UNIZAN FINANCIAL CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-13270

Unizan Financial Corp.
(Exact name of registrant as specified in its charter)


Ohio		34-1442295
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

220 Market Avenue South, Canton, Ohio 44702
(Address of principal executive offices) (Zip Code)

(330) 438-1118
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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


Class	Outstanding as of October 31, 2002

Common Stock, $1.00 Stated Value		22,081,409

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2:
	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS UNIZAN FINANCIAL CORP.
	Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 4: CONTROLS AND PROCEDURES DISCLOSURE
PART II — OTHER INFORMATION
Signatures
EX-10.AB Severance Agrmt for Roger L. Mann
EX-10.AC Amended Salary Agrmt for Roger L. Mann
EX-10.AD Severance Agrmt for James Pennetti
EX-10.AE Amended Salary Agrmt for James Pennetti
EX-10.AF Severance Agrmt for Scott Dodds
EX-10.AG Amended Salary Agrmt for Scott Dodds
EX-10.AH Severance Agrmt for James Nicholson
EX-10.AI Severance Agrmt for Ed Cohn
EX-10.AJ Severance Agrmt for an Officer
EX-10.AK Severance Agrmt for James Baemel
EX-10.AL Severance Agrmt for Gary McGlaughlin
EX-10.AM Severance Agrmt for Thomas Selock
EX-99.1 Certification of Financial Results
EX-99.2 Certification of Financial Results

INDEX
UNIZAN FINANCIAL CORP.


PART I. FINANCIAL INFORMATION				PAGE NO.

Item 1. Financial Statements









		Consolidated Balance Sheets			1









		Consolidated Statements of Income			2









		Consolidated Statements of Comprehensive Income			3









		Consolidated Statements of Cash Flows			4









		Notes to Consolidated Financial Statements			5-11









Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations					12-20









Item 3. Quantitative and Qualitative Disclosures About Market Risk					21-22









Item 4. Controls and Procedures Disclosure					22









PART II. OTHER INFORMATION









	Other Information				23









	Item 1. Legal Proceedings




	Item 2. Changes in Securities and Use of Proceeds




	Item 3. Defaults upon Senior Securities




	Item 4. Submission of Matters to a Vote of Security Holders




	Item 5. Other Information




	Item 6. Exhibits and Reports on Form 8-K




			(a) Exhibits on Item 601 of Regulation S-K









Signatures					24









Certifications					25-26

UNIZAN FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS

(In thousands except per share data)

September 30,

December 31,

2002

2001

ASSETS

Cash and cash equivalents

69,465

26,978

Federal Funds Sold

32,100

260

Interest bearing deposits with banks

646

Securities held-to-maturity, (Fair value:

$6,937 and $9,693, respectively)

6,638

9,421

Securities available-for-sale, at fair value

408,764

293,805

Federal Home Loan Bank stock, at cost

32,987

22,950

Loans originated and held for sale

22,717

10,455

Loans:

Commercial, financial and agricultural

233,747

105,590

Aircraft

133,680

—

Commercial real estate

592,865

432,840

Residential real estate

519,985

350,176

Consumer

415,963

140,431

Total loans

1,896,240

1,029,037

Less allowance for loan losses

(26,600

)

(10,610

)

Net loans

1,869,640

1,018,427

Premises and equipment, net

27,732

17,744

Goodwill

92,383

18,871

Other intangible assets

22,992

1,779

Accrued interest receivable and other assets

81,695

50,118

Total Assets

2,667,119

1,471,454

LIABILITIES

Deposits:

Noninterest bearing deposits

210,629

83,521

Interest bearing deposits

1,726,898

1,015,316

Total deposits

1,937,527

1,098,837

Short-term borrowings

66,476

1,000

Other borrowings

301,897

219,565

Accrued taxes, expenses and other liabilities

41,699

15,546

Company obligated mandatorily redeemable trust preferred

20,000

20,000

Total Liabilities

2,367,599

1,354,948

SHAREHOLDERS’ EQUITY

Common stock (2002 - $1.00 stated value, 100,000,000 shares authorized and 22,085,052 issued; 2001 - no par value, 20,000,000 shares authorized and 12,632,896 issued)

22,085

87,049

Paid-in capital

221,739

—

Retained earnings

57,997

49,820

Stock held by deferred compensation plan, 83,734 and 0 shares at cost

(1,349

)

—

Treasury stock, 3,487 and 1,052,834 shares at cost

(79

)

(17,991

)

Accumulated other comprehensive income

(873

)

(2,372

)

Total Shareholders’ Equity

299,520

116,506

Total Liabilities and Shareholders’ Equity

2,667,119

1,471,454

See Notes to the Consolidated Financial Statements

UNIZAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME


(In thousands except per share data)				Three Months Ended					Nine Months Ended
				September 30,					September 30,

				2002		2001			2002		2001

Interest income:




	Interest and fees on loans:




		Taxable		$	33,350	$	22,469		$	90,267	$	69,535




		Tax exempt			52		19			132		55




	Interest and dividends on securities Taxable				5,596		5,096			16,310		16,191




		Tax exempt			372		338			1,119		997




	Interest on bank deposits and federal funds sold				49		49			96		1,152

			Total interest income		39,419		27,971			107,924		87,930






Interest expense:




	Interest on deposits				11,545		12,101			32,934		39,935




	Interest on borrowings				5,468		4,272			15,529		13,906

			Total interest expense		17,013		16,373			48,463		53,841






Net interest income					22,406		11,598			59,461		34,089




Provision for loan losses					930		510			7,139		1,470

Net interest income after provision for loan losses					21,476		11,088			52,322		32,619









Other Income:




	Trust income				1,852		695			4,782		1,833




	Financial planning income				59		193			779		750




	Customer service fees				1,558		681			3,994		1,961




	Gains on loans originated for sale				1,736		872			3,578		2,469




	Security gains				—		68			—		263




	Derivative instruments and hedging activity income/(expense)				16		(27	)		152		(48	)




	Other operating income				1,724		942			5,140		2,948

		Total other income			6,945		3,424			18,425		10,176






Other expenses:




	Salaries, wages, pension and benefits				8,166		4,470			23,304		13,378




	Occupancy expense				846		493			2,351		1,482




	Furniture and equipment expense				599		265			1,468		850




	Taxes other than income taxes				273		261			1,796		759




	Goodwill amortization expense				123		280			277		841




	Other intangible amortization expense				751		172			1,691		614




	Impairment of goodwill				—		—			1,392		—




	Other operating expense				4,392		2,550			13,831		7,216

		Total other expenses			15,150		8,491			46,110		25,140

Income before income taxes					13,271		6,021			24,637		17,655




Provision for income taxes					4,275		1,971			7,886		5,795

	Net income			$	8,996	$	4,050		$	16,751	$	11,860

Earnings per share:




	Basic			$	0.41	$	0.35		$	0.86	$	1.02




	Diluted			$	0.40	$	0.35		$	0.83	$	1.01






Dividends per share				$	0.13	$	0.11		$	0.39	$	0.33






Weighted average shares outstanding:




	Basic				22,056,715		11,582,670			19,519,937		11,615,285




	Diluted				22,590,539		11,684,285			20,150,547		11,687,828

See Notes to the Consolidated Financial Statements

UNIZAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(In thousands)		Three Months Ended						Nine Months Ended
		September 30,						September 30,

		2002			2001			2002			2001

Net Income		$	8,996		$	4,050		$	16,751		$	11,860




Comprehensive income, net of tax




Unrealized gains/(losses) on derivatives			(1,346	)		(924	)		(1,503	)		(1,720	)




Unrealized gains/(losses) on securities:




Unrealized gains/(losses) arising during the period			1,531			1,449			3,002			2,876




Less: Reclassified adjustment for accumulated gains/(losses) included in net income			—			44			—			171

	Unrealized gains/(losses) on securities		1,531			1,493			3,002			3,047

Comprehensive income		$	9,181		$	4,619		$	18,250		$	13,187

See Notes to the Consolidated Financial Statements

UNIZAN FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS


				Nine Months Ended
(In thousands)				September 30,

				2002			2001

Cash flows from operating activities:




	Net income/(loss)			$	16,751		$	11,860




	Adjustments to reconcile net income to net cash from operating activities:




		Depreciation and amortization			3,019			3,462




		Provision for loan losses			7,139			1,470




		Net securities gains			—			(263	)




		Loans originated for resale			(147,299	)		(64,369	)




		Proceeds from sale of loan originations			135,037			63,000




		Gains from sale of loans			(3,578	)		(2,469	)




	Changes in:




		Interest receivable			(348	)		792




		Interest payable			169			(1,790	)




		Other assets and liabilities, net			5,591			(2,534	)




		FHLB stock dividend			(1,125	)		(1,171	)

			Net cash from operating activities		15,356			7,988






Cash flows from investing activities:




	Net change in interest bearing deposits with banks				640			—




	Net increase in funds sold				(31,840	)		30,120




	Proceeds from maturities of securities held to maturity				7,240			2,958




	Proceeds from maturities of securities available for sale				155,028			58,633




	Purchases of securities available for sale				(153,687	)		(39,631	)




	Net decrease in loans made to customers				30,915			16,408




	Net cash received in merger				46,492			—




	Net increase in bank owned life insurance				(1,747	)		—




	Purchases of premises and equipment, net				(2,691	)		(1,160	)

			Net cash from investing activities		50,350			67,328






Cash flows from financing activities:




	Net change in deposits				36,230			(14,895	)




	Cash dividends paid, net of shares issued through dividend reinvestment				(8,574	)		(3,818	)




	Issuance/(purchase) of stock, net				(171	)		(986	)




	Net change in stock held in deferred compensation plan				(752	)		—




	Net change in Federal Home Loan Bank advances and other borrowings				(49,952	)		(58,700	)

			Net cash from financing activities		(23,219	)		(78,399	)

Net change in cash and cash equivalents					42,487			(3,083	)









Cash and cash equivalents at beginning of year					26,978			32,511






Cash and cash equivalents at end of period				$	69,465		$	29,428






Supplemental cash flow disclosures:




	Income taxes paid			$	9,700		$	3,700




	Interest paid			$	48,283		$	57,262









	Merger with UNB Corp. through issuance of common stock				174,581

See the Notes to the Consolidated Financial Statements

UNIZAN FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2002 (Unaudited)
(In thousands, except per share data)

The consolidated financial statements for interim periods are unaudited; however, in the opinion of management of Unizan Financial Corp. (“Company”), the accompanying consolidated financial statements contain all material adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and results of operations and cash flows for the periods presented. The unaudited financial statements are presented in accordance with the requirements of Form 10-Q and do not include all disclosures normally required by accounting principles generally accepted in the United States of America. Reference should be made to UNB Corp.’s consolidated financial statements and notes thereto included in the annual report on Form 10-K for the year ended December 31, 2001 and BancFirst Ohio Corp.’s audited financial statements included as an exhibit to Company’s March 31, 2002 Form 10-Q for additional disclosures, including a summary of the Company’s accounting policies. The results of operations for the three month and nine month periods ended September 30, 2002 are not necessarily indicative of the results to be expected for the full year.

