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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission File Number: 0-15624

Second Bancorp Incorporated

108 Main Avenue SW, Warren, Ohio 44481
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code:
330.841.0123

Securities registered pursuant to Section 12(g) of the Act:

Securities registered pursuant to Section 12(b) of the Act: None

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes þ Noo

The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2003 as reported on the NASDAQ National Market System, was approximately $219,599,048. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of January 31, 2004 the registrant had outstanding 9,479,371 shares of Common Stock.

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PART I.

Item 1. BUSINESS

General

Second Bancorp Incorporated (“Second Bancorp”) is a one-bank financial holding company with its most significant subsidiary being The Second National Bank of Warren (“Second National”), a Warren, Ohio based commercial bank. Operating through 33 retail banking centers and 5 loan production offices, Second National offers a wide range of commercial and consumer banking and trust services primarily to business and individual customers in various communities in a nine county area in northeast and east-central Ohio. A second operating subsidiary is Stouffer-Herzog Insurance Agency, which sells a wide range of property, casualty, life and health insurance products in northeast Ohio. At December 31, 2003, Second Bancorp had consolidated total assets of $2.12 billion, deposits of $1.22 billion and shareholders’ equity of $137 million. Additional non-operating subsidiaries include Second National Capital Corporation and Second National Financial Company, LLC, which were formed in 2002 to facilitate a capital conversion plan for the subsidiary Bank. The Corporation also maintains an unconsolidated subsidiary, Second Bancorp Capital Trust I, which was established in 2001 to facilitate raising Tier I eligible capital in the form of corporation-obligated mandatorily redeemable capital securities of a subsidiary trust; see footnote 17 of Item 8; Financial Statements and Supplementary Data.

Second National focuses its marketing efforts primarily on local independent commercial and professional firms, the individuals who are the owners and principals of such firms as well as the low-to-moderate to upper income retail customers in Second National’s trade areas. In recent years, Second Bancorp has emphasized increased commercial, direct consumer and real estate lending as well as market area expansion.

On January 8, 2004, the Corporation and Sky Financial Group. Inc., based in Bowling Green, Ohio, announced an agreement whereby Sky Financial Group will acquire the Corporation and its wholly-owned subsidiaries including the Bank. The transaction is expected to close during the second quarter of 2004. Under the terms of the agreement, shareholders of the Corporation will receive 1.26 shares of Sky Financial Group common stock for each share of the Corporation.

The agreement provides for the merger of the Corporation into Sky Financial Group, and the subsequent merger of the Bank into Sky Bank, Sky Financial Group’s commercial banking affiliate. The Corporation’s insurance affiliate Stouffer-Herzog will be integrated into Sky Insurance some time after the merger is complete.

The merger is subject to receipt of applicable regulatory approvals and to the approval of the shareholders of the Corporation.

Primary Business Operations

We currently operate three major lines of business, each of which is discussed below.

Commercial

Commercial includes credit and related financial services to small-to-large-sized corporations and businesses.

Our commercial lending activities focus primarily on providing local independent commercial and professional firms with commercial business loans and loans secured by owner-occupied real estate. Typically, our customers’ financing requirements range from $250,000 to $10 million. We primarily make secured and unsecured commercial loans for general business purposes, including working capital, accounts receivable financing, machinery and equipment acquisition, and commercial real estate financing. These loans have both fixed and floating interest rates and typically have maturities of three to seven years. Commercial loans comprised approximately 47% of our total loan portfolio at December 31, 2003.

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We have sought to differentiate Second National’s Commercial business line by being “bankers, not just lenders.” What this means is that our delivery of premier commercial banking products and services is not dependent only on competing over price. Rather, our professionals are responsible for taking on a consultative role in long term relationship building, ensuring that what we are providing is in harmony with the vision of our clients.

The success of this orientation is evident in the stability of our core group of commercial bankers that has not experienced any turnover during the past two years. Moreover, our most recent additions to the Commercial Banking staff have come from within the Bank, further contributing to the depth of knowledge represented by this team.

During 2003, new loan generation increased by 12.75 percent compared with 2002, for a total of $219,030,265. Fee income also grew to $2,292,216 for an increase of 5 percent over the prior year. Commercial portfolio balances were $630 million at year end, up from $542 million at December 31, 2002.

Second National uses a number of techniques to increase its client base. Some of these include mass marketing, referrals from our existing clients and referrals from CPAs and attorneys. Earlier in the year, we also initiated a “cold calling” marketing program to increase our market penetration and meet our profitability objectives in the Cleveland and Akron areas. Lenders developed a customized target list that focused on small businesses and was designed focusing on specific industries that are desirable to the Bank. Results of this effort are incorporated into monthly sales activity and backlog reports as a way of formalizing the process of relationship building.

Retail

Retail includes deposit gathering, direct and indirect consumer lending along with a minor amount of small business banking services.

We offer a full range of consumer loans to individuals, including the owners and principals of our commercial customers and a wide range of retail customers in our market area. We offer consumer loans for a variety of personal financial needs, including home equity, new and used automobiles, boat and recreational vehicle loans, credit cards and overdraft protection for checking account customers. At December 31, 2003, approximately 34% of our consumer loans consisted of indirect auto, boat and recreational vehicle loans, which are originated through dealers in the local area. Consumer loans comprised approximately 30% of our total loan portfolio at December 31, 2003.

We continued to adjust our Retail Banking Center/Hub network by reallocating resources to locations where marketplace intelligence gathering and analysis indicated high growth potential. That effort is supported by ongoing training, properly designed incentives, and utilization of Monthly Achievement Results (MARs) reports as a system of evaluation and measurement. Using our Financial Information System (FIS) we are capable of using real time, fact-based data to make accurate decisions to achieve profitability growth targets.

During 2003, we were successful in reducing or controlling expenses through consolidation of facilities, reducing charge-offs, increasing fee collection rates, and streamlining contract pricing relative to various services such as telecommunications and ATM costs. We also implemented a Resource Optimization and Allocation Model (ROAM(™)) staffing model that has enabled us to reduce costs while still improving performance.

Increases in income were achieved by growing the level of profitable products sold or booked, delivered by professionals dedicated to continually developing their sales acumen, and supported by an increase in target advertising and outbound calling to cultivate new business prospects.

