 12, 2004. These borrowings were reclassified from long-term debt during the first half of 2003. Other short-term borrowings increased $30 million or 175.1% to $48 million at June 30, 2003, compared to other short-term borrowings at December 31, 2002, primarily as a result of executing a 30-day term repurchase agreement of $14 million for short-term liquidity needs and the reclassification of the 8.50% Subordinated Notes to short-term borrowings. Other short-term borrowings consisted of overnight and term repurchase agreements and the $15 million in 8.50% Subordinated Notes with a stated maturity of January 31, 2006, which will be redeemed at par on July 28, 2003, as a result of the notice of redemption given June 28, 2003.

Trust Preferred Securities

     Trust preferred securities totaled $35.5 million and $20.5 million at June 30, 2003, and December 31, 2002, respectively. The increase of $15.0 million in trust preferred securities was the result of the issuance of $15 million in floating rate trust preferred securities on June 26, 2003, with an initial rate of 4.16%. These securities reprice quarterly. The proceeds from this issuance will be used to retire the 8.50% Subordinated Notes in July 2003. Trust preferred securities are included in regulatory Tier 1 capital to the extent permitted by regulation, with the remainder included in regulatory Tier 2 capital.

Liquidity

     Market and public confidence in the financial strength of Fidelity and financial institutions in general will largely determine Fidelity’s access to appropriate levels of liquidity. This confidence is significantly dependent on Fidelity’s ability to maintain sound asset credit quality and the ability to maintain appropriate levels of capital resources.

     Liquidity is defined as the ability of Fidelity to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. Management measures Fidelity’s liquidity position by giving consideration to both on-

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balance sheet and off-balance sheet sources of and demands for funds on a daily and weekly basis.

     Sources of liquidity include cash and cash equivalents, net of Federal requirements to maintain reserves against deposit liabilities; investment securities eligible for sale or pledging to secure borrowings from dealers and customers pursuant to securities sold under agreements to repurchase (“repurchase agreements”); loan repayments; loan sales; deposits and certain interest-sensitive deposits; a collateralized line of credit at the Federal Reserve Bank of Atlanta Discount Window; a collateralized line of credit from the FHLB of Atlanta; and borrowings under unsecured overnight Federal funds lines available from correspondent banks. In addition to interest rate-sensitive deposits, the Bank’s principal demand for liquidity is anticipated fundings under credit commitments to customers.

     Management seeks to maintain a stable net liquidity position while optimizing operating results, as reflected in net interest income, the net yield on earning assets and the cost of interest-bearing liabilities in particular. Key management meets regularly to review Fidelity’s current and projected net liquidity position and to review actions taken by management to achieve this liquidity objective.

     Fidelity has unused sources of liquidity in the form of unused Federal funds lines totaling $26 million, unpledged securities of $26 million, nationally sourced time deposits available through investment banking firms and additional FHLB and FRB lines of credit, subject to available qualifying collateral, at June 30, 2003.

Shareholders’ Equity

     Shareholders’ equity was $72 million at June 30, 2003, and $71 million at December 31, 2002. Shareholders’ equity as a percent of total assets was 6.9% at June 30, 2003, compared to 6.7% at December 31, 2002. At June 30, 2003, and December 31, 2002, Fidelity exceeded all capital ratios required by the FRB to be considered well capitalized, as reflected in the schedule below:

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     The table below sets forth the capital requirements for the Bank under FDIC regulations as well as the Bank’s capital ratios at June 30, 2003 and December 31, 2002, respectively:

     During the six month period ended June 30, 2003, Fidelity declared and paid dividends on its common stock of $0.10 per share totaling approximately $886,000.

     For additional information, including certain regulatory agreements, see Note B and Note C of the Notes to Consolidated Financial Statements.

Market Risk

     Fidelity’s primary risk exposures are interest rate risk and credit risk and, to a lesser extent, liquidity risk. Fidelity has little or no risk related to trading accounts, commodities or foreign exchange.