1) BASIS OF PRESENTATION:

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. Unless otherwise indicated, dollars are in thousands except per share data.

2) NEW ACCOUNTING PRONOUNCEMENTS

The FASB issued Statement 147, “Acquisitions of Certain Financial Institutions,” which replaced certain paragraphs in Statement 72. When an acquisition involves more liabilities than assets, the “unidentified intangible asset” that resulted under Statement 72, now represents goodwill if the branch acquisition meets the definition of a business combination under EITF Issue 98-3. For prior acquisitions that are not business combinations, the unidentifiable intangible is not goodwill and must continue to be amortized. The new guidance is effective October 1, 2002. As of September 30, 2002, there was $962 of other intangible assets generated from branch purchase transactions that will continue to be amortized since these branch acquisitions do not qualify as a business combination as defined by EITF Issue 98-3 and thus cannot be reclassified as goodwill under FASB Statement 147.

3) MERGER

On March 7, 2002, the Company completed a merger between BancFirst Ohio Corp, and UNB Corp. In connection with the merger, UNB Corp. issued 1.325 shares of common stock in exchange for each share of BancFirst common stock. The purchase price was valued at $175 million and the value of the 11.6 million shares issued was based on the average price of UNB Corp. stock for three days before and two days after the terms of the merger were agreed to and announced. Cash was paid for any fractional shares.

The merger is being accounted for as a purchase of UNB Corp. Accordingly, UNB Corp.’s results of operations have been included from the date of the merger. The merger created a financial services holding company with total assets of $2.6 billion and deposits of $1.9 billion. As a result of the merger, management believes that the combination of the companies is a complementary strategic fit of the existing businesses and enables Unizan to compete more effectively with other financial institutions in the Company’s existing markets. In addition, the Company entered into the merger for the following reasons:

• expands market area and creates critical mass

• enhances ability to compete and broadens product range

• expected to be accretive to per share earnings

• increases liquidity for the sale of common stock

• provides an additional platform for further growth and improves cross selling opportunities

• provides opportunities for cost reductions through increased efficiencies.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the acquisition. During the third quarter 2002, goodwill and other liabilities were reduced by $1,495 for expenses that were accrued by UNB Corp. prior to the merger that will not be paid out. Unizan is in the process of obtaining

valuations of certain intangible assets; thus, the allocation of the purchase price is subject to refinement.


		at March 7, 2002

Cash and short-term investments		$	46,671




Investment securities			124,248




Loans, net			886,971




Goodwill			74,010




Core deposit intangible			21,493




Other assets			47,089

	Total assets acquired		1,200,482




Deposits			801,354




Other borrowed funds			199,566




Other liabilities			24,981

	Total liabilities assumed		1,025,901

Net assets acquired		$	174,581

		The core deposit intangible is subject to amortization on an accelerated basis over an estimated life of ten years. The goodwill will not be amortized, but will be evaluated for impairment on an annual basis. Because the merger was structured as a tax free exchange, none of the goodwill is expected to be deductible for tax purposes.

		The following table summarizes the pro-forma results of operations for the nine months ended September 30, 2002 and 2001 as if UNB Corp. had been acquired as of the beginning of such period:


	2002		2001

Net interest income	$	67,696	$	65,463




Net income		10,129		23,422




Basic earnings per share		0.46		1.06




Diluted earnings per share		0.45		1.05

The pro-forma results for the nine months ended September 30, 2002 include merger related expenses recognized by UNB Corp. prior to the merger.

4) COMPUTATION OF EARNINGS PER SHARE

The computation of earnings per share is as follows. All share and per share amounts have been adjusted to give effect to the exchange of one BancFirst share for 1.325 shares of UNB Corp. stock.


		Three Months Ended				Nine Months Ended
		September 30,				September 30,

		2002		2001		2002		2001

Actual weighted average common




	Shares outstanding		22,057		11,583		19,520		11,615




Dilutive common stock equivalents:




	Stock options		496		74		595		46




	Bonus shares — Company match		38		27		36		27

Weighted average common shares




	Outstanding adjusted for dilutive common




	Stock equivalents		22,591		11,684		20,151		11,688





Net income		$	8,996	$	4,050	$	16,751	$	11,860

Basic earnings per share		$	0.41	$	0.35	$	0.86	$	1.02

Diluted earnings per share		$	0.40	$	0.35	$	0.83	$	1.01

5) SECURITIES

The amortized cost and fair value of securities are as follows:


		September 30, 2002

		Amortized		Gross Unrealized		Gross Unrealized
		Cost		Gains		Losses			Fair Value

Securities available-for-sale:




U.S. Treasury securities		$	1,103	$	25	$	—		$	1,128




Securities of other government agencies			19,071		4		(1	)		19,074




Obligations of states and political subdivisions			31,847		1,261		(47	)		33,061




Corporate obligations			57,910		1,102		(3,270	)		55,742




Mortgage-backed and related securities			275,321		6,022		(473	)		280,870




Other securities			20,241		13		(1,365	)		18,889

	Total securities available-for-sale	$	405,493	$	8,427	$	(5,156	)	$	408,764

Securities held-to-maturity:




Obligations of states and political subdivisions		$	600	$	22	$	—		$	622




Industrial revenue bonds			50		—		—			50




Mortgage-backed securities			5,988		290		(13	)		6,265

	Total securities held-to-maturity	$	6,638	$	312	$	(13	)	$	6,937


		December 31, 2001

		Amortized		Gross Unrealized		Gross Unrealized
		Cost		Gains		Losses			Fair Value

Securities available-for-sale:




U.S. Treasury securities		$	250	$	4	$	—		$	254




Securities of other government agencies			3,061		44		—			3,105




Obligations of states and political subdivisions			28,083		90		(743	)		27,430




Corporate obligations			61,416		241		(4,779	)		56,878




Mortgage-backed and related securities			188,603		4,499		(535	)		192,567




Other securities			13,683		12		(124	)		13,571

	Total securities available-for-sale	$	295,096	$	4,890	$	(6,181	)	$	293,805

Securities held-to-maturity:




Obligations of states and political subdivisions		$	857	$	22	$	—		$	879




Industrial revenue bonds			195		—		—			195




Mortgage-backed securities			8,369		259		(9	)		8,619

	Total securities held-to-maturity	$	9,421	$	281	$	(9	)	$	9,693

6) ALLOWANCE FOR LOAN LOSSES:

An analysis of activity in the allowance for loan losses is as follows:


		September 30,

		2002			2001

Balance at beginning of period		$	10,610		$	10,150




	Acquired allowance for loan losses		12,148			—




	Provision for loan losses		7,139			1,470




	Loans charged off		(4,877	)		(1,614	)




	Loan recoveries		1,580			273

Balance at end of period		$	26,600		$	10,279

Impaired loans are as follows:


	September 30, 2002

Impaired loans	$	56,247




Amount of allowance allocated		15,452

At December 31, 2001, the recorded investment in loans considered impaired was not material.

7) PREMISES AND EQUIPMENT:

Premises and equipment are summarized below:


	September 30, 2002		December 31, 2001

Land	$	4,833	$	2,896




Buildings and improvements		21,656		17,251




Furniture, fixture and equipment		19,673		13,586

		46,162		33,733




Less accumulated depreciation and amortization		18,430		15,989

Premises and equipment, net	$	27,732	$	17,744

Total depreciation expense was $1,004 and $468 for the three months ended September 30, 2002 and 2001, respectively and $2,535 and $1,546 for the nine months ended September 30, 2002 and 2001, respectively.

8) DEPOSITS:

A summary of deposits is as follows:


	September 30, 2002		December 31, 2001

Demand, non-interest bearing	$	210,629	$	83,521




Demand, interest bearing		254,283		166,853




Savings		423,292		171,430




Time, $100 and over		299,765		194,364




Time, other		749,558		482,669

	$	1,937,527	$	1,098,837

Time deposits, other includes brokered deposits of $17,808 and $7,395 at September 30, 2002 and December 31, 2001, respectively.

At September 30, 2002, stated maturities of time deposits are as follows:


2002		$	186,415




2003			376,710




2004			169,680




2005			209,694




2006			34,089




Thereafter			72,735

	Total	$	1,049,323

9) OTHER BORROWINGS:

Other borrowings consist of Federal Home Loan Bank borrowings, repurchase agreements, a line of credit borrowing arrangement and a capital lease.