     Other specific Retail Banking 2003 achievements include:

•

Banking Center Mortgage Loan production reached $191,158,000, an increase of 36.67% over 2002

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	•		Banking Center Consumer Loan production reached $153,343,000, an increase of 70.42% over 2002
	•		Banking Center Consumer Loan outstanding balances increased by 23.03% over 2002
	•		Banking Center outstanding non-interest demand deposits increased 4.55% over 2002
	•		Banking Center outstanding non-maturity deposits increased 17.72% over 2002
	•		Call Center loan sales (excluding mortgage and commercial) were $11,413,875
	•		Retail Banking cross sell improved from 2.70 in 2002 to 3.01 in 2003

Second National Bank continues to expand its geographic marketplace presence. This past year we opened our new banking center located at 445 West Milltown Road, Wooster. The new 3200-square-foot facility features full-service banking including retail and commercial banking, private banking, wealth management and investment product lines. Also available are a drive-up ATM, drive-thru banking lanes, a walk-in vault and safe deposit boxes. The new banking center is within easy access from Burbank Road (Highway 83). Second National Bank’s other facility in Wooster, located at Liberty Commons, will remain open as a loan production facility.

The doors also opened at Second National’s new Kent Banking Center located at 1590 South Water Street (State Route 43). The new facility replaces our original Kent and Brimfield Banking Centers and is less than three miles from the former Brimfield Banking Center and only one mile from the original Kent location. The new Kent Banking Center provides clients with a complete range of products and services plus new conveniences, including two drive-thru lanes, a drive-up ATM and additional safe deposit boxes.

Second National Bank will open a new Hudson Banking Center in May of 2004. The 3200-square-foot facility will be located at 5801 Darrow Road in Hudson, only 1.2 miles from our existing Hudson office. The new location, within easy access from Route 91, will feature full-service banking including a drive-up ATM, two drive-thru banking lanes, night depository, a walk-in vault and safe deposit boxes.

A new Medina Banking Center, located at 1065 North Court Street on Route 42 (in the K-Mart plaza), is also scheduled to open in May of 2004. This facility is only one mile from our existing banking center and just a little more than a mile from the town square. The 3200-square-foot Medina office will offer full-service banking including a drive-up ATM, two drive-thru banking lanes, night depository, a walk-in vault and safe deposit boxes.

Smart Business Checking and Freedom Checking, two new product offerings in 2003, focus on valuable features and benefits designed to give Second National personal and business clients the choice advantage of two of the most attractive checking accounts available in the Northeast Ohio marketplace.

Private Banking continues to focus on generating new members, while at the same time cross selling new and enhanced products to current clients as a way of ensuring client satisfaction. We are also focusing on building the business relationships associated with the Private Banking client group.

The ease of transacting business as a Private Banking client was simplified with the addition of free personal and business online banking. Of course, the option of calling your Private Banking Officer anytime for personal assistance remains a key feature of the Private Banking Program.

During 2003, Private Banking expanded the client base by 25% more than 2002, currently serving over 1,050 clients. Loan volume surpassed prior year’s production by 56%, generating $114,955,000 in new loans.

The Private Banking team expanded into the Medina market late in 2003 and we look forward to growing our program in that market during 2004.

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Mortgage

Mortgage includes mortgage banking activities, including the ownership, origination, sale and servicing of mortgages.

Our mortgage banking department underwrites and originates a wide range of mortgage loan products and sells a significant volume of them primarily on a servicing retained basis. Generally, the loans sold into the secondary mortgage market make funds available for reuse in mortgage or other lending activities. The sales typically generate a net gain (including origination fee income and deferred origination costs), limit the interest rate risk caused by holding long-term, fixed-rate loans, and supplement our portfolio of serviced loans which generate fee income. We originated over $1.19 billion of loans in 2003 and serviced $1.75 billion in mortgage loans for others at December 31, 2003.

Second National’s Mortgage lending business line continued during 2003 to capitalize on the profitability of mortgage loans by emphasizing proactivity and efficiency through a sales culture focused on fee generation, origination and sale of investment quality mortgages, sales development and technological resources.

In the Retail portion of our production activities, Second National’s mortgage originators and mortgage sales managers achieved an increase of 42 percent compared to 2002 while Retail production increased 36.67 percent from the previous year.

Of special note during 2003, Mortgage Servicing reached the benchmark of $2 billion of mortgages serviced together with a net increase of 4,221 accounts, representing a year end total of 22,666 loans serviced. Our continued strong Tier I server rating with our primary loan purchaser, which provides for better pricing, is evidence that our plan for migrating from a portfolio mindset to a secondary market environment with staff and banking centers was successful.

Related to the fact that 74 percent of Second National’s mortgage servicing during 2003 was performed on behalf of our major loan purchasers, FreddieMac and Fannie Mae, it is important to note that Mike Filarski, Senior Vice President, Mortgage Lending & Servicing, accepted an appointment to become a member of Freddie Mac’s prestigious Community Lender Advisory Board. Membership in the Freddie Mac’s Community Lender Advisory Board is limited to a highly select group of professionals and provides a vital conduit for sharing objective, proactive opinions about the ever-changing mortgage lending industry.

To help offset anticipated nationwide drop offs in mortgage production and refinancing during 2004, we have escalated our emphasis on expansion into new market areas, improvements in operational efficiencies and a primary dedication to optimum service levels. Staffing will continue to be strongly monitored using industry standard benchmarks. Relationship building, supported by quality, efficiency and the skilled application of new technological tools, will be the foundation for continuing profitability in 2004.

Second National’s new mortgage website is accessed by logging on to www.secondnationalbank.com. This website serves as a new channel of business for our organization while at the same time providing clients/members with a number of helpful services.

     Our online users are now able to:

	•		Apply for a mortgage at their convenience, 24/7
	•		Obtain a loan decision in seconds, not days
	•		Access online mortgage calculators, a glossary of mortgage terms and product information
	•		Complete a customized application that only asks questions applying to their specific situation
	•		View SNB current mortgage rates

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•

Set up a rate watch alert when certain rates are reached

Second National Bank associates now have the benefits of:

	•		Originating loans at any time during the day or week
	•		Improved application thoroughness at the time of loan submission, meaning less follow-up work is required to get the loan approved and ready for closing
	•		Enhanced productivity by using the automated underwriting functionality, thereby freeing up underwriters to focus on the more difficult loan decisions
	•		Increased efficiency through integration with our loan processing system

Other Activities

Community Development Banking continued its forward momentum in 2003 with a primary focus on expanding its sales efforts, increasing its delivery system in urban markets, and enhancing financial literacy and outreach activities.

