##### 



U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

|     |                                                                                                                                      
|---- | -------------------------------------------------------------------------------------------------------------------------------------
|[X]  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003.
|    
|[  ] | 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 0-29837

FIRST SHARES BANCORP, INC.
(Exact name of small business issuer as specified in its charter)

|                                                                                 |  |                                                
|-------------------------------------------------------------------------------- |  | -----------------------------------------------
|INDIANA
(State or other jurisdiction of
incorporation or organization)           |  | 35-1948962
(I.R.S. Employer
Identification No.)
|                                                                                
|996 South State Road 135, Greenwood, IN
(Address of principal executive offices) |  | 46143
(Zip Code)                               

(317) 882-4790
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) 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
Common Stock, with $.01 par |  | Outstanding at August 11, 2003
1,579,162 shares

Transitional Small Business Format:
Yes ( )    No ( X )





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1



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##### 



FIRST SHARES BANCORP, INC.
INDEX

|                               |  |                                                                                                       
|------------------------------ |  | ------------------------------------------------------------------------------------------------------
|PART I.  FINANCIAL INFORMATION
|                              
|Item 1.                        |  |                                                                                                       
|                              
|                               |  | Consolidated Balance Sheets  June 30, 2003 and December 31, 2002                                     
|                              
|                               |  | Consolidated Statements of Income and Comprehensive Income  Six Months
Ended June 30, 2003 and 2002  
|                              
|                               |  | Consolidated Statements of Income and Comprehensive Income  Three Months
Ended June 30, 2003 and 2002
|                              
|                               |  | Consolidated Statements of Cash Flows  Six Months Ended June 30, 2003 and 2002                       
|                              
|                               |  | Notes to Consolidated Financial Statements  June 30, 2003                                            
|                              
|Item 2.                        |  |                                                                                                       
|                              
|                               |  | Managements Discussion and Analysis of Financial Condition and Results
of Operations                 
|                              
|Item 3.                        |  |                                                                                                       
|                              
|                               |  | Controls and Procedures                                                                               
|                              
|PART II.  OTHER INFORMATION   
|                              
|Item 4.                        |  |                                                                                                       
|                              
|                               |  | Submission of Matters to a Vote of Security Holders                                                   
|                              
|Item 6.                        |  |                                                                                                       
|                              
|                               |  | Exhibits and Reports on Form 8-K                                                                      
|                              
|SIGNATURES                    





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2



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##### 



FIRST SHARES BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share data)

---

|                                             |                                                                                                    |                |         |             |         |   |              |         |         | 
|-------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------- | ------- | ----------- | ------- | - | ------------ | ------- | ------- | 
|                                             |                                                                                                    |                |         | (Unaudited) |        
|                                             |                                                                                                    |                |         | June 30,    |         |   | December 31, |        
|                                             |                                                                                                    |                |         | 2003        |         |   | 2002         |        
|                                             |                                                                                                    |                |         |             |         |   |              |        
|ASSETS                                       |                                                                                                   
|Cash and due from banks                      |                                                                                                    | $              | 15,890  |             |         | $ | 5,348        |        
|Securities available for sale                |                                                                                                    |                | 30,535  |             |         |   | 26,810       |        
|FHLB stock, at cost                          |                                                                                                    |                | 670     |             |         |   | 670          |        
|Loans held for sale                          |                                                                                                    |                | 2,260   |             |         |   | 5,778        |        
|Loans, net of allowance ($1,553 and $1,386)  |                                                                                                    |                | 122,156 |             |         |   | 110,443      |        
|Premises and equipment, net                  |                                                                                                    |                | 2,385   |             |         |   | 2,057        |        
|Intangible assets, net                       |                                                                                                    |                | 54      |             |         |   | 75           |        
|Cash surrender value of life insurance       |                                                                                                    |                | 2,486   |             |         |   | 2,427        |        
|Accrued interest receivable and other assets |                                                                                                    |                | 1,507   |             |         |   | 1,704        |        
|                                             |                                                                                                    |                |         |             |         |  
|                                             |                                                                                                    | $              | 177,943 |             |         | $ | 155,312      |        
|                                             |                                                                                                    |                |         |             |         |  
|LIABILITIES
AND SHAREHOLDERS EQUITY         |                                                                                                   
|Liabilities                                 
|                                             | Noninterest-bearing deposits                                                                       |                | $       | 20,745      |         |   | $            | 15,750  |        
|                                             | Interest-bearing deposits                                                                          |                |         | 125,646     |         |   |              | 107,313 |        
|                                             |                                                                                                    |                |         |             |         |  
|                                             |                                                                                                    | Total deposits |         |             | 146,391 |   |              |         | 123,063 | 
|                                             | Federal Home Loan Bank advances                                                                    |                |         | 9,000       |         |   |              | 8,700   |        
|                                             | Federal funds purchased                                                                            |                |         | 711         |         |   |              | 2,245   |        
|                                             | Repurchase agreements                                                                              |                |         | 5,425       |         |   |              | 5,684   |        
|                                             | Note Payable                                                                                       |                |         | 1,350       |         |   |              | 1,475   |        
|                                             | Debentures                                                                                         |                |         | 5,000       |         |   |              | 5,000   |        
|                                             | Accrued interest payable and other liabilities                                                     |                |         | 650         |         |   |              | 583     |        
|                                             |                                                                                                    |                |         |             |         |  
|                                             |                                                                                                    |                | 168,527 |             |         |   | 146,750      |        
|Shareholdersequity                          |                                                                                                   
|                                             | Preferred stock, 2,000,000 shares authorized;
none outstanding                                     |                |         |            |         |   |              |        |        
|                                             | Common stock, $.01 par value: 10,000,000 shares
authorized,1,579,162 shares issued and outstanding |                |         | 16          |         |   |              | 16      |        
|                                             | Additional paid in capital                                                                         |                |         | 4,674       |         |   |              | 4,674   |        
|                                             | Retained earnings                                                                                  |                |         | 4,463       |         |   |              | 3,912   |        
|                                             | Accumulated other comprehensive income/(loss)                                                      |                |         | 263         |         |   |              | (40     | )      
|                                             |                                                                                                    |                |         |             |         |  
|                                             |                                                                                                    |                | 9,416   |             |         |   | 8,562        |        
|                                             |                                                                                                    |                |         |             |         |  
|                                             |                                                                                                    | $              | 177,943 |             |         | $ | 155,312      |        
|                                             |                                                                                                    |                |         |             |         |  