Pursuant to collateral agreements with the FHLB, advances are secured by FHLB stock and qualifying first mortgage loans. At September 30, 2002, FHLB advances outstanding were comprised of the following:


Maturity	Interest Rate			Amount

Wiithin 1 year		6.38	%	$	17,180




1 year thru 2 years		5.76			40,221




2 years thru 3 years		5.58			41,326




3 years thru 4 years		5.18			36,475




4 years thru 5 years		4.93			22,100




More than 5 years		4.79			80,420

Total				$	237,722

FHLB advances must be secured by eligible collateral as specified by the FHLB. Accordingly, the Company has a blanket pledge of its first mortgage loan portfolio as collateral for the advances outstanding at September 30, 2002 with a required minimum ratio of collateral to advances of 150%. Also, the Company’s investment in FHLB stock of $32,987 at September 30, 2002 is pledged as collateral for outstanding advances. At September 30, 2002, the unused capacity of FHLB advance borrowings available to the Bank was approximately $69,524.

The Parent Company has an unsecured line of credit of $25 million with a national financial institution that is used for liquidity purposes and to facilitate additional investment in subsidiaries. The total outstanding balance at September 30, 2002 was $19 million. The interest on each draw is variable and is priced off the Federal Funds Rate plus 0.85% per annum and is paid quarterly.

At September 30, 2002, the Company had $45,000 in term repurchase agreements with Salomon Brothers, Inc. under which the Company sold mortgage-backed and related securities classified as available-for-sale with a fair value of $49,187 at September 30, 2002. The repurchase agreements had a weighted average maturity of 5.7 years at September 30, 2002. Also, such repurchase agreements are callable at the option of the counter-party. The securities are held at Salomon Brothers, Inc.

10) COMPANY OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED:

On October 18, 1999, the Company completed an offering of $20,000 aggregate liquidation amount of 9.875% Capital Securities, Series A, due 2029. These securities represent preferred beneficial interests in BFOH Capital Trust I, a special purpose trust formed for the purpose of the offering. The Trust’s obligations under the Capital Securities issued are fully and unconditionally guaranteed by the Company. The proceeds from the sale of the Capital Securities of the Trust, as well as the proceeds from the issuance of common securities to the Company, were utilized by the Trust to invest in $20,619 of 9.875% Junior Subordinated Debentures (the “Debentures”) of the Company. The Debentures are unsecured obligations and rank subordinate and junior to the right of payment to all indebtedness, liabilities and obligations of the Company. The Debentures represent the sole assets of the Trust. Interest on the Capital Securities is cumulative and payable semi-annually in arrears. The Company has the right to

optionally redeem the Debentures prior to the maturity date of October 15, 2029, on or after October 15, 2009 at 104.938% (declining annually thereafter to 100% after October 15, 2019) of the stated liquidation amount, plus accrued and unpaid distributions, if any, to the redemption date. Under the occurrence of certain events, specifically a Tax Event, Investment Company Event or Capital Treatment Event as more fully defined in the BFOH Capital Trust I Prospectus dated October 13, 1999, the Company may redeem in whole, but not in part, the Debentures prior to October 15, 2009. Proceeds from any redemption of the Debentures would cause a mandatory redemption of the Capital Securities and the common securities having an aggregate liquidation amount equal to the principal amount of the Debentures redeemed. The Company’s liability is fully recorded on the balance sheet at September 30, 2002.

The Trust is a wholly owned subsidiary of the Company, has no independent operations and has issued securities that contain a full and unconditional guarantee of its parent, the Company. The Trust is exempt from the reporting requirements of the Securities Exchange Act of 1934.

11) STOCK INCENTIVE PLAN:

In 1987, the shareholders approved a Stock Option and Performance Unit Plan reserving 764,040 shares of common stock, adjusted for stock dividends and splits, for the granting of options to executive officers and other senior management personnel. Options are not exercisable for at least four years from the date of grant and are not fully exercisable until six years from the date of grant. The duration of the exercise period is ten years. In 1997, the shareholders approved a Stock Option Plan reserving 1,000,000 shares of common stock, adjusted for stock dividends and splits, for the granting of options to directors and employees of the Corporation and its affiliates. The duration of the exercise period is ten years. In accordance with provisions of the Plan, upon a change in control, as defined in the Plan, all options outstanding at the time of such change in control fully vested and became 100% exercisable. The summary of stock option activity is as follows:


			Weighted Average		Range of Option
1987 Plan	Options Outstanding		Exercise Price		Price per Share

December 31, 2000		291,306	$	8.76	$	4.76	$	15.00




Less:




Stock options forfeited		6,400		15.00		15.00		15.00




Stock options exercised		18,896		7.18		4.76		11.00

December 31, 2001		266,010		8.72		6.00		15.00




Less:




Stock options exercised		17,552		9.96		7.25		11.00

September 30, 2002		248,458	$	8.63		6.00		15.00


			Weighted Average		Range of Option
1997 Plan	Options Outstanding		Exercise Price		Price per Share

December 31, 2000		429,235	$	16.61	$	12.69	$	20.25




Options granted		258,884		12.88		12.83		13.62




Less:




Stock options forfeited		18,878		19.54		15.69		20.25




Stock options exercised		17,739		13.32		12.69		15.69

December 31, 2001		651,502		15.13		12.69		20.25




Options granted		206,998		18.43		18.40		20.00




Less:




Stock options exercised		54,237		13.89		12.83		20.25




Stock options forfeited		2,323		19.09		18.40		20.00

September 30, 2002		801,940	$	16.06		12.69		20.25

The weighted average remaining option life for outstanding options issued under the 1987 Stock Option Plan is 1.6 years. The weighted average remaining option life for outstanding options issued under the 1997 Stock Option Plan is 7.6 years.

For options granted during 2002 and 2001, the weighted-average fair values at the grant dates are as follows:


		2002		2001

Nonqualified Stock Options-
Immediate Vesting
	Exercise Price	$	18.55	$	13.62




	Fair Value		2.16		2.29




Nonqualified Stock Options-




Delayed Vesting




	Exercise Price	$	18.40	$	12.83




	Fair Value		2.77		1.37

BancFirst Ohio Corp. had a 1997 Omnibus Stock Incentive Plan (the Plan), which provided for the granting of stock options and other stock related awards to key employees. Upon the completion of the merger, all outstanding options of BancFirst were converted to Unizan Financial Corp. and no additional options will be granted under the Plan. In accordance with provisions of the Plan, upon a change in control, as defined in the Plan, all options outstanding at the time of such change in control fully vested and became 100% exercisable. The duration of the exercise period is twenty years. All options granted were at a price that equaled or exceeded the market value of BancFirst Ohio Corp.’s common stock at the date of grant. The summary of stock option activity is as follows:


			Weighted Average				Weighted Average
	Options Outstanding		Exercise Price		Options Exercisable		Exercise Price

December 31, 2000		607,805	$	16.58		153,829	$	19.34

Options granted		271,002		17.63




Less:




Stock options forfeited		31,751		15.46

December 31, 2001		847,056	$	16.96		287,598	$	17.65

Less:




Stock options forfeited		47,674		19.87




Stock options exercised		127,456		16.18

September 30, 2002		671,926	$	17.06		671,926	$	17.06

The following table summarizes information about stock options outstanding at September 30, 2002:


			Average Remaining		Average Exercise
	Options		Contractual Life		Price – Options
Exercise Price Range	Outstanding		(Years)		Outstanding

$10.00 to $15.00		190,153		18.2	$	12.42




$15.01 to $19.00		340,825		18.4		17.75




$19.01 to $22.00		79,714		16.1		20.04




$22.01 to $25.00		61,234		16.3		23.72

Total		671,926		17.9	$	17.06

SFAS No. 123 requires pro forma disclosures for companies that do not adopt its fair value accounting method for stock-based employee compensation. Accordingly, for the nine months ended September 30, 2002, pro forma net income was $15,609, pro forma basic earnings per share was $1.78 and pro forma diluted earnings per share was $1.77. Compensation cost actually recognized for stock options was $0 for 2002 and 2001.

ITEM 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
UNIZAN FINANCIAL CORP.

For a comprehensive understanding of the Company’s financial condition and performance, this discussion should be considered in conjunction with the Company’s Consolidated Financial Statements, accompanying notes, and other information contained elsewhere herein.

This discussion contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involves risks and uncertainties. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included herein will prove to be accurate. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to: economic conditions (both generally and more specifically in the markets in which the Company and its Banking Subsidiary operate); competition for the Company’s customers from other providers of financial services; government legislation and regulation (which changes from time to time and over which the Company has no control); changes in interest rates; prepayments of loans and securities; material unforeseen changes in the liquidity, results of operations, or other financial position of the Company’s customers, all of which are difficult to predict and many of which are beyond the control of the Company.

Overview

Unizan Financial Corp. was formed as a result of the merger between BancFirst Ohio Corp. and UNB Corp. that was completed on March 7, 2002. This merger was accounted for under the purchase method of accounting for business combinations. Accordingly, the financial results include Unizan’s results since March 7, 2002, and BancFirst Ohio Corp.’s results prior to the merger. The historical numbers reported for comparison purposes reflect BancFirst Ohio Corp.’s results.

The reported results of the Company primarily reflect the operations of the Company’s bank subsidiary. The Company’s results of operations are dependent on a variety of factors, including the general interest rate environment, competitive conditions in the industry, governmental policies and regulations and conditions in the markets for financial assets. Like most financial institutions, the primary contributor to the Company’s income is net interest income, which is defined as the difference between the interest the Company earns on interest-earning assets, such as loans and securities, and the interest the Company pays on interest-bearing liabilities, such as deposits and borrowings. The Company’s operations are also affected by non-interest income, such as checking account and trust fees and gains from sales of loans. The Company’s principal operating expenses, aside from interest expense, consist of salaries and employee benefits, occupancy costs, and other general and administrative expenses.

Average Balances and Yields

The following table presents, for each of the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and percentage rates, and the net interest margin. Net interest margin is calculated by dividing net interest income on a fully tax equivalent basis (“FTE”) by total interest-earning assets. The net interest margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities. FTE income includes tax-exempt income, restated to a pre-tax equivalent, based on the statutory federal income tax rate. All average balances are daily average balances. Non-accruing loans are included in average loan balances.