     Interest rate risk, which encompasses price risk, is the exposure of a banking organization’s financial condition and earnings ability to adverse movements in interest rates. Fidelity has analyzed the assumed market value risk and earnings risk inherent in its interest rate sensitive instruments related to interest-rate swings of 200 basis points and 100 basis points, both above and below current levels (rate shock analysis). A 100 basis points analysis is conducted primarily to assess the impact of a more realistic potential decline in interest rates, given current historically low market rates of interest. Earnings and fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. However, Fidelity believes that this analysis provides the most meaningful measures of interest rate risk position and trends. The latest analysis reflected the asset sensitivity of Fidelity over a six month time horizon and its liability sensitivity over a seven to twelve month time horizon. The analysis indicated that the effects of either an immediate and sustained increase or decrease in market rates of interest of 200 basis points or 100 basis points would not be material to Fidelity’s net present value or operating results over a one year period.

     The static gap analysis is a useful tool to measure interest rate sensitivity at a point in time and is utilized in developing the more critical rate shock analysis in assessing interest rate risk. The interest rate sensitivity structure within Fidelity’s balance sheet at June 30, 2003, reflects a net interest sensitivity liability gap of 2.38% when projecting forward one year. In the near term, defined as 90 days, Fidelity has a net interest sensitivity asset gap of 12.79%. When projecting forward six months, Fidelity has a net interest sensitivity asset gap of 5.70%. This information represents a general indication of repricing characteristics over time; however, the sensitivity of callable and prepayable securities and certain deposit products may vary during extreme swings in the interest rate cycle, resulting in different repayment or repricing speeds than those indicated in the static gap analysis. Since all interest rates and yields do not adjust at the

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same velocity, the interest rate sensitivity gap is only a general indicator of the potential effects of interest rate changes on net interest income.

     At June 30, 2003, the 1-90 day asset maturity and repricing total included $70 million of indirect automobile loans and originated residential mortgage loans classified as held-for-sale. Fidelity’s policy states that the cumulative net interest sensitivity gap at the six month and one year periods should not exceed 15% and 10%, respectively. As noted above, Fidelity interest sensitivity gap positions were within these parameters at June 30, 2003. Any interest rate risk associated with the cumulative gap positions noted above was mitigated because of the net interest sensitivity asset gap in the near term and the net interest sensitivity liability gap at one year.

Earnings

     Income from continuing operations for the quarter ended June 30, 2003, was $1.5 million compared to $.7 million for the same quarter of 2002, an 85.1% increase, or $.16 and $.09 basic and diluted earnings per share, respectively. Net income for the quarter ended June 30, 2003, was $1.7 million compared to net income of $1.3 million for the comparable quarter of 2002, an increase of 28.9%. Basic and diluted earnings were $.18 per share for the first quarter of 2003 compared to $.14 per share for the same period in 2002.

     Income from continuing operations for the first six months of 2003 was $2.3 million compared to $3.3 million for the first six months of 2002, a decline of 28.9%, or $.26 and $.37 basic and diluted earnings per share, respectively. The first six months of 2002 income from continuing operations included a one time net after tax gain of $2.3 million from the sale of the merchant processing business in March 2002. Net income for the six months ended June 30, 2003, was $2.4 million compared to net income of $4.2 million for the comparable period of 2002. Basic and diluted earnings were $.27 per share for the first six months of 2003 compared to $.47 per share for the same period in 2002. Net income for the first six months of 2002 was also significantly enhanced by the $2.3 million net after tax gain on the sale of the merchant processing business.

Net Interest Income

     Net interest income for the second quarter of 2003 was $8.2 million compared to $7.5 million for the same period in 2002, an increase of $.7 million or 9.2%. The average balance of interest earning assets increased $142 million or 16.9% to $984 million for the three months ended June 30, 2003, when compared to the same period in 2002. The yield on interest earning assets for the second quarter of 2003 was 5.90%, a decline of 83 basis points when compared to the yield on interest earning assets for the same period in 2002. The average balance of loans outstanding for the second quarter of 2003 increased $102 million or 13.8% to $839 million when compared to the same period in 2002. The yield on average loans outstanding for the period declined 118 basis points to 6.13% when compared to the same period in 2002 as a result of continuing declines in market rates of interest.