---

See accompanying notes

3



---



##### 



FIRST SHARES BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Six months ended June 30, 2003 and 2002
(Unaudited)
(Dollar amounts in thousands, except per share data)

---

|                                                    |                                                    |                           |       |       |       |   |       |       |       | 
|--------------------------------------------------- | -------------------------------------------------- | ------------------------- | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                    |                                                    |                           |       | 2003  |       |   | 2002  |      
|                                                    |                                                    |                           |       |       |       |   |       |      
|Interest income                                     |                                                    |                           |       |       |       |   |       |      
|                                                    | Loans, including related fees                      |                           | $     | 4,056 |       |   | $     | 3,559 |      
|                                                    | Taxable securities                                 |                           |       | 542   |       |   |       | 804   |      
|                                                    | Nontaxable securities                              |                           |       | 170   |       |   |       | 17    |      
|                                                    | Other                                              |                           |       | 14    |       |   |       | 15    |      
|                                                    |                                                    |                           |       |       |       |  
|                                                    |                                                    | Total Interest Income     |       |       | 4,782 |   |       |       | 4,395 | 
|Interest expense
Deposits                           |                                                    |                           | 1,474 |       |       |   | 1,600 |      
|                                                    | Other                                              |                           |       | 387   |       |   |       | 209   |      
|                                                    |                                                    |                           |       |       |       |  
|                                                    |                                                    | Total Interest Expense    |       |       | 1,861 |   |       |       | 1,809 | 
|                                                    |                                                    |                           |       |       |       |  
|Net interest income                                 |                                                    |                           | 2,921 |       |       |   | 2,586 |      
|Provision for loan losses                           |                                                    |                           | 230   |       |       |   | 110   |      
|                                                    |                                                    |                           |       |       |       |  
|Net interest income after provision for loan losses |                                                    |                           | 2,691 |       |       |   | 2,476 |      
|Noninterest income                                  |                                                    |                           |       |       |       |   |       |      
|                                                    | Service charges on deposit accounts                |                           |       | 218   |       |   |       | 189   |      
|                                                    | Gain on sale of loans                              |                           |       | 783   |       |   |       | 275   |      
|                                                    | Increase in cash surrender value of life insurance |                           |       | 59    |       |   |       | 75    |      
|                                                    | Securities gains                                   |                           |       | 228   |       |   |       | 52    |      
|                                                    | Other                                              |                           |       | 96    |       |   |       | 110   |      
|                                                    |                                                    |                           |       |       |       |  
|                                                    |                                                    | Total Noninterest Income  |       |       | 1,384 |   |       |       | 701   | 
|Noninterest expenses                                |                                                    |                           |       |       |       |   |       |      
|                                                    | Salaries and employee benefits                     |                           |       | 2,036 |       |   |       | 1,448 |      
|                                                    | Occupancy                                          |                           |       | 237   |       |   |       | 210   |      
|                                                    | Equipment and data processing                      |                           |       | 233   |       |   |       | 214   |      
|                                                    | Telephone                                          |                           |       | 74    |       |   |       | 63    |      
|                                                    | Professional services                              |                           |       | 85    |       |   |       | 19    |      
|                                                    | Other                                              |                           |       | 629   |       |   |       | 502   |      
|                                                    |                                                    |                           |       |       |       |  
|                                                    |                                                    | Total Noninterest Expense |       |       | 3,294 |   |       |       | 2,456 | 
|                                                    |                                                    |                           |       |       |       |  
|Income before income taxes                          |                                                    |                           | 781   |       |       |   | 721   |      
|Income tax expense (benefit)                        |                                                    |                           | 230   |       |       |   | (125  | )    
|                                                    |                                                    |                           |       |       |       |  
|Net income                                          |                                                    | $                         | 551   |       |       | $ | 846   |      
|                                                    |                                                    |                           |       |       |       |  
|Comprehensive Income                                |                                                    | $                         | 854   |       |       | $ | 816   |      
|                                                    |                                                    |                           |       |       |       |  
|Per share data                                      |                                                    |                           |       |       |       |   |       |      
|                                                    | Earnings per share                                 |                           | $     | .35   |       |   | $     | .54   |      
|                                                    | Earnings per share, assuming dilution              |                           |       | .29   |       |   |       | .53   |      