Unizan Financial Corp.
Average Balance Sheet and Related Yields


		Three Months Ended September 30,

		2002								2001

		Average			Income/						Average			Income/
(dollars in thousands)		Balance			Expense		Rate (1)				Balance			Expense		Rate (1)

Interest-earning assets




Interest bearing deposits and federal funds sold		$	14,645		$	49		1.33	%			5,104		$	49		3.81	%




Securities			439,364			6,169		5.57				326,985			5,619		6.82




Total loans			1,914,457			33,422		6.93				1,074,788			22,503		8.31

	Total interest-earning assets (2)		2,368,466			39,640		6.64				1,406,877			28,171		7.94

Nonearning assets:




Cash and due from banks			52,893									24,598




Other nonearning assets			218,553									85,473




Allowance for loan losses			(26,686	)								(10,381	)

	Total assets	$	2,613,226								$	1,506,567

Interest bearing liabilities:




Demand deposits		$	255,692			848		1.32	%		$	152,449			1,051		2.74	%




Savings deposits			429,525			1,527		1.41				167,352			1,150		2.73




Time deposits			984,322			9,170		3.70				721,211			9,900		5.45




Other borrowings			425,782			5,468		5.10				263,680			4,272		6.43

	Total interest bearing liabilities		2,095,321			17,013		3.22				1,304,692			16,373		4.98

Noninterest bearing liabilities:




Demand deposits			182,245									71,914




Other liabilities			37,377									15,096




Shareholders’ equity			298,283									114,865

	Total liabilities and equity	$	2,613,226								$	1,506,567

Net interest income (FTE)					$	22,627								$	11,798

Net interest margin (3)								3.79	%								3.33	%

[Additional columns below]

[Continued from above table, first column(s) repeated]

Nine Months Ended September 30,

2002 2001

Average Income/ Average Income/

(dollars in thousands) Balance Expense Rate (1) Balance Expense Rate (1)

Interest-earning assets

Interest bearing deposits and federal funds sold
8,411 $ 96 1.53 % 31,493 $ 1,152 4.89 %

Securities
408,471 17,952 5.88 327,929 17,738 7.23

Total loans
1,694,674 90,449 7.14 1,085,038 69,628 8.58

Total interest-earning assets (2)
2,111,556 108,497 6.87 1,444,460 88,518 8.19

Nonearning assets:

Cash and due from banks
52,472 25,107

Other nonearning assets
191,562 85,483

Allowance for loan losses
(22,680 ) (10,284 )

Total assets
$ 2,332,910 $ 1,544,766

Interest bearing liabilities:

Demand deposits
$ 233,371 2,552 1.46 % $ 121,592 2,578 2.83 %

Savings deposits
374,912 4,227 1.51 167,478 3,714 2.96

Time deposits
893,480 26,155 3.91 765,092 33,643 5.88

Other borrowings
389,034 15,529 5.34 291,076 13,906 6.39

Total interest bearing liabilities
1,890,797 48,463 3.43 1,345,238 53,841 5.35

Noninterest bearing liabilities:

Demand deposits
155,489 72,160

Other liabilities
33,334 15,617

Shareholders’ equity
253,290 111,751

Total liabilities and equity
$ 2,332,910 $ 1,544,766

Net interest income (FTE)
$ 60,034 $ 34,677

Net interest margin (3)
3.80 % 3.21 %

(1)		Calculated on an annualized basis.




(2)		Interest income is computed on a fully tax equivalent (FTE) basis, using a tax rate of 35%.




(3)		The net interest margin represents net interest income as a percentage of average interest-earning assets.

Comparison of Operating Results For The Three Months Ended September 30, 2002 and 2001

Net Income. Net income for the third quarter was $8,996, or $.40 per diluted share. This compares with net income of $4,050, or $.35 per diluted share for the third quarter of 2001. The third quarter of 2002 results were impacted by the merger between BancFirst Ohio Corp. and UNB Corp. Since the transaction was accounted for as a purchase of UNB Corp. by BancFirst, the operating results include the operations of BancFirst for the entire year and only the operating results of UNB from March 8, 2002 through September 30, 2002. During the third quarter, net interest income increased by 93.2% and non-interest income increased by 102.8%, as compared to the same period in 2001. The net interest margin increased to 3.79% for the third quarter of 2002, compared to 3.33% for the same period in 2001. The improvement in the net interest margin was primarily from lower cost of funds due to the decline in market interest rates and due to a change in funding mix as a result of the merger. The Company’s return on average assets and return on average equity were 1.37% and 11.97%, respectively, in the third quarter of 2002, compared to 1.07% and 13.99%, respectively, for the third quarter of 2001.

Interest Income. Total interest income increased 40.9% to $39,419 for the three months ended September 30, 2002, compared to $27,971 for the third quarter of 2001. The increase was primarily related to the increase in average interest-earning assets added from the merger with UNB Corp. During the third quarter of 2002, the yield on interest-earning assets declined by 130 basis points from the same period in 2001. The Company’s yield on average loans was 6.93% for the three months ended September 30, 2002 and 8.31% for the comparable year ago period. Yields on the securities portfolio decreased from 6.82% during the third quarter of 2001 to 5.57% during the third quarter of 2002. The decrease in the yields on loans and securities resulted primarily from lower market rates throughout 2002.

Interest Expense. Total interest expense increased 3.9% to $17,013 for the three months ended September 30, 2002, compared to $16,373 for the three months ended September 30, 2001. The increase was primarily related to the increase in average interest-bearing liabilities added from the merger with UNB Corp. The Company’s cost of funds decreased to 3.22% in the three months ended September 30, 2002 compared to 4.98% in the same period of 2001. The decrease in cost of funds was primarily from decreased market rates combined with the maturing of higher rate certificates of deposit that are being renewed at lower current rates.

Provision for Loan Losses. The provision for loan losses was $930 for the three months ended September 30, 2002, compared to $510 in the third quarter of 2001. The increased provision in 2002 resulted primarily from the Company’s review of general economic conditions and uncertainties and an updated analysis of the Company’s loan portfolio. The provision for loan losses was considered sufficient by management for maintaining an adequate allowance for loan losses.

Non-Interest Income. Total non-interest income increased $3,521 for the three months ended September 30, 2002, compared to the same period a year ago. The following table sets forth the Company’s non-interest income for the periods indicated:


		Three Months Ended					Nine Months Ended
		September 30,					September 30,

		2002		2001			2002		2001

Trust and custodian fees		$	1,852	$	695		$	4,782	$	1,833




Customer service fees			1,558		681			3,994		1,961




Financial planning fees			59		193			779		750




Gains on sales of loans			1,736		872			3,578		2,469




Securities gains, net			—		68			—		263




Derivative instruments and hedging activity income/(expense)			16		(27	)		152		(48	)




Other			1,724		942			5,140		2,948

	Total	$	6,945	$	3,424		$	18,425	$	10,176

Trust and custodian fees increased by $1,157 to $1,852 in the third quarter of 2002 from $695 in the third quarter of 2001, and financial planning fees decreased to $59 in the third quarter of 2002 from $193 from the same period a year ago. The increase in trust fees was primarily related to the fee income added from the merger with UNB Corp. Financial planning fees declined due to the sale of Chornyak & Associates that was completed in July of 2002. Trust income and financial planning fees continued to be impacted by the stock markets’ decline as asset valuations decreased.

Customer service fees, representing service charges on deposits and fees for other banking services, increased

by $877 to $1,558 in the third quarter of 2002 from $681 in the third quarter of 2001. The increase was attributed to the merger with UNB Corp.

Gains on sales of loans totaled $1,736 for the three months ended September 30, 2002 compared to $872 for the three months ended September 30, 2001. During the third quarter of 2002, the Company sold $9.9 million of the guaranteed portion of its SBA and other government guaranteed loan originations in the secondary market compared to $9.7 million during the third quarter of 2001, realizing gains of $770 in 2002 and $611 in 2001. Also, in the third quarter of 2002, the Company recorded gains of $894 from the sales of residential loans and $72 from the sale of an aircraft loan compared with $261 and $0, respectively, in 2001. The start up of a Wholesale Mortgage Lending program in early 2002 contributed to the increase in fees in the third quarter of 2002. Residential loan sale activity has been at record levels in the third quarter of 2002 compared to the year ago period as a result of lower market rates. The trend of refinancing is expected to continue throughout the fourth quarter of 2002. Fees associated with the mortgage related business are expected to remain strong throughout 2002 and may return to normal levels as refinancing activity declines.

The Company intends to continue to place emphasis on its small business lending activities, including the evaluation of expansion into new markets. On October 1, 2002, the SBA implemented a $500,000 loan cap on SBA 7(a) loans. This cap represented a reduction from the prior limit of $1.33 million. This reduction resulted from the SBA beginning the fiscal year under a continuing budget resolution which imposed short term budget constraints upon the SBA. Management is monitoring this situation closely, and is hopeful that it will correct itself shortly due to the importance of small businesses to our economy. This situation, while not ideal, should have limited long-term impact to the Company’s government guaranteed lending program. The Company will continue to serve the needs of its small business clients through the United States Department of Agriculture Business and Industry Loan Program, the SBA’s Certified Development Corporation’s 504 Loan Program, and Supplemental Terrorist Activity Relief (STAR) loans.

During the third quarter of 2001, the Company sold approximately $6.9 million of securities, realizing gains of $68. The Company had no sales of securities during the third quarter of 2002.

Other income increased by $782 to $1,724 for the third quarter of 2002 from $942 in the third quarter of 2001. Within other operating income, income from bank owned life insurance increased by $327, merchant fee income increased by $326 and interchange income increased by $143. These increases were attributed to the merger with UNB Corp. This increase was partially offset by an impairment charge of $345 thousand on the mortgage servicing asset as the decline in interest rates and the corresponding acceleration in mortgage pre-payment speeds continued. Future impairment could be realized if pre-payment speeds increase beyond the assumption rates. If rates begin to rise and pre-payment activity slows, the value of the servicing rights should be positively impacted.