With an emphasis on home ownership lending in 2003, we expanded our community mortgage loan originators to include Mahoning, Trumbull, Ashtabula and Summit Counties. Those originators are dedicated to serving low-and moderate-income families and have established relationships with non-profit organizations and community groups that provide home ownership, debt management and financial literacy counseling. Their goal is to provide affordable home mortgages to first time homebuyers and families with modest means. All community mortgage loan originators have significant experience in government lending, including FHA and VA lending which offer programs designed to increase home ownership in urban markets.

In addition, Community Development Banking opened two Community Mortgage Production offices in Warren and Akron, Ohio. Those new alternative delivery channels will complement the existing retail branch network by giving residents in the community better access to Second National’s home loan products. Those offices staffed with the community mortgage loan originators are located within non-profit organizations that serve families within the urban communities.

Second National’s commitment to community development continued to strengthen in 2003 with a record breaking year of more than $20 million dollars in community development loans.

     Some of the projects funded include:

	•		Construction of a 40-unit, 3-story senior citizens complex in Mahoning County
	•		Construction of a 48-unit, 3-story senior citizens complex in Summit County
	•		Construction of a 40-unit, single-family housing project in Mahoning County
	•		Construction of a 50-bed nursing home in Franklin County
	•		Construction of a 5-unit single family home ownership project in Stark County
	•		Acquisition and renovation of 25 distressed properties in Cuyahoga County
	•		Acquisition of a 200-bed nursing home in Franklin County
	•		Expansion and funding of an economic development corporation in Trumbull County
	•		Expansion of a youth development organization in Trumbull County

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Second National also placed significant emphasis on financial literacy, offering several innovative and exciting programs. Some of these programs include Teach Children to Save Day and Make a Difference Day. Bank officers and associates participated in these events and partnered with the public schools and housing authorities to provide training on savings products and setting financial goals. Second National reached more than 440 youths with these programs. In addition, the Bank sponsored a Dress for Success clothing drive, donating several suits and other business attire to an organization that helps low income women return to the work force.

Several other community events included economic opportunity mixers, minority trade fairs, homebuyer seminars, entrepreneurial programs and Community Day of Caring with United Way. Overall, Second National provided more than 40 community development services and participated in over 25 community events in its host communities in 2003.

Second National Bank also continued to provide financial support of organizations that promote economic growth within our communities. In 2003 the Bank made contributions and commitments of over $1.1 million to assist in the creation of affordable housing, job development and numerous other community development initiatives.

We will continue to approach Community Development as an opportunity not an obligation.

Wealth Management integrates traditional Trust products and services with the financial specialization capabilities of Private Banking plus opportunity guidance provided by our Investment Center. Our mission is to protect, manage, and grow the assets of individual and business clients.

During 2003, Second National took strides to position the Bank as a premier provider of Wealth Management services in our marketplaces. For example:

Our Investment Center became part of Wealth Management. This logical progression in the evolution of asset management creates additional value for clients by providing financial planning and investment expertise as well as the opportunity to invest in mutual funds, securities, and fixed/variable annuities and to purchase insurance products. Internally, we have achieved greater efficiency in that by placing these functions together, all referrals are directed to one place and are then assigned to the area that can best serve the needs of the client.

Additionally, Wealth Management enhanced its involvement with insurance through the addition of an insurance specialist to its professional staff. This will strengthen our focus on life insurance, disability and long term care packages. Although insurance products are not new, the presence of a true specialist will enhance increased cross selling and the ability to build relationships by dovetailing insurance programs into broader financial planning.

During 2003, we added Wealth Management business development officers in our Hub Financial Services Centers in Beachwood, North Olmsted, Akron and in Trumbull County, thereby increasing the flow of leads and new account opportunities through our business pipeline.

In April Second National Bank announced a new broker/dealer affiliation with UVEST^® Financial Services. UVEST, established in 1982, was one of the first firms in the country to offer bank-based investment programs once laws were revised to allow banks to offer non-deposit securities. Independently owned and with a support staff of more than 100 professionals, UVEST partners only with financial institutions. The firm is endorsed by the American Bankers Association and is a registered securities broker-dealer and member of the National Association of Securities Dealers, the Security Investors Protection Corporation and the Securities Industry Association. Clients of Second National Bank’s Investment Center will benefit from our new relationship with UVEST because of expanded financial products and services, including a full range of securities brokerage services, financial planning, professional money management, stocks, bonds, mutual funds and annuities.

During 2003, Wealth Management introduced the MAP Account. Historically a client had one basic choice when it came to how assets were invested, and that was the individual style and preferences of the

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account manager. The MAP Account accommodates all levels of asset amounts beginning as low as $25,000. Depending upon the level of assets, there are choices ranging from mutual fund families to a series of asset management options related to client-specific issues. This new program provides clients significantly greater flexibility in working with Second National Wealth Managers to determine optimum, individualized investment strategies.

Also introduced during 2003 was the American Funds platform providing corporate clients with an additional option in the 401(k) arena. Second National previously offered two platforms: one for larger companies who want all of the available technology, and a second for plan sponsors who want the benefit of a 401(k) plan but do not need state of the art technology. The introduction of the American Funds 401(k) platform provides many smaller companies with state of the art technology with the caveat that in order to avail themselves of such benefits they are limited to using only American Funds as their investment of choice. American Funds, the largest mutual fund family distributed exclusively by financial advisers, is the third largest mutual fund family in the U.S., with more than $300 billion in investments and over 20 million shareholder accounts.

Wealth Management’s web-based TrustReporter now offers clients the ability to view trust accounts online. With just a few clicks authorized users can view their portfolio, transactions, assets, and holdings without leaving the home or office. A variety of useful reports and graphics are also available. Demonstrations of the features of TrustReporter—as well as access to the program itself—are easily accessed at www.secondnationalbank.com.