---

See accompanying notes

4



---



##### 



FIRST SHARES BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three months ended June 30, 2003 and 2002
(Unaudited)
(Dollar amounts in thousands, except per share data)

---

|                                                    |                                                    |                           |       |       |       |   |       |       |       | 
|--------------------------------------------------- | -------------------------------------------------- | ------------------------- | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                                    |                                                    |                           |       | 2003  |       |   | 2002  |      
|                                                    |                                                    |                           |       |       |       |   |       |      
|Interest income                                     |                                                    |                           |       |       |       |   |       |      
|                                                    | Loans, including related fees                      |                           | $     | 2,059 |       |   | $     | 1,781 |      
|                                                    | Taxable securities                                 |                           |       | 297   |       |   |       | 441   |      
|                                                    | Nontaxable securities                              |                           |       | 82    |       |   |       | 9     |      
|                                                    | Other                                              |                           |       | 3     |       |   |       | 7     |      
|                                                    |                                                    |                           |       |       |       |  
|                                                    |                                                    | Total Interest Income     |       |       | 2,441 |   |       |       | 2,238 | 
|Interest expense
Deposits                           |                                                    |                           | 713   |       |       |   | 770   |      
|                                                    | Other                                              |                           |       | 198   |       |   |       | 141   |      
|                                                    |                                                    |                           |       |       |       |  
|                                                    |                                                    | Total Interest Expense    |       |       | 911   |   |       |       | 911   | 
|                                                    |                                                    |                           |       |       |       |  
|Net interest income                                 |                                                    |                           | 1,530 |       |       |   | 1,327 |      
|Provision for loan losses                           |                                                    |                           | 120   |       |       |   | 60    |      
|                                                    |                                                    |                           |       |       |       |  
|Net interest income after provision for loan losses |                                                    |                           | 1,410 |       |       |   | 1,267 |      
|Noninterest income                                  |                                                    |                           |       |       |       |   |       |      
|                                                    | Service charges on deposit accounts                |                           |       | 112   |       |   |       | 106   |      
|                                                    | Gain of sale of loans                              |                           |       | 430   |       |   |       | 157   |      
|                                                    | Increase in cash surrender value of life insurance |                           |       | 29    |       |   |       | 42    |      
|                                                    | Securities gains                                   |                           |       | 137   |       |   |       | 52    |      
|                                                    | Other                                              |                           |       | 45    |       |   |       | 55    |      
|                                                    |                                                    |                           |       |       |       |  
|                                                    |                                                    | Total Noninterest Income  |       |       | 753   |   |       |       | 412   | 
|Noninterest expenses                                |                                                    |                           |       |       |       |   |       |      
|                                                    | Salaries and employee benefits                     |                           |       | 1,024 |       |   |       | 719   |      
|                                                    | Occupancy                                          |                           |       | 111   |       |   |       | 100   |      
|                                                    | Equipment and data processing                      |                           |       | 119   |       |   |       | 100   |      
|                                                    | Telephone                                          |                           |       | 37    |       |   |       | 36    |      
|                                                    | Professional services                              |                           |       | 46    |       |   |       | 19    |      
|                                                    | Other                                              |                           |       | 298   |       |   |       | 269   |      
|                                                    |                                                    |                           |       |       |       |  
|                                                    |                                                    | Total Noninterest Expense |       |       | 1,635 |   |       |       | 1,243 | 
|                                                    |                                                    |                           |       |       |       |  
|Income before income taxes                          |                                                    |                           | 528   |       |       |   | 436   |      
|Income tax expense (benefit)                        |                                                    |                           | 171   |       |       |   | (125  | )    
|                                                    |                                                    |                           |       |       |       |  
|Net income                                          |                                                    | $                         | 357   |       |       | $ | 561   |      
|                                                    |                                                    |                           |       |       |       |  
|Comprehensive Income                                |                                                    | $                         | 577   |       |       | $ | 664   |      
|                                                    |                                                    |                           |       |       |       |  
|Per share data                                      |                                                    |                           |       |       |       |   |       |      
|                                                    | Earnings per share                                 |                           | $     | .23   |       |   | $     | .36   |      
|                                                    | Earnings per share, assuming dilution              |                           |       | .18   |       |   |       | .35   |      





---

See accompanying notes

5



---



##### 



FIRST SHARES BANCORP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2003 and 2002
(Unaudited)
(Dollar amounts in thousands)