Non-Interest Expense. Total non-interest expense increased $6,659 to $15,150 in the three months ended September 30, 2002, compared to $8,491 in the three months ended September 30, 2001. The following table sets forth the Company’s non-interest expense for the periods indicated:


		Three Months Ended				Nine Months Ended
		September 30,				September 30,

		2002		2001		2002		2001

Salaries and employee benefits		$	8,166	$	4,470	$	23,304	$	13,378




Net occupancy expense			846		493		2,351		1,482




Furniture, fixtures and equipment			599		265		1,468		850




Taxes other than income taxes			273		261		1,796		759




Amortization of goodwill			123		280		277		841




Amortization of other intangibles			751		172		1,691		614




Impairment of goodwill			—		—		1,392		—




Other			4,392		2,550		13,831		7,216

	Total	$	15,150	$	8,491	$	46,110	$	25,140

Salaries and employee benefits increased to $8,166 and represented approximately 57.2% of total operating expenses (non-interest expense less amortization of intangibles) for the three months ended September 30, 2002 compared to 55.6% in the third quarter of 2001. The increase was attributed to the merger with UNB Corp.

Net occupancy expense increased to $846 in the third quarter of 2002 from $493 in the third quarter of 2002 primarily due to additional expenses attributed to facilities acquired from the merger with UNB Corp.

Furniture, fixtures and equipment expense increased to $599 in the third quarter of 2002 from $265 in the third

quarter of 2001 primarily due to depreciation expense attributed to fixed assets added by the merger with UNB Corp.

Taxes, other than income taxes, for the quarter ended September 30, 2002 were $273 compared with $261 in the third quarter 2001. This expense is anticipated to increase in 2003 when the Company files the franchise tax return based off of the new capital structure of the Company.

Amortization of goodwill and other intangible assets increased by $422 in the third quarter of 2002 compared to the year ago period. The increase was mainly attributed to the core deposit amortization related to the merger with UNB Corp. which was partially offset by the adoption of SFAS No. 142 on January 1, 2002.

Other non-interest expenses increased $1,842, to $4,392 during the third quarter of 2002 compared to $2,550 in the third quarter of 2001. The increase was attributed to the merger with UNB Corp. This increase was offset by a gain of $460 on the sale of other assets owned that were acquired from loan foreclosures.

Provision for Income Taxes. The Company’s provision for Federal income taxes was $4,275, or 32.2% of pretax income, for the three months ended September 30, 2002 compared to $1,971, or 32.7% of pretax income, for the same period in 2001. The effective tax rate for each period differed from the federal statutory rate principally as a result of tax-exempt income from obligations of states and political subdivisions, loans and earnings on bank owned life insurance.

Comparison of Operating Results For The Nine Months Ended September 30, 2002 and 2001

Net Income. Net income for the nine months ended September 30, 2002, was $16,751, or $.83 per diluted share compared to net income of $11,860, or $1.01 per diluted share for the same period in 2001. Year-to-date 2002 results were significantly impacted by $4,200 of one time merger related expenses and a provision for loan loss expense of $7,139. The 2002 results were also impacted by the merger between BancFirst Ohio Corp. and UNB Corp. Since the transaction was accounted for as a purchase of UNB Corp. by BancFirst, the operating results include the operations of BancFirst for the entire year and only the operating results of UNB from March 8, 2002 through September 30, 2002. During the first nine months of 2002, net interest income increased by 74.4% and non-interest income increased by 81.1%, as compared to the same period in 2001. For the nine month period ended September 30, 2002, non-interest expense, excluding one time merger related expenses and the impairment of goodwill, totaled $41,644, an increase of 65.7% from the same period a year ago. The net interest margin increased to 3.80% for the first nine months of 2002, compared to 3.21% for the same period in 2001. The improvement in the net interest margin was primarily from lower cost of funds due to the decline in market interest rates and due to a change in the funding mix as a result of the merger. The Company’s return on average assets and return on average equity were 0.71% and 6.79%, respectively, in 2002, compared to 1.03% and 14.19%, respectively, for the nine months ended September 30, 2001.

Interest Income. Total interest income increased 22.7% to $107,924 for the nine months ended September 30, 2002, compared to $87,930 for the same period in 2001. The increase was primarily related to the increase in average interest-earning assets added from the merger with UNB Corp. During 2002, the yield on interest-earning assets declined by 132 basis points from the same period in 2001. The Company’s yield on average loans was 7.14% for the nine months ended September 30, 2002 and 8.58% for the comparable year ago period. Yields on the securities portfolio decreased from 7.23% during the first nine months of 2001 to 5.88% during the same period in 2002. The decrease in the yields on loans and securities resulted primarily from lower market rates throughout 2002 and an increase in pre-payment speeds on mortgage-backed securities.

Interest Expense. Total interest expense decreased 10.0% to $48,463 for the nine months ended September 30, 2002, compared to $53,841 for the nine months ended September 30, 2001. Interest expense decreased due to a 192 basis point decrease in the Company’s cost of funds. The Company’s cost of funds decreased to 3.43% in the nine months ended September 30, 2002 compared to 5.35% in the same period of 2001. The decrease in cost of funds was primarily from decreased market rates combined with the maturity of higher yielding certificates of deposit that are being renewed at lower current rates.

Provision for Loan Losses. The provision for loan losses was $7,139 for the nine months ended September 30, 2002, compared to $1,470 in the same period in 2001. The increased provision in 2002 resulted primarily from the Company’s review of general economic conditions and uncertainties and a continual analysis of the Company’s loan portfolio. This led to an increase in specific allocations recognized based on deterioration in credit quality of specific credits and an increase in the non-specific allocation based on management’s analysis of current economic conditions. Also, it was management’s intention to reduce non-performing loans of the combined company which resulted in a reevaluation of expected losses as it works to cure non-performing assets quicker than previously anticipated. The provision for loan losses was considered sufficient by management for maintaining an adequate allowance for loan losses.

Non-Interest Income. Total non-interest income was $18,425 for the nine months ended September 30, 2002, compared to $10,176 for the nine months ended September 30, 2001.

Trust and custodian fees increased by $2,949 to $4,782 for the nine months ended September 30, 2002 from $1,833 in the same period in 2001, and financial planning fees increased to $779 for the nine months ended September 30, 2002 from $750 from the same period a year ago. The increase in trust and financial planning fees was primarily related to the fee income added from the merger with UNB Corp. Trust income and financial planning fees continued to be impacted by the stock market’s decline as asset valuations decreased.

Customer service fees, representing service charges on deposits and fees for other banking services, increased from $1,961 for the nine months ended September 30, 2001 to $3,994 for the same period in 2002. The increase was attributed to the merger with UNB Corp.

Gains on sales of loans totaled $3,578 for the nine months ended September 30, 2002 compared to $2,469 for the nine months ended September 30, 2001. During 2002, the Company sold $23.0 million of the guaranteed portion of its SBA and other government guaranteed loan originations in the secondary market compared to $24.8 million during the first nine months of 2001, realizing gains of $1,953 in 2002 and $1,849 in 2001. Also, the Company recorded gains of $1,553 from the sales of residential loans and $72 from the sale of aircraft loans during the first nine months of 2002 compared to $620 and $0, respectively, in 2001. Residential loan sale activity has been at record levels in the third quarter of 2002 compared to the year ago period as a result of lower market rates. The trend of refinancing is expected to continue throughout the fourth quarter of 2002. Fees associated with the mortgage related business are expected to remain strong throughout 2002 and may return to normal levels as refinancing activity declines.

Securities gains of $263 were realized during the nine months ended September 30, 2001 and the Company has had no sales of securities during 2002.

Other income increased by $2,192 to $5,140 for the nine months ended September 30, 2002 from $2,948 during the same period in 2001. Within other operating income, income from bank owned life insurance increased by $989, merchant fee income increased by $734 and interchange income increased by $301. Of the increase in bank owned life insurance, $291 was related to a death benefit recognized in 2002. The remaining increases were attributed to the merger with UNB Corp.

Non-Interest Expense. Total non-interest expense increased $20,970 to $46,110 for the nine months ended September 30, 2002, compared to $25,140 for the nine months ended September 30, 2001. Excluding one time merger related expenses and impairment of goodwill of $4,466, non-interest expense increased by $16,507 to $41,644 for the first nine months of 2002.

Salaries and employee benefits increased to $23,304 for the nine months ended September 30, 2002 compared to $13,378 for the same period of 2001. The increase includes $980 of severance and benefit plan expenses and the remaining increase is attributed to the merger with UNB Corp.

Net occupancy expense increased to $2,351 for the nine months ended September 30, 2002 from $1,482 in the same period of 2001 primarily due to additional expenses attributed to UNB Corp.

Furniture, fixtures and equipment expense increased to $1,468 for the nine months ended September 30, 2002 from $850 in the same period of 2001 primarily due to depreciation expense attributed to fixed assets added by the merger with UNB Corp.

Taxes, other than income taxes, for the nine months ended September 30, 2002 were $1,796 compared with $759 in the same period of 2001. The increase was due to the recognition of the full year of Ohio Franchise tax expense for First National Bank of Zanesville to correspond with the ending of that bank’s charter. A significant increase in this expense is not anticipated in 2003.

Amortization of goodwill and other intangible assets increased by $513 for the nine months ended September 30, 2002 compared to the year ago period. The increase was attributed to the core deposit amortization related to the merger with UNB Corp. which was partially offset by the adoption of SFAS No. 142 on January 1, 2002. Also, as part of SFAS No. 142, an expense of $1,392 was recognized for the impairment of goodwill associated with prior acquisitions.

Other non-interest expenses increased $6,615, to $13,831 during the nine months ended September 30, 2002

compared to $7,216 in the same period in 2001. Of this increase, $611 was related to losses on sales and write down of other real estate owned that were acquired through loan foreclosures. Also, the increase includes $1,318 of marketing, legal and other miscellaneous expenses related to the merger with UNB Corp. The remaining increase is attributed to the merger with UNB Corp.