During the past 12 months since the Stouffer-Herzog Insurance Agency became a part of Second National Bank, we have successfully accomplished the integration of staff, benefits and communication systems and have grown this portion of the business by more than 10 percent. In doing so, the Bank absorbed some of the back office functions of the insurance agency thereby increasing efficiency and decreasing total staff. We are on track with our objective of increasing the partnering of Bank employees and insurance agency personnel in order to cross sell our products to Bank customers and, conversely, Second National products and services to our insurance clients.

Our Client Advantage Program (CAP), created to build long term relationships and to develop a sales culture for Second National Bank, continues to meet its objectives through Client Preference Interviews that provide our associates the knowledge necessary to address current and future client financial needs. Throughout the Bank, associates have the capability of reviewing individual performance via Monthly Achievement Results (MAR).

Sales training and coaching accomplished in groups and on a one-to-one basis under the umbrella of CAP produced many notable achievements throughout the organization. These include measurable improvements in client service; heightened levels of cross selling; increased outbound call volumes; enhanced effectiveness in the use of technology and core systems such as the Financial Information System (FIS); and amplified attention to client retention. Formalized training has also encompassed issues such as professionalism in the work place, supervisory, sales, phone and listening skills, plus guidance in effectively conducting Client Preference Interviews.

The beneficial results of CAP are seen in comparative results. In 2003, 12,524 Client Preference Interviews were generated. Outbound calls jumped dramatically this year to 86,385 versus 49,682 in 2002. Most importantly, cross selling has increased during 2003 to 3.01 for associate cross sells, an increase from the 2002 level of 2.70.

Our CAP Sales Task Force continues to apply itself to ways of increasing our selling and relationship-building efforts through lobby displays, contests between banking centers, recognition of individuals for successful selling efforts, and a variety of other promotional and incentive activities.

As of January 1, 2004, Second National Bank has 13,012 online clients...impressive growth compared to 7,083 at the same time last year. Of our current online users, 2,061 use the online banking bill pay function. That compares to 483 during the same period last year.

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In October, Second National Bank began offering online banking and online bill pay free of charge to all personal and business clients. Online banking functions were enhanced by the addition of loan and deposit account applications in a post-login environment for all online banking clients.

Numerous enhancements were made to the Bank’s website, including Map Me! instructions to any office from any location in the United States; a link to the Stouffer-Herzog website and vice versa; press releases; informational articles; expanded FAQs, MortgageBot and TrustReporter.

As part of our commitment to supporting area businesses, Second National is sponsoring a monthly profile television feature that will ultimately recognize companies as “Entrepreneurs of the Valley.” This salute to forward thinking features a 30-second video vignette that will air on local television during key viewing times such as the daybreak, evening and late evening news. Each month’s entrepreneur will also be the subject of a live news video segment.

The first two entrepreneurs receiving this honor were Gerald E. Henn, President of the Henn Workshops; and Leonard J. Fisher, owner of Handel’s Ice Cream. Mr. Henn’s company, located in Lordstown since 1982, markets fine handcrafted reproductions of 18th and 19th century baskets, pottery, and Shaker woodenware. Mr. Fisher owns the Handel’s Ice Cream & Yogurt Franchise headquartered in Canfield, Ohio where the company has been successfully making and selling homemade ice cream since 1945. Both Mr. Henn and Mr. Fisher represent the best in quality, service to customers, marketplace innovation and integrity in business.

As in every year, Second National Bank and our many associates are attentive to contributing their time and resources through civic and charitable activities to the betterment of the communities we serve. During 2003 that included active participation in events such as the Jefferson Area Chamber of Commerce 12th Annual Food Drive, the 10th consecutive year of the Trumbull County American Cancer Society Relay For Life, the Junior Achievement Bowl-a-thon and the Akron Breast Cancer Walk.

The outstanding hard work and professional dedication demonstrated by our associates and vendors during the strenuous effort to quickly help Second National Bank recover from flood damage during 2003 was a shining success. These exceptional and positive contributions helped us to effectively overcome what might otherwise have become truly disastrous to our business and are a testament to the value of the careful preplanning in place to enable fast response to unexpected events. It is said that rock-solid strength is not developed by being happy in everyday circumstances but rather, is forged by challenging adversity and surviving difficult times together. These two words may not adequately express the depth of our appreciation, but please know that they are completely heartfelt: “Thank You!”

Achievements

The profitable forward movement of Second National Bank during 2003 received recognition in numerous ways by a variety of objective sources.

The Growth Partnership for Ashtabula County recognized Second National Bank with its “Best of the County” award in the banking category.

The Best of the County celebration was initiated in the 1980s to honor achievements involving business growth, community growth and the best use of human and natural resources.

This year’s award reflects the commitment of Second National Bank to the Ashtabula County communities, most notably a $16 million loan package that financed the Geneva State Park Lodge/Conference Center. Second National also established itself as a leader in home mortgages and repeatedly received recognition by the U.S. Small Business Administration (SBA) for providing more small business loans than any other bank lender in the Cleveland district, which includes Ashtabula.

The Greater Cleveland Growth Association’s Growth Capital Corp. awarded Second National Bank its 2003 “Emerging Bank of the Year” award. This honor recognizes banks that originated a loan during the year utilizing the SBA 504 program or the Ohio Regional 166 program through Growth Capital Corp. for the first time. Second National originated three loans totaling $1,569,000. Growth Capital Corp. is the

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Greater Cleveland Growth Association’s business finance arm and provides financial assistance to the region’s businesses to foster economic growth and jobs creation in Northeast Ohio.

Once again, Second Bancorp Incorporated received highly favorable evaluations as reported by The Plain Dealer in their ranking of Ohio’s “Best Performing Public Companies.” In The Plain Dealer 100, Second Bancorp Incorporated placed:

	•		48 on the overall list...up from 64 in 2002.
	•		26 in the Top 50 Ohio stocks. These Ohio companies saw the biggest rise in stock price last year.

The Plain Dealer 100 is a ranking of Ohio companies by seven performance criteria including revenue; compound growth in revenue; compound growth in net income; return on average common equity; total return; percent change in net income margin; and market value, or capitalization.

     Second Bancorp Incorporated also ranked:

	•		20 in Northeast Ohio 20, a subset of The Plain Dealer 100.
	•		10 in Best Northeast Ohio Banks. Return on average common equity added to profit margin and the efficiency ratio to determine the region’s “best banks”.