---

|                                     |                                                  |                                                                                                |                                                  |                                                    |        |         |         |        |       |        |         |  
|------------------------------------ | ------------------------------------------------ | ---------------------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------------------------------- | ------ | ------- | ------- | ------ | ----- | ------ | ------- | -
|                                     |                                                  |                                                                                                |                                                  |                                                    |        | 2003    |         |        | 2002  |       
|                                     |                                                  |                                                                                                |                                                  |                                                    |        |         |         |        |       |       
|Cash flows from operating activities |                                                  |                                                                                                |                                                  |                                                    |        |         |         |       
|                                     |                                                  | Net income                                                                                     |                                                  | $                                                  | 551    |         |         | $      | 846   |       
|                                     |                                                  | Adjustments to reconcile net income                                                            |                                                  |                                                    |        |         |         |        |       |       
|                                     |                                                  |                                                                                                | to net cash from operating activities:           |                                                    |        |         |         |        |       |        |        
|                                     |                                                  |                                                                                                |                                                  | Depreciation and amortization                      |        |         | 167     |        |       |        | 157     |  
|                                     |                                                  |                                                                                                |                                                  | Provision for loan losses                          |        |         | 230     |        |       |        | 110     |  
|                                     |                                                  |                                                                                                |                                                  | Discount (accretion) and premium amortization      |        |         | 170     |        |       |        | 28      |  
|                                     |                                                  |                                                                                                |                                                  | (Gain) on sale of securities                       |        |         | (228    | )      |       |        | (52     | )
|                                     |                                                  |                                                                                                |                                                  | (Gain) on sale of other real estate owned          |        |         |        |        |       |        | (16     | )
|                                     |                                                  |                                                                                                |                                                  | Amortization of intangible assets                  |        |         | 21      |        |       |        | 22      |  
|                                     |                                                  |                                                                                                |                                                  | Changes in assets and liabilities:                 |        |         |         |        |       |        |         |  
|                                     |                                                  |                                                                                                |                                                  | Loans held for sale                                |        |         | 3,518   |        |       |        | 2,192   |  
|                                     |                                                  |                                                                                                |                                                  | Increase in cash surrender value of life insurance |        |         | (59     | )      |       |        | (67     | )
|                                     |                                                  |                                                                                                |                                                  | Interest receivable and other assets               |        |         | 197     |        |       |        | (957    | )
|                                     |                                                  |                                                                                                |                                                  | Interest payable and other liabilities             |        |         | (132    | )      |       |        | 108     |  
|                                     |                                                  |                                                                                                |                                                  |                                                    |        |        
|                                     |                                                  |                                                                                                |                                                  | Net cash from operating activities                 |        |         | 4,435   |        |       |        | 2,371   |  
|Cash flows from investing activities |                                                  |                                                                                                |                                                  |                                                    |        |         |         |       
|                                     |                                                  | Proceeds from sales, calls, maturities and principal
payments on securities available for sale |                                                  |                                                    | 35,010 |         |         |        | 7,695 |       
|                                     |                                                  | Proceeds from maturities of securities held to maturity                                        |                                                  |                                                    |       |         |         |        | 160   |       
|                                     |                                                  |                                                                                                |                                                  | Purchases of securities available for sale         |        |         | (38,175 | )      |       |        | (17,164 | )
|                                     |                                                  |                                                                                                | Loans made to customers net of payments received |                                                    |        | (11,943 | )       |        |       | (5,869 | )      
|                                     |                                                  |                                                                                                | Premises and equipment purchases                 |                                                    |        | (495    | )       |        |       | (95    | )      
|                                     |                                                  |                                                                                                | Proceeds from sale of other real estate owned    |                                                    |        |        |         |        |       | 87     |        
|                                     |                                                  |                                                                                                |                                                  |                                                    |        |        
|                                     |                                                  |                                                                                                |                                                  | Net cash from investing activities                 |        |         | (15,603 | )      |       |        | (15,186 | )
|                                     | Cash flows from financing activities             |                                                                                                |                                                  |                                                    |        |         |         |        |      
|                                     |                                                  |                                                                                                | Change in deposit accounts                       |                                                    |        | 23,328  |         |        |       | 9,864  |        
|                                     |                                                  |                                                                                                | Payments on Federal Home Loan Bank advances      |                                                    |        | (7,700  | )       |        |       |       |        
|                                     |                                                  |                                                                                                | Proceeds from Federal Home Loan Bank advance     |                                                    |        | 8,000   |         |        |       |       |        
|                                     |                                                  |                                                                                                | Change in repurchase agreements                  |                                                    |        | (259    | )       |        |       | 1,619  |        
|                                     |                                                  |                                                                                                | Change in Federal Funds purchased                |                                                    |        | (1,534  | )       |        |       |       |        
|                                     |                                                  |                                                                                                | Proceeds from Note Payable                       |                                                    |        | 1,350   |         |        |       | 90     |        
|                                     |                                                  |                                                                                                | Payments on Note Payable                         |                                                    |        | (1,475  | )       |        |       |       |        
|                                     |                                                  |                                                                                                | Debentures                                       |                                                    |        |        |         |        |       | 4,975  |        
|                                     |                                                  |                                                                                                |                                                  |                                                    |        |        
|                                     |                                                  |                                                                                                |                                                  | Net cash from financing activities                 |        |         | 21,710  |        |       |        | 16,548  |  
|                                     |                                                  |                                                                                                |                                                  |                                                    |        |        
|                                     | Net change in cash and cash equivalents          |                                                                                                |                                                  | 10,542                                             |        |         |         | 3,733  |      
|                                     | Cash and cash equivalents at beginning of period |                                                                                                |                                                  | 5,348                                              |        |         |         | 6,308  |      
|                                     |                                                  |                                                                                                |                                                  |                                                    |        |        
|                                     | Cash and cash equivalents at end of period       |                                                                                                | $                                                | 15,890                                             |        |         | $       | 10,041 |      
|                                     |                                                  |                                                                                                |                                                  |                                                    |        |        