Provision for Income Taxes. The Company’s provision for Federal income taxes was $7,886, or 32.0% of pretax income, for the nine months ended September 30, 2002 compared to $5,795, or 32.8% of pretax income, for the same period in 2001. The effective tax rate for each period differed from the federal statutory rate principally as a result of tax-exempt income from obligations of states and political subdivisions, non-taxable loans and earnings on bank-owned life insurance.

Asset Quality

Non-performing Assets. To maintain the loan’s portfolio level of credit risk at an appropriate level, management sets underwriting standards and internal lending limits and provides for proper diversification of the portfolio by placing constraints on the concentration of credits within the portfolio. In monitoring the level of credit risk within the loan portfolio, management utilizes a formal loan review process to monitor, review, and consider relevant factors in evaluating specific credits in determining the adequacy of the allowance for possible loan losses. The Company’s banking subsidiary formally documents its evaluation of the adequacy of the allowance for loan losses on a quarterly basis and the evaluation is reviewed and discussed with its board of directors.

Failure to receive principal and interest payments when due on any loan results in efforts to restore such loan to current status. Loans are classified as non-accrual when, in the opinion of management, full collection of principal and accrued interest is in doubt. Continued unsuccessful collection efforts generally lead to initiation of foreclosure or other legal proceedings. Property acquired by the Company as a result of foreclosure or by deed in lieu of foreclosure is classified as “other assets owned” until such time as it is sold or otherwise disposed of. The Company owned $2,124 of such property at September 30, 2002 compared to $1,029 at September 30, 2001.

Non-performing loans totaled $16,581, or 0.87% of total loans, at September 30, 2002, compared to $10,395, or 0.97% of total loans, at September 30, 2001. Non-performing assets totaled $18,705, or 0.99% of loans and other assets owned at September 30, 2002, compared to $12,424, or 1.06%, at September 30, 2001. Non-accrual loans were mainly comprised of $4,532 of residential mortgage loans, $3,834 of aircraft loans, $948 of commercial loans, $2,250 of commercial real estate loans and $2,644 of SBA and other government guaranteed loans, of which $1,562 is guaranteed by the government. The increase resulted primarily from delinquency trends in general. Management of the Company is not aware of any material amounts of loans outstanding, not disclosed in the tables below, for which there is significant uncertainty as to the ability of the borrower to comply with present payment terms. The following is an analysis of the composition of non-performing assets and restructured loans:


	September 30, 2002			September 30, 2001

Non-accrual	$	14,570		$	6,384




Accruing loans 90 days or more past due		2,011			4,011

Total non-performing loans		16,581			10,395




Other assets owned and other non-performing assets		2,124			2,029

Total non-performing assets	$	18,705		$	12,424

Restructured loans	$	2,725		$	2,843

Non-performing loans to total loans		0.87	%		0.97	%




Non-performing assets to total assets		0.70	%		0.83	%




Non-performing assets to total loans plus other assets owned		0.99	%		1.06	%

Restructured loans consist of one loan that was restructured in May 1999 and has been performing in accordance with its restructured terms since such time. The restructured loan is not included in non-performing assets.

As of September 30, 2002, impaired loans were $56,247 compared with $53,805 at June 30, 2002 and $28,844 at March 31, 2002. The increase in impaired loans from March 2002 was attributed to the downgrade of several commercial

loans after a complete review and analysis of the borrower’s primary source of repayment and documentation related to that source of repayment.

Allowance for Loan Losses. The Company records a provision necessary to maintain the allowance for loan losses at a level sufficient to provide for probable incurred credit losses. The provision is charged against earnings when it is established. An allowance for loan losses is established based on management’s best judgment, which involves a continuing review of prevailing national and local economic conditions, changes in the size and composition of the portfolio and review of individual problem credits. Growth of the loan portfolio, loss experience, economic conditions, delinquency levels, credit mix, and an evaluation of selected credits are factors that affect judgments concerning the adequacy of the allowance. Actual losses on loans are charged against the allowance.

The allowance for loan losses totaled $26.6 million at September 30, 2002, representing 1.40% of total loans, compared to $10.6 million at December 31, 2001, or 1.03% of total loans. Net charge-offs for the nine months ended September 30, 2002 were $3,297, compared to net charge-offs of $1,341 for the same period in 2001. The increase in net charge-offs for the 2002 period compared to 2001 is partially attributed to a weakening in economic conditions from the fourth quarter 2001 and write downs of impaired loans within the commercial and commercial real estate portfolios.

Charge-offs have been made in accordance with the Company’s standard policy and have occurred primarily in the commercial, commercial real estate and consumer loan portfolios.

The allowance for loan losses as a percentage of non-performing loans (“coverage ratio”) was 160.4% at September 30, 2002, compared to 98.9% at September 30, 2001. Although used as a general indicator, the coverage ratio is not a primary factor in the determination of the adequacy of the allowance by management, particularly given the extent to which the Company’s non-performing loans consist of single-family residential mortgage loans.

Comparison of September 30, 2002 and December 31, 2001 Financial Condition

Total assets were $2.67 billion at September 30, 2002, an increase of $1.20 billion from December 31, 2001. Total securities increased by $112.2 million to $415.4 million from December 31, 2001. Both of these increases were primarily due to the merger with UNB Corp. The Company’s general investment strategy is to manage the portfolio to include rate sensitive assets, matched against interest sensitive liabilities to reduce interest rate risk. In recognition of this strategy, as well as to provide a secondary source of liquidity to accommodate loan demand and possible deposit withdrawals, the Company has chosen to classify the majority of its securities as available-for-sale. At September 30, 2002, 98.4% of the total securities portfolio was classified as available-for-sale, while those securities that the Company intends to hold to maturity represented the remaining 1.6%. This compares to 96.9% and 3.1% classified as available-for-sale and held to maturity, respectively, at December 31, 2001.

Total loans increased $867.2 million to $1.90 billion at September 30, 2002. This increase was primarily due to the merger with UNB Corp.

Total deposits increased to $1.94 billion at September 30, 2002 from $1.10 billion at December 31, 2001. The increase was mainly due to the merger with UNB Corp. Also contributing to the increase in deposits, was an offering of long term Certificates of Deposits at slightly above market rates which brought in approximately $68 million in new deposits during the third quarter of 2002. Management wanted to lock in these rates as part of its balance sheet strategy to mitigate its exposure to possible increases in rates. While this will put pressure on the net interest margin in the short term, management believes that these will prove to be relatively low cost funds over the next three years. The Company continues to emphasize growth in its existing retail deposit base, provided incremental deposit growth is cost effective compared to alternative funding sources. Total interest-bearing deposits accounted for 89.1% of total deposits at September 30, 2002, compared to 92.4% at December 31, 2001.

Short-term borrowings, including federal funds purchased, increased $65.5 million to $66.5 million at September 30, 2002, compared to $1.0 million at December 31, 2001. This increase was primarily due to sweep repurchase agreements added from the merger with UNB Corp. Other borrowings increased $82.3 million to $301.9 million at September 30, 2002, compared to $219.6 million at December 31, 2001. This increase was primarily due to the merger with UNB Corp. This increase was partially offset by the payoff of a $7.0 million term loan.

Liquidity and Capital Resources

The objective of liquidity management is to ensure the availability of funds to accommodate customer loan demand as well as deposit withdrawals while continuously seeking higher yields from longer term lending and investing opportunities. This is accomplished principally by maintaining sufficient cash flows and liquid assets along with consistent stable core deposits and the capacity to maintain immediate access to funds. These immediately accessible funds may include federal funds sold, unpledged marketable securities, reverse repurchase agreements or available lines of credit from the Federal Reserve Bank, Federal Home Loan Bank (FHLB), or other financial institutions. An important factor in the preservation of liquidity is the maintenance of public confidence, as this facilitates the retention and growth of a large, stable supply of core deposits.

The Company’s principal source of funds to satisfy short-term liquidity needs comes from cash, due from banks, federal funds sold and borrowing capabilities through the FHLB as well as other sources. Changes in the balance of cash and due from banks are due to changes in volumes of federal funds sold, and the float and reserves related to deposit accounts, which may fluctuate significantly on a day-to-day basis. As of September 30, 2002, cash, due from banks and federal funds sold totaled $101,571 compared with $80,675 at June 30, 2002. The securities portfolio serves as an additional source of liquidity for the Company. Securities with a market value of $408,764 were classified as available-for-sale as of September 30, 2002, representing 98.4% of the total securities portfolio. Classification of securities as available-for-sale provides for flexibility in managing net interest margin, interest rate risk, and liquidity. Securities with a carrying value of $349,244 at September 30, 2002 were pledged to secure public funds and other obligations.

The Company’s bank subsidiary is a member of the FHLB. Membership provides an opportunity to control the bank’s cost of funds by providing alternative funding sources, to provide flexibility in the management of interest rate risk through the wide range of available funding sources, to manage liquidity via immediate access to such funds, and to provide flexibility through utilization of customized funding products to fund various loan and investment products and strategies.

On October 18, 1999, the Company completed an offering of $20.0 million aggregate liquidation amount of 9.875% Capital Securities, Series A, due 2029. These securities represent preferred beneficial interests in BFOH Capital Trust I, a special purpose trust formed for the purpose of the offering. The proceeds from the offering were used by the Trust to purchase Junior Subordinated Deferrable Interest Debentures (“Debentures”) from the Company. Under Federal Reserve Board regulations, these Capital Securities may represent up to 25% of a bank holding company’s Tier 1 capital. The holders of the Capital Securities are entitled to receive cumulative cash distributions at the annual rate of 9.875% of the liquidation amount. Distributions are payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2000. The Company has fully and unconditionally guaranteed the payment of the Capital Securities, and payment of distributions on the Capital Securities. The Trust is required to redeem the Capital Securities on or, in certain circumstances, prior to October 15, 2029. There are no significant covenants or limitations with respect to the business of the Company that are contained in the instruments which govern the Capital Securities and the Debentures.