Second National Bank once again received the “Number One Bank” vote in the Tribune Chronicle Reader’s Choice Contest. This is the fourth year in a row that Second National received the “Best of the Best” award.

Second National Bank president and CEO, Rick Blossom, received the Entrepreneur of the Year Award in the Financial Services category of the prestigious 2003 Ernst & Young Entrepreneur of the Year awards program. The awards mark the end of an intensive search to identify and recognize outstanding business entrepreneurs.

A press release from Ernst & Young summarizing the award notes:

“High on Rick Blossom’s list of objectives when he joined the bank was balancing the twin realities of Second National as both a regional and a community bank...serving Main Street and Wall Street! His goal: to achieve profitable equilibrium through aggressive business development while running a tight, highly efficient company that provides service to its clients.”

Established in 1988 the E&Y Entrepreneur of the Year award recognizes great business achievements around the world and was created to make the public more aware of the benefits entrepreneurs provide to the international economy and our global communities.

Second National is pleased to be a part of the business success demonstrated by 11 of our clients recently recognized with 2003 Business Growth Awards co-sponsored by Smart Business magazine and the Cascade Capital Corp. This award honors companies in Summit, Portage, Medina, Ashland, Holmes and Wayne Counties that have experienced significant sales or employment growth. Among the 40 companies that reached this impressive milestone, more than a quarter have a progressive working relationship with Second National. They include:

	•		Darko, Inc • Diskin Enterprises, Inc. • Emerald Environmental, Inc.• Highlander Logo Products • Hunter’s Manufacturing Co., Inc.• Ice Tubes, Inc.• Mid American Security Services, Inc. • Natural Essentials, Inc. • Qualiform, Inc. • Ray’s Discount Drugs, Inc. • Worens Group

Our latest television advertising campaign produced impressive results, not only across all lines of our business, but also within the advertising industry. The “Baker” TV spot, which began airing in January, received a gold award at the 2003 Financial Communications Society (FCS) Portfolio Awards.

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This prestigious award is for Business-to-Business Television, a notoriously tough category in which there were no other winners. The FCS awards seek to promote the best and most innovative broadcast and print work in the financial services industry.

“Baker” was one of three spots produced by Second National and Brokaw Inc. The same campaign received featured status in an online write-up at adweek.com, a weekly trade publication for the advertising and marketing industries. Adweek highlights advertising it believes shines above the rest and extolled our “Baker” TV spot for its unique take on the way we improve the lives of our customers.

Market Area

Second National’s primary market area consists of Trumbull, Ashtabula, Portage, Mahoning, Summit, Medina, Stark, Cuyahoga and Wayne counties in the northeast and east-central portions of Ohio, to the east and south of the Cleveland metropolitan area. The market area’s economy is heavily influenced by the manufacturing sector with an emphasis on steel, auto manufacturing and a variety of related and smaller industries. The area has benefited from an extensive transportation system comprised mainly of railroad and trucking systems.

Competition

There is significant competition in the financial services industry in northeast Ohio among commercial banks. As a result of deregulation of the financial services industry, Second Bancorp also competes with other providers of financial services such as savings and loan associations, credit unions, commercial finance companies, brokerage and securities firms, insurance companies, commercial finance and leasing companies and the mutual fund industry. Some of Second Bancorp’s competitors, including certain regional bank holding companies, which have operations in Second Bancorp’s market area, have substantially greater resources than Second Bancorp, and as such, may have higher lending limits and may offer other services not available through Second National. Second Bancorp also faces significant competition, particularly with respect to interest rates paid on deposit accounts, from well-capitalized local thrift institutions. Second National competes on the basis of rates of interest charged on loans, the rates of interest paid on funds, the availability of services and responsiveness to the needs of its customers.

Regulation

Second Bancorp is a one bank financial holding company and is regulated by the Federal Reserve Bank (the “FRB”). Second National is a national bank and is regulated by the Office of the Comptroller of the Currency (the “OCC”), as well as the Federal Deposit Insurance Corporation (the “FDIC”). Dramatic changes have developed over the past several years regarding minimum capital requirements for financial institutions. A listing of the minimum requirements for capital and Second Bancorp’s capital position as of December 31, 2003 and 2002 are presented in footnote 18 of Item 8; Financial Statements and Supplementary Data and is hereby incorporated by reference. Under applicable regulations, for a depository institution to be well capitalized it must have a total risk-based capital ratio of at least 10%, a Tier I risk based capital ratio of at least 6% and a Tier I leverage ratio of at least 5% and not be subject to any specific capital order or directive. For a depository institution to be adequately capitalized, it must have a total risk-based capital ratio of at least 8%, a Tier I risk-based capital ratio of at least 4% and a Tier I leverage ratio of at least 4% (or in some cases 3%). Under the regulations, a depository institution will be deemed to be undercapitalized if the depository institution has a total risk-based capital ratio that is less than 8%, a Tier I risk-based capital ratio that is less than 4% or a Tier I leverage ratio of less than 4% (or in some cases 3%). A depository institution will be deemed to be significantly undercapitalized if the depository institution has a total risk-based capital ratio that is less than 6%, a Tier I risk-based capital ratio that is less than 3%, or a Tier I leverage ratio that is less than 3% and will be deemed to be critically undercapitalized if it has a ratio of tangible equity to total assets that is equal to less than 2%.

Regulations generally prohibit a depository institution from making a capital distribution (including payment of dividends) or paying management fees to any entity that controls the institution if it thereafter would be undercapitalized. If a depository institution becomes undercapitalized, it will be generally restricted from borrowing from the Federal Reserve, increasing its average total assets, making any acquisitions, establishing any branches or engaging in any new line of business. An undercapitalized institution must submit an acceptable capital restoration plan to the appropriate federal banking agency, which plan must, in the opinion of such agency, be based on realistic assumptions and be “likely to succeed” in restoring the

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depository institution’s capital. In connection with the approval of such a plan, the holding company of the depository institution must guarantee that the institution will comply with the plan, subject to a limitation of liability equal to a portion of the depository institution’s assets. If an undercapitalized depository institution fails to submit an acceptable plan or fails to implement such a plan, it will be treated as if it is significantly undercapitalized.