---

See accompanying notes

6



---



##### 



FIRST SHARES BANCORP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2003
(Dollar amounts in thousands, except per share data)

NOTE 1  BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
First Shares Bancorp, Inc. (the Company) and its wholly owned subsidiary, First
Bank (the Bank). The significant accounting policies followed for interim
financial reporting are consistent with the policies followed for annual
reporting. The consolidated interim financial statements have been prepared
according to accounting principles generally accepted in the United States of
America and in accordance with the instructions for Form 10-QSB. The interim
statements do not include all information and footnotes normally included in
the annual financial statements. It is the opinion of management that all
adjustments necessary for a fair presentation of the results for the reporting
period have been included in the accompanying consolidated financial statements
and all adjustments are of a normal recurring nature. Certain prior period
information may be reclassified to conform to the 2003 presentation.

Newly Issued But Not Yet Effective Accounting Standards: The Financial
Accounting Standards Board (FASB) recently issued two new accounting standards,
Statement 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities,and Statement 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equities,both of which generally
become effective in the quarter beginning July 1, 2003.

Because the Company does not have these instruments or is only nominally
involved in these instruments, the new accounting standards will not materially
affect the Companys operating results or financial condition.

Stock Compensation: Employee compensation expense under stock options is
reported using the intrinsic value method. No stock-based compensation cost is
reflected in net income, as all options granted have an exercise price equal to
or greater than the market price of the underlying common stock at date of
grant. The following table illustrates the effect on net income and earnings
per share if expense was measured using the fair value recognition provisions
of FASB Statement No. 123, Accounting for Stock-Based Compensation.

|                                                                                  |  |                |     |   |                |   |     |      |  |   |      |   |  |   |     |  
|--------------------------------------------------------------------------------- |  | -------------- | --- | - | -------------- | - | --- | ---- |  | - | ---- | - |  | - | --- | -
|                                                                                  |  | 6 months
ended |     |   | 3 months
ended |  
|                                                                                  |  | June
30,       |     |   | June 30,       |  
|                                                                                  |  |                |     |   |                |  
|                                                                                  |  | 2003           |     |   | 2002           |   |     | 2003 |  |   | 2002 |  
|                                                                                  |  |                |     |   |                |   |     |      |  |   |      |  
|Net income as reported                                                            |  | $              | 551 |   |                | $ | 846 |      |  | $ | 357  |   |  | $ | 561 |  
|Deduct: Stock-based compensation expense
determined under fair value based method |  |                | (9  | ) |                |   | (12 | )    |  |   | (3   | ) |  |   | (6  | )
|                                                                                  |  |                |     |   |                |   |     |      |  |   |      |  
|Pro forma net income                                                              |  |                | 542 |   |                |   | 834 |      |  |   | 354  |   |  |   | 555 |  
|                                                                                 
|Basic earnings per share as reported                                              |  |                | .35 |   |                |   | .54 |      |  |   | .23  |   |  |   | .36 |  
|Pro forma basic earnings per share                                                |  |                | .34 |   |                |   | .53 |      |  |   | .22  |   |  |   | .35 |  
|                                                                                 
|Diluted earnings per share as reported                                            |  |                | .29 |   |                |   | .53 |      |  |   | .18  |   |  |   | .35 |  
|Pro forma diluted earnings per share                                              |  |                | .29 |   |                |   | .52 |      |  |   | .18  |   |  |   | .35 |  

7



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##### 



FIRST SHARES BANCORP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2003
(Dollar amounts in thousands, except per share data)

NOTE 2  SECURITIES

The fair values of securities available for sale and related gains and losses
recognized in accumulated other comprehensive income (loss) were as follows:

|                                                                 |  |       |        |  |            |       |     |            |       |   |      |  
|---------------------------------------------------------------- |  | ----- | ------ |  | ---------- | ----- | --- | ---------- | ----- | - | ---- | -
|                                                                 |  |       |        |  |            | Gross |     |            | Gross |  
|                                                                 |  | Fair  |        |  | Unrealized |       |     | Unrealized |      
|                                                                 |  | Value |        |  | Gains      |       |     | Losses     |      
|                                                                 |  |       |        |  |            |       |     |            |      
|June 30, 2003
U.S. Treasury and government agency securities     |  | $     | 7,367  |  |            | $     | 89  |            |       | $ | (1   | )
|Obligations of states and political subdivisions                 |  |       | 11,209 |  |            |       | 231 |            |       |   | (47  | )
|Other securities                                                 |  |       | 7,297  |  |            |       | 248 |            |       |   | (106 | )
|Mortgage backed securities                                       |  |       | 4,662  |  |            |       | 25  |            |       |   | (3   | )
|                                                                 |  |       |        |  |            |       |     |            |      
|                                                                 |  | $     | 30,535 |  |            | $     | 593 |            |       | $ | (157 | )
|                                                                 |  |       |        |  |            |       |     |            |      
|December 31, 2002
U.S. Treasury and government agency securities |  | $     | 5,195  |  |            | $     | 94  |            |       | $ | (11  | )
|Obligations of states and political subdivisions                 |  |       | 7,892  |  |            |       | 33  |            |       |   | (121 | )
|Other securities                                                 |  |       | 6,842  |  |            |       | 56  |            |       |   | (111 | )
|Mortgage backed securities                                       |  |       | 6,881  |  |            |       | 27  |            |       |   | (33  | )
|                                                                 |  |       |        |  |            |       |     |            |      
|                                                                 |  | $     | 26,810 |  |            | $     | 210 |            |       | $ | (276 | )
|                                                                 |  |       |        |  |            |       |     |            |      