Shareholders’ equity at September 30, 2002 was $299.5 million, compared to shareholders’ equity at December 31, 2001 of $116.5 million, an increase of $183.0 million. The merger with UNB Corp. contributed $174.6 million to shareholder’s equity. Shareholder’s equity also increased by net income of $16.8 million, an increase of $1.5 in other comprehensive income and these increases were partially offset by cash dividends paid of $8.6 million. The Company’s Board of Directors has approved a stock repurchase program authorizing management to repurchase up to 550,000 common shares. The company expects to purchase shares from time to time in the open market as market conditions warrant.

Under the risk-based capital guidelines, a minimum capital to risk-weighted assets ratio of 8.0% is required, of which, at least 4.0% must consist of Tier 1 capital (equity capital net of goodwill). Additionally, a minimum leverage ratio (Tier 1 capital to total assets) of 3.0% must be maintained. At September 30, 2002, the Company had a total risk-based capital ratio of 11.17%, of which 9.99% consisted of Tier 1 capital. The leverage ratio for the Company at September 30, 2002, was 8.23%.

Cash dividends declared and paid to shareholders of the Company totaled $8.6 million, or $0.39 per share, during the first nine months of 2002. This compares to dividends of $3.8 million, or $0.33 per share, for the same period in 2001.

Considering the Company’s capital adequacy, profitability, available liquidity sources and funding sources, the Company’s liquidity is considered by management to be adequate to meet current and projected needs.

Item 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, the Company is exposed to interest rate risk caused by the differences in cash flows and repricing characteristics that occur in various assets and liabilities as a result of changes in interest rates. The asset and liability management process is designed to measure and manage that risk to maintain consistent levels of net interest income and net present value of equity under any interest rate scenario.

The Company uses a dynamic computer model to generate earnings simulations, duration and net present value forecasts and gap analyses, each of which measures interest rate risk from a different perspective. The model incorporates a large number of assumptions, including the absolute level of future interest rates, the slope of the yield curve, various spread relationships, prepayment speeds, repricing opportunities, cash flow characteristics of instruments without contractual maturity dates and changes in the volumes of multiple loan, investment and deposit categories. Management believes that individually and in the aggregate these assumptions are reasonable, but the complexity of the simulation modeling process results in a sophisticated estimate, not a precise calculation of exposure.

One of the most significant assumptions is the assignment of deposit balances without a stated maturity date to specific time frames. Since these deposits are subject to withdrawal on demand, and have rates that can be changed at any time, they could be considered immediately repriceable and assigned to the shortest maturity, resulting in a significant level of liability sensitivity. However, actual practice indicates that balances are withdrawn and replaced over a much longer time frame, and rates are modified less frequently and in smaller increments than changes which occur in financial market rates. Although the Company prefers to use a statistical analysis of historical deposit behavior to derive appropriate distributions of deposit balances over the simulation time horizon, in the current data non-maturity deposits are assigned a one-month maturity. The combined deposits of the merged company will be reanalyzed to provide a more accurate depiction of interest rate risk.

The model then applies a predetermined immediate parallel increase or decrease in the level of interest rates to forecast the impact on both net interest income and capital one year forward. While this methodology provides a comprehensive appraisal of interest rate risk, it is not necessarily indicative of actual or expected financial performance. Changes in interest rates that affect the entire yield curve equally at a single point in time are not typical. The residential mortgage prepayment assumptions are based on industry medians and could differ from the Company’s actual results due to non-financial prepayment incentives and other local factors. The behavior of depositors is based on an analysis of historical changes in balances and might not fully reflect current attitudes toward other investment alternatives. Moreover, the model does not include any interim changes in strategy the Company might instate in response to shifts in interest rates.

At September 30, 2002, assuming an immediate, parallel 200 basis point shift in market yields, the Company’s net interest income for the next twelve months was calculated to decrease by approximately 2.96% if rates fell and decrease by 5.49% if rates rose. Since interest rates on deposit products are very low, the Company would not realize any significant future benefit from lower rates, but could see a continuing decrease in earning asset rates. The net present value of equity is defined as the difference between the present value of the Company’s assets and liabilities. In general, the present value of fixed rate financial instruments declines as market rates increase and increases as rates fall. Using the yield scenario defined above, the net present value of equity was forecasted to decline by 17.79% in a rising rate environment and to rise by 13.75% in a falling rate scenario. The duration of total assets was 26.6 months, compared to a duration of total liabilities of 11.4 months, indicating that liabilities will both reprice faster than assets and change in value by a smaller amount than the assets over a similar time frame.

Interest rate risk can be managed by using a variety of techniques, including selling existing assets or repaying liabilities, pricing loans and deposits to attract preferred maturities and developing alternative sources of funding or structuring new products to hedge existing exposures. In addition to these balance sheet strategies, the Company can also use derivative financial instruments such as interest rate swaps, caps, and floors to minimize the potential impact of adverse changes in interest rates. During the third quarter, the Company continued to lengthen the duration of its liabilities by extending the term of maturing borrowings to minimize the effect of rising rates on future net interest income.

The Company has three interest rate swaps on which it pays a fixed rate and receives a variable rate. One swap with a current notional principal amount of $8,995 was executed as a hedge against fixed rate mortgages, which are held in the Company’s portfolio. The net cash flow and market value of the swap moves inversely with those of the fixed rate loans in the portfolio, which reduces the Company’s exposure to changing interest rates. If rates rise, the Company receives net cash flow from the swap which compensates for the opportunity loss of holding an asset with a below market yield. Alternatively, the increase in the market value of the swap would balance the loss on the mortgage loans if the loans

were sold. If rates fall, the net cash flows given up are offset by the increased value of assets with an above market yield. The gain that would be realized on the sale of the loans would counteract the loss on the termination of the interest rate swap. While this hedging arrangement provides protection against changing rates, the structure of the swap does not fully offset the interest rate risk of the loans and therefore is not considered an effective hedge under current accounting guidance. The swap is recorded as a liability with a fair value of $273, with changes recognized in current income.

There are two swaps with a total notional principal of $25,000 which were executed to convert variable rate borrowings to a fixed rate to reduce the risk of increased interest expense in a rising rate environment. Since the terms of the swap are essentially the same as those of the liabilities being hedged, the transaction is considered fully effective. The swaps are recorded as a liability with a fair value of $4,120. Changes in the fair value are recognized in other comprehensive income on a tax adjusted basis.

The Company also has a notional balance of $3,000 options on the S & P 500 which offsets the equivalent risk of certificate of deposit liabilities that have a return contractually linked to the index. The purchased options and the derivative created by the implied options embedded in the certificates offset each other and are carried at fair value with changes recognized in current income. At September 30, 2002 the purchased option had a fair value of $93 while the option embedded in the certificate of deposit was a liability of $93. The premium paid for the purchased options is being amortized to interest expense on deposits over the five year term of the certificates. In addition to the premium amortization of $155, for the year to date the Company has recognized expense of $70 in current income for the portion of the transaction that is deemed to be ineffective.

Item 4:
CONTROLS AND PROCEDURES DISCLOSURE

Within the 90-day period prior to the filing date of this report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in the Company’s internal controls or in other factors that could significantly affect its internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits Required by Item 601 of Regulation S-K

Exhibit 3(a) – Articles of Incorporation, as amended (incorporated by reference to Appendix A to UNB Corp.’s Form S-4 dated October 15, 2001).

Exhibit 3(b) – Code of Regulations, (incorporated by reference to Exhibit (4)B to UNB Corp.’s registration statement on Form S-3 (No. 33-27471).

Exhibit 10.2 – Indenture of the Company relating to the Junior Subordinated Debentures (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-4, Registration Statement No. 333-30570).

Exhibit 10.3 – Amended and Restated Trust Agreement of BFOH Capital Trust I (incorporated by reference to the Company’s Registration Statement of Form S-4, Registration Statement No. 333-30570).

Exhibit 10.e — UNB Corp. 1997 Stock Option Plan, filed on February 28, 1998, is incorporated herein by reference to Form Definitive 14-A, dated April 15, 1997, Appendix A.

Exhibit 10.y – Split Dollar Agreement for Salary Continuation Agreement Roger L. Mann, James J. Pennetti and Scott E. Dodds, dated May 1, 2001, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2001, Exhibit 10.y.

Exhibit 10.z – Key Man Split Dollar Agreement for Roger L. Mann, dated July 18, 2001, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2001, Exhibit 10.z.

Exhibit 10.aa – Group Term Carve Out Plan, dated May 1, 2001, is incorporated herein by reference to Form 10-Q for quarter ended September 30, 2001, Exhibit 10.aa.

Exhibit 10.ab – Unizan Financial Corp. Severance Agreement for Roger L. Mann entered into as of August 1, 2002.

Exhibit 10.ac – Unizan Bank, National Association Amended Salary Continuation Agreement for Roger L. Mann entered into as of August 1, 2002.

Exhibit 10.ad – Unizan Financial Corp. Severance Agreement for James J. Pennetti entered into as of August 1, 2002.

Exhibit 10.ae – Unizan Bank, National Association Amended Salary Continuation Agreement for James J. Pennetti entered into as of August 1, 2002.

Exhibit 10.af – Unizan Financial Corp. Severance Agreement for Scott E. Dodds entered into as of August 1, 2002.

Exhibit 10.ag – Unizan Bank, National Association Amended Salary Continuation Agreement for Scott E. Dodds entered into as of August 1, 2002.

Exhibit 10.ah – Unizan Financial Corp. Severance Agreement for James H. Nicholson entered into as of August 1, 2002.

Exhibit 10.ai – Unizan Financial Corp. Severance Agreement for Edward N. Cohn entered into as of August 1, 2002.

Exhibit 10.aj – Unizan Financial Corp. Severance Agreement for Robert J. Blackburn entered into as of August 1, 2002.

Exhibit 10.ak – Unizan Financial Corp. Severance Agreement for James B. Baemel entered into as of August 1, 2002.