Bank regulators are directed to require “significantly undercapitalized” depository institutions, among other things, to restrict business activities, raise capital through a sale of stock, merge with another depository institution and/or take any other action which the agency determines would better carry out the purposes of applicable banking laws.

Within 90 days after a depository institution is determined to be “critically undercapitalized”, the appropriate federal banking agency must, in most cases, appoint a receiver or conservator for the institution or take other action. In general, “critically undercapitalized” depository institutions will be prohibited from paying principal or interest on their subordinated debt and will be subject to other substantial restrictions.

Second Bancorp is subject to regulation under the Bank Holding Company Act of 1956, as amended (the “Act”). The Act requires the prior approval of the Federal Reserve Board for a bank holding company to acquire or hold more than a 5% voting interest in any bank, and restricts interstate banking activities. The Act allows interstate bank acquisitions anywhere in the country and interstate branching by acquisition and consolidation in those states that have not opted out by January 1, 1997. Among the states where Second Bancorp may acquire banks are Ohio, Michigan, Indiana, West Virginia and Pennsylvania. The Act restricts non-banking activities to those, which are determined by the Federal Reserve Board to be closely related to banking and a proper incident thereto. The Act does not place territorial restrictions on the activities of non-bank subsidiaries of bank holding companies. The Act also regulates transactions between Second Bancorp and Second National and generally prohibits tie-ins between credit and other products and services. Banking laws and regulations also contain a variety of other provisions that could affect the operations of Second Bancorp, including reporting requirements, regulatory standards for real estate lending, limits on the amount that may be loaned to one borrower, “truth in savings” provisions, the requirement that a depository institution give 90 days’ prior notice to customers and regulatory authorities before closing any branch, limitations on credit exposure between banks, restrictions on loans to a bank’s insiders, guidelines governing regulatory examinations and restrictions on the sharing of customer information.

Second National is subject to regulation under the National Banking Act and is periodically examined by the OCC and is subject, as a member bank, to the rules and regulations of the FRB. Second National is an insured institution and member of the Bank Insurance Fund (“BIF”) and also has approximately $429 million in deposits acquired through acquisitions of savings and loan institutions that are insured through the Savings Association Insurance Fund (“SAIF”). As such, Second National is also subject to regulation by the FDIC. Establishment of branches is subject to approval of the OCC and geographic limits established by state law.

Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act (the “GLB Act”) established a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers through the creation of a “financial holding company” entity. Bank holding companies that elect to become financial holding companies have the ability to expand their activities from those historically permissible for bank holding companies and engage in activities that are financial in nature or complementary to financial activities, including securities and insurance activities, sponsoring mutual funds and investment companies and merchant banking. Financial holding companies are also permitted to acquire, without regulatory approval, a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are deemed financial in nature by the Federal Reserve Board.

In order to become a financial holding company, a bank holding company must file a declaration with the Federal Reserve Bank indicating its desire to become a financial holding company. In addition, all subsidiary banks of the bank holding company must be well capitalized, well managed and have at least a satisfactory rating under the Community Reinvestment Act. Failure to maintain the “well-capitalized” standard or the

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other criteria for a financial holding company may result in requirements to correct the deficiency or limit activities to those allowed bank holding companies.

In 2000, Second Bancorp elected to become a financial holding company.

Deposit Insurance Assessments

The FDIC is authorized to establish separate annual assessment rates for deposit insurance for members of the BIF and the SAIF. The FDIC may increase assessment rates for either fund if necessary to restore the fund’s ratio of reserves to insured deposits to its target level within a reasonable time and may decrease such rates if such target level has been met. The FDIC has established a risk-based assessment system for both BIF and SAIF members. Under this system, assessments vary based on the risk the institution poses to its deposit insurance fund. The risk level is determined based on the institution’s capital level and the FDIC’s level of supervisory concern about the depository institution.

Based upon its respective level of deposits at December 31, 2003, the projected BIF and SAIF assessments for Second National for 2004 will total approximately $174,000.

Interstate Banking and Branching Legislation

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “IBBEA”) authorized interstate acquisitions of banks and bank holding companies without geographic constraint beginning September 29, 1995. Beginning June 1, 1997, the IBBEA also authorizes banks to merge with banks located in another state provided that neither state has “opted out” of interstate branching between September 29, 1994 and May 31, 1997. After acquiring interstate branches through a merger, a bank may establish additional branches in that state at the same locations as any bank involved in the merger could have established branches under state and federal law. In addition, a bank may establish a de novo branch in another state that expressly permits the establishment of such branches. A bank that establishes a de novo interstate branch may thereafter establish additional branches on the same basis as a bank that has established interstate branches through a merger transaction.

If a state “opts out” of interstate branching, no bank from another state may establish a branch in that state, whether through a merger or by a de novo establishment. Pennsylvania, the state in closest proximity to Second National, has opted to permit interstate branching.

Insurance Regulation

Stouffer-Herzog Insurance Agency is subject to the insurance laws and regulations of the State of Ohio and the Ohio Department of Insurance. The insurance laws and regulations require education and licensing of individual agents and agencies, require the filing of reports and impose business conduct rules.

Sarbanes-Oxley Act

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws. The proposed changes are intended to allow shareholders to monitor the performance of companies and directors more easily and efficiently.

The Sarbanes-Oxley Act generally applies to all companies, both U.S. and non-U.S., that file or are required to file reports with the SEC under the Exchange Act. Further, the Sarbanes-Oxley Act includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC, securities exchanges and the NASDAQ Stock Market to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General. Given the extensive role in implementing rules relating to many of the Sarbanes-Oxley Act’s new requirements, the final scope of these requirements remains to be determined.

The Sarbanes-Oxley Act and regulations adopted by the SEC and rules of the NASDAQ stock market implementing the Sarbanes-Oxley Act address, among other matters: audit and nominating committee

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composition and responsibilities; certification of financial statements by the chief executive officer and the chief financial officer; the forfeiture of bonuses and profits made by directors and senior officers in the twelve-month period covered by restated financial statements; a prohibition on insider trading during pension plan black out periods; disclosure of off-balance sheet transactions; a prohibition on personal loans to directors and officers (excluding loans by insured depository institutions that are subject to the insider lending restrictions of the Federal Reserve Act); expedited filing requirements for stock transaction reports by officers and directors; the formation of a public accounting oversight board; auditor independence; and various increased criminal penalties for violations of securities laws.