NOTE 3  LOANS

Total loans are comprised of the following:

|                                |          |   |          |         |  |              |         |         | 
|------------------------------- | -------- | - | -------- | ------- |  | ------------ | ------- | ------- | 
|                                |          |   | June 30, |         |  | December 31, |        
|                                |          |   | 2003     |         |  | 2002         |        
|                                |          |   |          |         |  |              |        
|Commercial                      |          | $ | 27,933   |         |  | $            | 25,461  |        
|Commercial Real Estate          |          |   | 16,811   |         |  |              | 15,797  |        
|Residential Real Estate         |          |   | 34,093   |         |  |              | 27,119  |        
|Construction                    |          |   | 16,452   |         |  |              | 15,595  |        
|Consumer                        |          |   | 28,420   |         |  |              | 27,857  |        
|                                |          |   |          |         |  |             
|                                | Subtotal |   |          | 123,709 |  |              |         | 111,829 | 
|Less: Allowance for loan losses |          |   | (1,553   | )       |  |              | (1,386  | )      
|                                |          |   |          |         |  |             
|                                |          | $ | 122,156  |         |  | $            | 110,443 |        
|                                |          |   |          |         |  |             

8



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##### 



FIRST SHARES BANCORP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2003
(Dollar amounts in thousands, except per share data)

NOTE 4  ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses follows:

|                                |  |   |          |   |  |          |       |   | 
|------------------------------- |  | - | -------- | - |  | -------- | ----- | - | 
|                                |  |   | June 30, |   |  | June 30, |      
|                                |  |   | 2003     |   |  | 2002     |      
|                                |  |   |          |   |  |          |      
|Balance, January 1              |  | $ | 1,386    |   |  | $        | 1,148 |  
|Provision charged to operations |  |   | 230      |   |  |          | 110   |  
|Loans charged off               |  |   | (83      | ) |  |          | (47   | )
|Recoveries                      |  |   | 20       |   |  |          | 12    |  
|                                |  |   |          |   |  |          |      
|Balance, June 30                |  | $ | 1,553    |   |  | $        | 1,223 |  
|                                |  |   |          |   |  |          |      

NOTE 5  BORROWINGS

The Bank has advances from the Federal Home Loan Bank. Advances at June 30,
2003 and December 31, 2002 were as follows:

|                  |  |               |  |  |               |       |  |                   |   |       |  | 
|----------------- |  | ------------- |  |  | ------------- | ----- |  | ----------------- | - | ----- |  | 
|Maturity Date     |  | Interest Rate |  |  | June 30,
2003 |       |  | December 31,
2002 |  
|                 
|June 18, 2003     |  | 1.51%         |  |  | $             |      |  |                   | $ | 5,700 | 
|December 2, 2003  |  | 1.35%         |  |  |               | 4,000 |  |                   |   |      | 
|March 7, 2005     |  | 1.89%         |  |  |               | 2,000 |  |                   |   |      | 
|January 23, 2006  |  | 4.73%         |  |  |               | 1,000 |  |                   |   | 1,000 | 
|December 27, 2010 |  | 5.30%         |  |  |               | 1,000 |  |                   |   | 1,000 | 
|March 7, 2011     |  | 4.75%         |  |  |               | 1,000 |  |                   |   | 1,000 | 
|                  |  |               |  |  |               |       |  |                   |  
|                  |  |               |  |  |               | 9,000 |  |                   |   | 9,000 | 
|                  |  |               |  |  |               |       |  |                   |  

The advances are collateralized by first mortgage loans under a blanket lien
arrangement.

The Company maintains a note payable with a financial institution. The
outstanding balance at June 30, 2003 and December 31, 2002 was $1,350 and
$1,475, respectively. The outstanding balance accrues interest at prime minus
     .50% (the interest rate was 3.50% at June 30, 2003). The note requires monthly
principal payments of $25 plus interest. The note has a maturity date of March
1, 2008.

The Company also has outstanding Debentures that are unsecured and
subordinated, have a term of approximately 9 years, and accrue interest at 8%
per annum payable quarterly in arrears. The Debentures mature on July 1, 2011,
but are redeemable by the Company at any time prior to their maturity. Stock
Purchase Contracts issued in connection with the Debentures require a purchaser
to buy common shares of the Company at $6.67 per share on January 1, 2011. A
purchaser may elect to purchase the common shares of the Company at any time
prior to that date at the same price per share. The Stock Purchase Contracts
will be cancelled in the event the Debentures are redeemed.