     The average balance of interest bearing liabilities increased $132 million or 18.4% to $849 million during the second quarter of 2003 and the rate on this average balance declined 78 basis points to 2.94% when compared to the same period in 2002. The 78 basis point decline in the cost of interest bearing liabilities was less than the 83 basis point decline in the yield on interest earning assets, resulting in a 21 basis point decline in the net interest margin to 3.35%. The net interest margin for the second quarter of 2003 was negatively impacted due to

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comparatively greater balances in lower-yielding investment securities and low-yielding overnight investment accounts.

     Net interest income for the first half of 2003 was $16.3 million compared to $14.2 million for the same period in 2002, an increase of $2.1 million or 14.6%. The average balance of interest earning assets increased $143 million or 17.0% to $984 million for the six months ended June 30, 2003, when compared to the same period in 2002. The yield on interest earning assets for the first half of 2003 was 5.96%, a decline of 82 basis points when compared to the yield on interest earning assets for the same period in 2002. The average balance of loans outstanding for the first half of 2003 increased $89 million or 12.1% to $824 million when compared to the same period in 2002. The yield on average loans outstanding for the period declined 69 basis points to 6.25% when compared to the same period in 2002 as a result of continuing declines in market rates of interest.

     The average balance of interest bearing liabilities increased $48 million or 6.0% to $849 million during the first half of 2003 and the rate on this average balance declined 94 basis points to 3.01% when compared to the same period in 2002. The 94 basis point decline in the cost of interest bearing liabilities was somewhat greater than the 82 basis point decline in the yield on interest earning assets, but there was a 5 basis point decline in the net interest margin to 3.35%. The net interest margin for the first half of 2003 was negatively impacted due to relatively large balances in low-yielding overnight investment accounts as the proceeds from the sale of the credit card line of business in December 2002 were redeployed during the first quarter of 2003 into higher-yielding loans and investment securities and utilized in part to reduce the cost of funds through the nonrenewal of maturing higher costing time deposits.

Provision for Loan Losses

     The allowance for loan losses is established through provisions charged to operations. Such provisions are based on management’s evaluation of the loan portfolio under current economic conditions, past loan and loss experience, adequacy of underlying collateral, and such other factors which, in management’s judgment, deserve recognition in estimating loan losses. An analysis is separately performed for each major loan category. Loans are charged off when, in the opinion of management, such loans are deemed to be uncollectible. Subsequent recoveries are added to the allowance. On a quarterly basis, Credit Administration performs a formal review to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses.

     Management believes the allowance for loan losses is adequate to provide for probable loan losses. The provision for loan losses for the second quarter and the first six months of 2003 was $800,000 and $1.8 million, respectively, compared to $937,000 and $2.2 million, respectively, for the same periods in 2002. The ratio of net charge-offs to average loans on an annualized basis for the six months ended June 30, 2003, increased to .35% compared to .31% for the same period in 2002. Net charge-offs for the second quarter and the first six months of 2003 were $754,000 and $1.3 million, respectively, compared to $477,000 and $1.1 million, respectively, for the same periods in 2002. The increase in the ratio of net charge-offs to average loans was primarily attributable to an increase in consumer loan charge-offs due to an increase in the losses on repossessed vehicles sold. The allowance for loan losses as a percentage of loans at June 30, 2003, was 1.31% compared to 1.28% at December 31, 2002, and .93% at June 30, 2002. This increase in the allowance for loan losses related primarily to certain commercial and construction loans adversely impacted by the 2001 recession and increasing consumer loan charge-offs.

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     The following schedule summarizes changes in the allowance for loan losses for the periods indicated (dollars in thousands):