Exhibit 10.al – Unizan Financial Corp. Severance Agreement for Gary L. McGlaughlin entered into as of August 1, 2002.

Exhibit 10.am – Unizan Financial Corp. Severance Agreement for Thomas J. Selock entered into as of August 1, 2002.

Exhibit 99.1 – Certification of Financial Results

Exhibit 99.2 – Certification of Financial Results

(b) Reports on Form 8-K

None

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.


		Unizan Financial Corp. (Registrant)

Date	November 13, 2002	/s/ Roger L. Mann Roger L. Mann President and Chief Executive Officer

Date	November 13, 2002	/s/ James J. Pennetti James J. Pennetti Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

I, Roger L. Mann, certify that:

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

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

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

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

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

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

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

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

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

(b) Any fraud, whether or not material, that involves management or other employees, who have a significant role in the registrant’s internal controls.

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


Date:		November 13, 2002		/s/ Roger L. Mann Roger L. Mann President and Chief Executive Officer

I, James J. Pennetti, certify that:


Date:		November 13, 2002		/s/ James J. Pennetti James J. Pennetti Executive Vice President and Chief Financial Officer

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1)		BASIS OF PRESENTATION:

		The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. Unless otherwise indicated, dollars are in thousands except per share data.

2)		NEW ACCOUNTING PRONOUNCEMENTS

		The FASB issued Statement 147, “Acquisitions of Certain Financial Institutions,” which replaced certain paragraphs in Statement 72. When an acquisition involves more liabilities than assets, the “unidentified intangible asset” that resulted under Statement 72, now represents goodwill if the branch acquisition meets the definition of a business combination under EITF Issue 98-3. For prior acquisitions that are not business combinations, the unidentifiable intangible is not goodwill and must continue to be amortized. The new guidance is effective October 1, 2002. As of September 30, 2002, there was $962 of other intangible assets generated from branch purchase transactions that will continue to be amortized since these branch acquisitions do not qualify as a business combination as defined by EITF Issue 98-3 and thus cannot be reclassified as goodwill under FASB Statement 147.

3)		MERGER

		On March 7, 2002, the Company completed a merger between BancFirst Ohio Corp, and UNB Corp. In connection with the merger, UNB Corp. issued 1.325 shares of common stock in exchange for each share of BancFirst common stock. The purchase price was valued at $175 million and the value of the 11.6 million shares issued was based on the average price of UNB Corp. stock for three days before and two days after the terms of the merger were agreed to and announced. Cash was paid for any fractional shares.

		The merger is being accounted for as a purchase of UNB Corp. Accordingly, UNB Corp.’s results of operations have been included from the date of the merger. The merger created a financial services holding company with total assets of $2.6 billion and deposits of $1.9 billion. As a result of the merger, management believes that the combination of the companies is a complementary strategic fit of the existing businesses and enables Unizan to compete more effectively with other financial institutions in the Company’s existing markets. In addition, the Company entered into the merger for the following reasons:

	•		expands market area and creates critical mass
	•		enhances ability to compete and broadens product range
	•		expected to be accretive to per share earnings
	•		increases liquidity for the sale of common stock
	•		provides an additional platform for further growth and improves cross selling opportunities
	•		provides opportunities for cost reductions through increased efficiencies.

4)		COMPUTATION OF EARNINGS PER SHARE

		The computation of earnings per share is as follows. All share and per share amounts have been adjusted to give effect to the exchange of one BancFirst share for 1.325 shares of UNB Corp. stock.

5)		SECURITIES

		The amortized cost and fair value of securities are as follows:

6)		ALLOWANCE FOR LOAN LOSSES:

		An analysis of activity in the allowance for loan losses is as follows:

		At December 31, 2001, the recorded investment in loans considered impaired was not material.

7)		PREMISES AND EQUIPMENT:

		Premises and equipment are summarized below:

		Total depreciation expense was $1,004 and $468 for the three months ended September 30, 2002 and 2001, respectively and $2,535 and $1,546 for the nine months ended September 30, 2002 and 2001, respectively.

8)		DEPOSITS:

9)		OTHER BORROWINGS:

		Other borrowings consist of Federal Home Loan Bank borrowings, repurchase agreements, a line of credit borrowing arrangement and a capital lease.

		Pursuant to collateral agreements with the FHLB, advances are secured by FHLB stock and qualifying first mortgage loans. At September 30, 2002, FHLB advances outstanding were comprised of the following:

		FHLB advances must be secured by eligible collateral as specified by the FHLB. Accordingly, the Company has a blanket pledge of its first mortgage loan portfolio as collateral for the advances outstanding at September 30, 2002 with a required minimum ratio of collateral to advances of 150%. Also, the Company’s investment in FHLB stock of $32,987 at September 30, 2002 is pledged as collateral for outstanding advances. At September 30, 2002, the unused capacity of FHLB advance borrowings available to the Bank was approximately $69,524.

		The Parent Company has an unsecured line of credit of $25 million with a national financial institution that is used for liquidity purposes and to facilitate additional investment in subsidiaries. The total outstanding balance at September 30, 2002 was $19 million. The interest on each draw is variable and is priced off the Federal Funds Rate plus 0.85% per annum and is paid quarterly.

		At September 30, 2002, the Company had $45,000 in term repurchase agreements with Salomon Brothers, Inc. under which the Company sold mortgage-backed and related securities classified as available-for-sale with a fair value of $49,187 at September 30, 2002. The repurchase agreements had a weighted average maturity of 5.7 years at September 30, 2002. Also, such repurchase agreements are callable at the option of the counter-party. The securities are held at Salomon Brothers, Inc.

10)		COMPANY OBLIGATED MANDATORILY REDEEMABLE TRUST PREFERRED:

		On October 18, 1999, the Company completed an offering of $20,000 aggregate liquidation amount of 9.875% Capital Securities, Series A, due 2029. These securities represent preferred beneficial interests in BFOH Capital Trust I, a special purpose trust formed for the purpose of the offering. The Trust’s obligations under the Capital Securities issued are fully and unconditionally guaranteed by the Company. The proceeds from the sale of the Capital Securities of the Trust, as well as the proceeds from the issuance of common securities to the Company, were utilized by the Trust to invest in $20,619 of 9.875% Junior Subordinated Debentures (the “Debentures”) of the Company. The Debentures are unsecured obligations and rank subordinate and junior to the right of payment to all indebtedness, liabilities and obligations of the Company. The Debentures represent the sole assets of the Trust. Interest on the Capital Securities is cumulative and payable semi-annually in arrears. The Company has the right to

		optionally redeem the Debentures prior to the maturity date of October 15, 2029, on or after October 15, 2009 at 104.938% (declining annually thereafter to 100% after October 15, 2019) of the stated liquidation amount, plus accrued and unpaid distributions, if any, to the redemption date. Under the occurrence of certain events, specifically a Tax Event, Investment Company Event or Capital Treatment Event as more fully defined in the BFOH Capital Trust I Prospectus dated October 13, 1999, the Company may redeem in whole, but not in part, the Debentures prior to October 15, 2009. Proceeds from any redemption of the Debentures would cause a mandatory redemption of the Capital Securities and the common securities having an aggregate liquidation amount equal to the principal amount of the Debentures redeemed. The Company’s liability is fully recorded on the balance sheet at September 30, 2002.

		The Trust is a wholly owned subsidiary of the Company, has no independent operations and has issued securities that contain a full and unconditional guarantee of its parent, the Company. The Trust is exempt from the reporting requirements of the Securities Exchange Act of 1934.

11)		STOCK INCENTIVE PLAN:

		In 1987, the shareholders approved a Stock Option and Performance Unit Plan reserving 764,040 shares of common stock, adjusted for stock dividends and splits, for the granting of options to executive officers and other senior management personnel. Options are not exercisable for at least four years from the date of grant and are not fully exercisable until six years from the date of grant. The duration of the exercise period is ten years. In 1997, the shareholders approved a Stock Option Plan reserving 1,000,000 shares of common stock, adjusted for stock dividends and splits, for the granting of options to directors and employees of the Corporation and its affiliates. The duration of the exercise period is ten years. In accordance with provisions of the Plan, upon a change in control, as defined in the Plan, all options outstanding at the time of such change in control fully vested and became 100% exercisable. The summary of stock option activity is as follows:


		Nine Months Ended September 30,

		2002								2001

		Average			Income/					Average			Income/
(dollars in thousands)		Balance			Expense		Rate (1)			Balance			Expense		Rate (1)

Interest-earning assets




Interest bearing deposits and federal funds sold			8,411		$	96		1.53	%		31,493		$	1,152		4.89	%




Securities			408,471			17,952		5.88			327,929			17,738		7.23




Total loans			1,694,674			90,449		7.14			1,085,038			69,628		8.58

	Total interest-earning assets (2)		2,111,556			108,497		6.87			1,444,460			88,518		8.19

Nonearning assets:




Cash and due from banks			52,472								25,107




Other nonearning assets			191,562								85,483




Allowance for loan losses			(22,680	)							(10,284	)

	Total assets	$	2,332,910							$	1,544,766

Interest bearing liabilities:




Demand deposits		$	233,371			2,552		1.46	%	$	121,592			2,578		2.83	%




Savings deposits			374,912			4,227		1.51			167,478			3,714		2.96




Time deposits			893,480			26,155		3.91			765,092			33,643		5.88




Other borrowings			389,034			15,529		5.34			291,076			13,906		6.39

	Total interest bearing liabilities		1,890,797			48,463		3.43			1,345,238			53,841		5.35

Noninterest bearing liabilities:




Demand deposits			155,489								72,160




Other liabilities			33,334								15,617




Shareholders’ equity			253,290								111,751

	Total liabilities and equity	$	2,332,910							$	1,544,766

Net interest income (FTE)					$	60,034							$	34,677

Net interest margin (3)								3.80	%							3.21	%

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

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

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

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

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

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

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

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

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

		(b) Any fraud, whether or not material, that involves management or other employees, who have a significant role in the registrant’s internal controls.

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