9



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##### 



FIRST SHARES BANCORP, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2003
(Dollar amounts in thousands, except per share data)

NOTE 6  EARNINGS (LOSS) PER SHARE

Basic earnings per share is computed by dividing net income by the weighted
average shares outstanding during the period. A reconciliation of the
numerator and denominator used to compute earnings per share is presented
below:

|                           |                                                                       |   |                  |           |  |                    |     |           |          |   |     |           |  |   |     |           | 
|-------------------------- | --------------------------------------------------------------------- | - | ---------------- | --------- |  | ------------------ | --- | --------- | -------- | - | --- | --------- |  | - | --- | --------- | 
|                           |                                                                       |   | Six
months ended |           |  | Three
months ended |    
|                           |                                                                       |   |                  |           |  |                    |    
|                           |                                                                       |   | June 30,         |           |  | June 30,           |     |           | June 30, |   |     | June 30,  | 
|                           |                                                                       |   | 2003             |           |  | 2002               |     |           | 2003     |   |     | 2002      | 
|                           |                                                                       |   |                  |           |  |                    |     |           |          |   |     |           | 
|Earnings per share         |                                                                       |   |                  |           |  |                    |     |           |          |   |     |           |  |   |     |          
|                           | Net income                                                            |   | $                | 551       |  |                    | $   | 846       |          |   | $   | 357       |  |   | $   | 561       | 
|                           | Weighted average shares
outstanding                                   |   |                  | 1,579,162 |  |                    |     | 1,579,162 |          |   |     | 1,579,162 |  |   |     | 1,579,162 | 
|                           |                                                                       |   |                  |           |  |                    |     |           |          |   |     |          
|                           | Earnings per share                                                    |   | $                | .35       |  |                    | $   | .54       |          |   | $   | .23       |  |   | $   | .36       | 
|                           |                                                                       |   |                  |           |  |                    |     |           |          |   |     |          
|Diluted earnings per share |                                                                       |   |                  |           |  |                    |     |           |          |   |     |           |  |   |     |          
|                           | Net income                                                            |   | $                | 551       |  |                    | $   | 846       |          |   | $   | 357       |  |   | $   | 561       | 
|                           | Add: Interest expense,
net of tax , assuming
conversion of debentures |   |                  | 149       |  |                    |     |          |          |   |     | 75        |  |   |     |          | 
|                           |                                                                       |   |                  |           |  |                    |     |           |          |   |     |          
|                           |                                                                       | $ | 700              |           |  | $                  | 846 |           |          | $ | 432 |           |  | $ | 561 |          
|                           | Weighted average shares
outstanding                                   |   |                  | 1,579,162 |  |                    |     | 1,579,162 |          |   |     | 1,579,162 |  |   |     | 1,579,162 | 
|                           | Add: Dilutive effect of assumed
exercises of stock options            |   |                  | 76,985    |  |                    |     | 25,379    |          |   |     | 81,946    |  |   |     | 26,943    | 
|                           | Add: Convertible debentures                                           |   |                  | 750,000   |  |                    |     |          |          |   |     | 750,000   |  |   |     |          | 
|                           |                                                                       |   |                  |           |  |                    |     |           |          |   |     |          
|                           | Average shares and dilutive
potential common shares                   |   |                  | 2,406,147 |  |                    |     | 1,604,541 |          |   |     | 2,411,108 |  |   |     | 1,606,105 | 
|                           |                                                                       |   |                  |           |  |                    |     |           |          |   |     |          
|                           | Diluted earnings per share                                            |   | $                | .29       |  |                    | $   | .53       |          |   | $   | .18       |  |   | $   | .35       | 
|                           |                                                                       |   |                  |           |  |                    |     |           |          |   |     |          

Shares of 750,000 issuable under the mandatory stock purchase contracts were
not considered in computing diluted earnings per share for 2002 because they
were anti-dilutive.

10



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##### 



FIRST SHARES BANCORP, INC.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements in this section constitute forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of First Shares to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements.

Such risks could include: increases in competitive pressure from other financial
institutions in our markets, unexpected increases in loan losses, changes in
market interest rates, unanticipated changes in our level of growth or our
ability to manage the growth, changes in economic conditions in our markets, or
legislative or regulatory changes.

Results of Operations for the
Quarters and Periods Ended June 30, 2003 and 2002

Net Income

During the first half of 2003, we have continued focusing on earnings and growth
as outlined in our strategic plan. Net income for the six months ended June 30,
2003 was $551,000 or $.35 per share compared to $846,000 or $.54 per share
reported for the same six months in 2002. Return on average assets (ROA) for the
first six months of 2002 was .66% compared to 1.27% for 2002 on an annualized
basis, while return on average equity (ROE) for 2003 was 12.35% compared to
22.39% for the same period last year, also on an annualized basis.

During the first half of 2002, net income included a tax benefit of $125,000
recorded in the second quarter, which represented the elimination of the reserve
on deferred tax assets. The reserve was eliminated due to the full utilization
of the net operating loss carryforward. For the first half of 2003, net income
includes income tax expense of $230,000 resulting in a decrease in earnings per
share from 2002 to 2003.

Net Interest Income

Net interest income is the difference between interest and fees realized on
interest earning assets and interest paid on interest bearing liabilities. The
net interest margin is this difference expressed as a percentage of average
earning assets.

For the first half of 2003, net interest income totaled $2.9 million,
representing a $335,000 or 13.0% increase ($415,000 and 16.0% on a tax
equivalent basis) over the first half of 2002. Net interest income for the
three-months ended June 30, 2003 increased by $203,000 to $1.5 million from $1.3
million for the second quarter of 2002, an increase of 15.3%. The increase in
net interest income was volume driven as rates on both earning assets and
interest bearing liabilities continued to decline.