Employees

The number of full time equivalent employees of Second Bancorp as of December 31, 2003 was approximately 595. Second Bancorp considers its employee relations to be good. None of the employees are covered by a collective bargaining agreement.

Web Site Access to United States Securities and Exchange Commission Filings

Second Bancorp’s internet address is www.secondbancorp.com. All reports filed electronically by Second Bancorp Incorporated with the United States Securities and Exchange Commission (SEC), including the annual report on Form 10-K, quarterly reports on Form 10-Q and current event reports on Form 8-K, as well as any amendments to those reports, are accessible at no cost through the Corporation’s Web site. These filings are also accessible on the SEC’s Web site at www.sec.gov.

Item 2. PROPERTIES

Second Bancorp’s executive offices are located at Second National’s main office building in Warren, Ohio, which is leased by Second National under a long-term triple net lease agreement with a term, including optional renewals, expiring on October 31, 2029. Second National has the option to purchase the main office facility before two optional renewal periods at the fair market value in existence at that time. Second National owns eight of its banking center locations and one administrative building, while Second National’s 25 other banking center locations are leased under lease and sublease agreements with remaining terms of 1 to 20 years. Second National also has leases for five loan production offices for one year and office space locations with remaining lease terms of three to five years.

Item 3. LEGAL PROCEEDINGS

Second Bancorp is subject to various pending and threatened lawsuits in which claims for monetary damages are asserted in the ordinary course of business. While any litigation involves an element of uncertainty, in the opinion of management, liabilities, if any, arising from such litigation or threat thereof will not have a material effect on the financial position or results of operations of Second Bancorp.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no special meetings for shareholders since last year’s annual meeting.

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Item 4 A. IDENTIFICATION OF EXECUTIVE OFFICERS

The following table sets forth the names, ages and business experience for the last five years of each of the executive officers of the Corporation. Each executive officer of the Corporation is appointed by the Board of Directors on an annual basis, and serves at the pleasure of the Board.

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PART II.

Item 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Second Bancorp’s Common Stock trades on The NASDAQ National Market tier of The NASDAQ Stock Market under the trading symbol SECD. As of January 31, 2004, the number of shareholders of record of the Common Stock totaled 2,804. Information regarding stock prices and dividend payments is incorporated herein by reference from Item 7; Management’s Discussion and Analysis of Financial Condition and Results of Operations. Dividend restrictions are detailed in footnote 18 of Item 8; Second Bancorp’s Financial Statements and Supplementary Data, which is incorporated herein by reference.

Equity Compensation Plan information is incorporated herein by reference to Part III, Item 11; Executive Compensation.

The subsidiary Second Bancorp Capital Trust I’s Corporation-obligated mandatorily redeemable capital securities (“Trust Preferred Securities”) also trade on The NASDAQ National Market under the trading symbol SECDP. The securities began trading September 28, 2001 and in 2001 traded to a high of $11.25, and a low of $10.10 and closed at $11.00 on December 31, 2001. In 2002, the securities traded to a high of $11.60, a low of $9.985 and closed at $10.63 on December 31, 2002. In 2003, the securities traded to a high of $11.75, a low of $10.68 and closed at $11.45 on December 31, 2003.

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Item 6. SELECTED FINANCIAL DATA

(Dollars in thousands except per share data or as otherwise indicated)

The following is a summary of the quarterly results of operations for the years ended December 31, 2003 and 2002.

(1)  The sum of the four quarters of earnings per share might not equal the total earnings per share for the full year due to rounding.

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This Selected Financial Data should be read in conjunction with the consolidated financial statements and accompanying notes.

For the Years Ended December 31

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The table below details non-GAAP operating results, including the non-GAAP adjustments to GAAP income for the five years ended December 31:

Selected Financial Data - Non-GAAP Operating Results

The Corporation analyzes its performance on a net income basis determined in accordance with accounting principles generally accepted in the United States, as well as on a non-GAAP operating basis, referred to in this analysis as “non-GAAP operating results” or “non-GAAP operating earnings”. Operating earnings and related discussions are presented as supplementary information in this analysis to enhance the readers’ understanding of, and highlight trends in, the Corporation’s core financial results excluding the nonrecurring effects of discrete activities and events. Operating earnings should not be viewed as a substitute for net income and earnings per share as determined in accordance with accounting principles generally accepted in the United States. Gains from the sale of banking centers, banking center reconfiguration charges, restructuring charges, merger-related costs and cumulative effect of accounting change excluded from net income to derive operating earnings may be significant and may not be comparable to other companies.

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands except per share data or as otherwise indicated)

Forward Looking Statements

Certain sections of this report contain certain forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements may involve significant risks and uncertainties. Although the Corporation believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from these results discussed in these forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. These forward looking statements also may be significantly affected by the proposed merger with Sky Financial Group, Inc. Refer to the section entitled General within Item 1; Business.

This Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes.

Critical Accounting Policies

The Corporation has established various accounting policies, which govern the application of accounting principles generally accepted in the United States in the preparation of the Corporation’s financial statements. The significant accounting principles of the Corporation are described in the notes to the consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by Management, which have a material impact on the carrying value of certain assets and liabilities; Management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by Management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by Management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying value of assets and liabilities and the results of operations of the Corporation.

Allowance for Loan Losses

The Corporation believes the allowance for loan losses is a critical accounting policy that requires the most significant judgments and estimates used in preparation of its consolidated financial statements. Refer to the section entitled Asset Quality and the section Allowance for Loan Losses and Impaired Loans within Note 1, Significant Accounting Policies, for a detailed description of the Corporation’s estimation process and methodology related to the allowance for loan losses.

Valuation of Mortgage Servicing Assets

The Corporation believes the valuation of mortgage servicing assets is a critical accounting policy that requires significant estimates in preparation of its consolidated financial statements. The Corporation recognizes as separate assets the value of mortgage servicing rights, whether those rights are acquired through loan origination activities or through purchase activities. Refer to the section entitled Servicing Assets and the section Mortgage Servicing Assets within Note 1, Significant Accounting Policies and Note 13, Servicing Assets, for a detailed description of the Corporation’s process and methodology.

Pension Expense

The Corporation believes that the actuarial assumptions used to calculate the Corporation’s pension expense is a critical accounting policy that utilizes estimates in preparation of its consolidated financial statements. The assumptions utilized include the discount rate and expected return on plan assets.

The Corporation intends to maintain the expected return on plan assets at 8.75% in 2004. The Corporation had planned to use a 9.0% expected return on plan assets in 2003 but changed the assumption to 8.75%. Total pension expense in 2004 is expected to be $1,700 as compared to $1,397, $616 and $289 in 2003, 2002 and 2001, respectively.

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Derivative Instruments

The Corporation believes that SFAS No. 133 - Accounting for Derivative Instruments and Hedging Activities is a critical accounting policy that utilizes estimates in preparation of its consolidated financial statements. The Corporation utilizes derivative instruments in managing risks associated with mortgage servicing assets as well as for managing interest rate risk and its potential impact on the Corporation’s earnings stream. Refer to the section entitled Derivative Instruments within Note 1, Significant Accounting Policies, for a detailed description of the Corporation’s process and methodology.

Results of Operations

Net income for 2003 totaled $23,155 and represents a $5,155, or a 28.6% increase over net income for 2002. Net income in 2003 was impacted by a $5,619 gain on sale of two banking centers. Net income in 2002 was impacted by a $2,096 expense for the execution of a banking center reconfiguration strategy. The strategy is designed to improve the overall growth potential and profitability of the retail banking center network. Included in the reconfiguration strategy is the sale of two banking centers (which occurred in the first quarter of 2003), the closure of two facilities in 2002, the consolidation of four facilities into two larger, more accessible facilities (one consolidation was completed in 2003, the other is scheduled to be completed in 2004), the relocation of two facilities to larger, more accessible locations (one relocation occurred in 2003, the other relocation is scheduled to occur in 2004) and the de novo opening of a new banking center in the new market of Wooster, Ohio in 2003. Net income for 2001 totaled $17,080 and included a $101 reduction in income from the cumulative effect of an accounting change related to the implementation of SFAS No. 133. Net income in 2002 and 2001 was minimally impacted by $134 and $305, respectively, in pre-tax merger costs. The merger-related costs were related to the acquisition of Stouffer-Herzog Insurance Agency. The 2001 merger-related costs were associated with the acquisition of Commerce Exchange Corporation (“Commerce”). The acquisition of Commerce gives the Corporation further access to the attractive commercial lending market in the suburban Cleveland market.

Also prominent among the factors positively impacting 2003 and 2002 earnings were the higher levels of mortgage banking activities, including the origination and sale of mortgages into the secondary market. Over $1.19 billion and $920 million in mortgage loans were originated in 2003 and 2002, respectively. Nearly $1.09 billion and $865 million in residential mortgage loans were sold in 2003 and 2002, respectively, generating $14.8 million and $10.5 million in gains during those same periods.

Also prominent in the trend in earnings over the past three years has been the compression of the Corporation’s net interest margin brought on by three consecutive years of a low interest rate environment. The net interest margin improved slightly in 2002 to 3.56% from 3.49% in 2001 primarily due to lower funding costs. In 2003, a reduction in longer-term interest rates created accelerated prepayments for long-term loans (primarily mortgages) and securities (primarily mortgage-backed and collateralized mortgage obligations). The accelerated prepayments created a reduction in asset yields and an accompanying reduction in the net interest margin to 3.14%.

The Corporation’s return on average assets (“ROA”) was 1.18%, 1.03% and 1.09% for 2003, 2002 and 2001, respectively. The total shareholders’ return on average equity (“ROE”) was 17.06%, 13.42% and 13.93% in 2003, 2002 and 2001, respectively. The ratios were impacted by the non-recurring gains on sale of banking centers, banking center reconfiguration changes and merger costs. Absent these non-recurring items, the non-GAAP ratios for ROA for the three years were 0.99%, 1.11% and 1.09%, respectively while the non-GAAP ROE for the three years were 14.37%, 14.49% and 13.93%, respectively. After improved operating performance in 2002, both ratios declined in 2003 due primarily to the reduced net interest margin and its impact on net interest income. Both the GAAP and non-GAAP ROE were positively influenced by the continued buy back of the Corporation’s common stock.

Diluted earnings per share (“EPS”) were $2.41, $1.79 and $1.69 in 2003, 2002 and 2001, respectively. The improvement in EPS from 2002 to 2003 is almost entirely due to the non-recurring gain on sale of banking centers in 2003 and banking center reconfiguration costs in 2002. The market value of the Corporation’s common stock, trading under the NASDAQ symbol of SECD, was relatively stable in 2003, finishing the year at $26.40 as compared to $26.50 at the end of 2002. The stock price is still improved from its year end 2001 and 2000 closing prices of $21.61 and $14.50, respectively. The stock price at year-end 2003 represents a price of 182% of book value, relatively unchanged from 189% at the end of

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2002. The price/earnings ratio for the stock at year-end 2003 (based on the trailing twelve months earnings) was 11.0X. Dividends declared in 2003 totaled $0.76 per share compared to $0.72 and $0.68 per share in 2002 and 2001, respectively.

Net Interest Income

Revenue continues to be provided primarily from interest and fees on loans, which totaled $76,493, $80,593 and $86,723 in 2003, 2002 and 2001, respectively. This represents 54%, 62% and 66% of total revenues for those years. The decline in the dollar amount of loan interest is due entirely to the reduction in yields brought on by the continued low interest rate environment. The percentage decline is due to the increased revenue from mortgage banking activities in 2002 and 2003. Interest income on securities is also a major source of revenue, contributing 18%, 20% and 19% of revenues in 2003, 2002 and 2001, respectively.

Net interest income declined by 1.0% from 2002 to 2003 as the decline in the net interest margin from 3.56% to 3.14% during the same time frame more than offset the 12.2% increase in average earning assets over the past year. Net interest income improved by 12.5% in 2002 as compared to 2001 due primarily to a 9.4% increase in average earning assets and a seven basis point improvement in the net interest margin.

The relationship between net interest income, fully taxable equivalent (“FTE”) net interest income, earning assets and net interest margin for the past three years follows:

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Net interest income can be analyzed through the use of the Yields Analysis table. The table shows a three-year comparison of the average balance of interest earning assets and interest bearing liabilities along with interest and yields associated with them.

Yields Analysis