11



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FIRST SHARES BANCORP, INC.

Interest income through June 30, 2003 was $4.8 million, compared to $4.4 million
in 2002, an increase of $387,000 or 8.8% ($467,000 and 10.6% on a tax equivalent
basis) over last year. Most of the increase is attributed to growth in volume as
the declining rate environment of 2002 continued into 2003. The average loan
balance showed growth, increasing from $94.7 million in 2002 to $118.1 million
in 2003, an increase of $23.4 million or 24.7%. Average investments, including
securities and federal funds sold, showed strong growth totaling $37.1 million
in 2003, compared to $29.4 million in 2002. The increased volume of earning
assets has been the key contributor in maintaining interest income levels, as
average yields, on a fully tax equivalent basis, declined to 6.28% in 2003 from
7.09% in 2002. This represents no change over first quarter 2003 results, when
the tax equivalent average yield was 6.29%.

Interest expense for the first half of 2003 increased $52,000, or 2.9%, compared
to the first six months of 2002. The increase is primarily attributed to the
issuance of debentures during the second quarter of 2002. During the second
quarter of 2002 debenture interest expense totaled $70,000. For the six months
ended June 30, 2003 expense of $247,000 was recognized, an increase of $177,000
over the first half of last year. Average deposits continued to grow increasing
$23.3 million to $124.4 million as of June 30, 2003, an increase of 23.1% from
June 30, 2002. Time deposits increased the most, with the average balance rising
by $17.7 million. Average other borrowings increased $6.1 million, with expense
increasing by $178,000. The average cost of interest bearing liabilities
declined to 2.62% in 2003, compared to 3.21% in 2002. The decline in the cost of
interest bearing liabilities was primarily the result of re-pricing deposit
products.

The effect of a decrease in the cost of funds and a much sharper decrease in the
yields on earning assets was a narrowing of the net interest margin. Through
June 30, 2003, the net interest margin was 3.88%, compared to 4.18% for 2002.

For the quarters ended June 30, 2003 and 2002, interest income increased from
$2.2 million to $2.4 million, with the increase in loan interest being the
primary contributor due to the volume increases in the loan portfolio. Interest
expense showed no change, with expense remaining at $911,000 for the second
quarter of 2003. Net interest income was $1.5 million for the second quarter of
2003, compared to $1.3 million in 2002, an increase of $203,000 or 15.3%.

Provision for Loan Losses and Asset Quality

The provision for loan losses represents charges made to earnings to maintain an
adequate allowance for loan losses. The allowance is maintained at an amount
that we believe to be sufficient to absorb probable incurred losses in the loan
portfolio. Monitoring loan quality and maintaining an adequate allowance is an
ongoing process overseen by our senior management. On at least a quarterly
basis, a formal analysis of the adequacy of the allowance is prepared and
reviewed by management and the board of directors. This analysis serves as a
point in time assessment of the level of the allowance and serves as a basis for
provisions for loan losses.

We designate certain loans for internal monitoring purposes on a watch list.
Loans may be placed on the watch list as a result of delinquent status, concern
about the borrowers financial condition or the value of the collateral securing
the loan, substandard classification during regulatory examinations, or simply
as a result of our desire to monitor more closely a borrowers financial
condition and performance.

12



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FIRST SHARES BANCORP, INC.

The provision for loan losses was $230,000 for the first half of 2003 compared
to $110,000 in 2002. The allowance totaled $1.6 million at June 30, 2003,
representing 1.23% of total loans, compared to $1.2 million at June 30, 2002,
representing 1.26% of total loans. Net charge-offs through the first half of
2003 were $63,000, representing .05% of the total loan portfolio compared to
$35,000 or .04% of the loan portfolio for the same period last year. The
allowance for loan losses at the end of the first half 2003 was $1.6 million
compared to $1.4 million December 31, 2002. Nonperforming loans have increased
$1.1 million to $1.3 million since year end.

For the quarters ended June 30, 2003 and 2002, provision expense increased to
$120,000 from $60,000. Provision expense is made to maintain the allowance at
levels sufficient to cover probable loss in the portfolio. The increase in
provision expense for the quarter and first half primarily relate to increased
allowance allocations on non-performing and watch list loans.

Noninterest Income and
Expense

Noninterest income increased $683,000, or 97.4% to $1.4 million for the first
half of 2003 compared to $701,000 for the same period in 2002. A portion of the
increase is attributed to the larger number of deposit accounts, which increased
deposit service charge income by 15.3%. A significant part of the increase can
be attributed to mortgage banking activity which rose 184.7% as historically low
interest rates continued to spur activity in this area. Mortgage banking revenue
rose $508,000 from $275,000 during the first half of 2002 to $783,000 for the
same period in 2003. Additionally, gains on the sale of securities rose 338.5%
from $52,000 during the first half of 2002 to $228,000 during the first half of
2003. Given the current rate environment, we have sought to take advantage of
gains in the portfolio by selling certain securities.

Noninterest expense increased by $838,000 or 34.1% reaching $3.3 million for the
first half of 2003. The largest contributor to the increase in noninterest
expense was salary and employee benefits. Salary and employee benefits expense
increased from $1.4 million for the first half of 2002 to $2.0 million for the
first half 2003, an increase of $588,000 or 40.6% impacted largely by additional
staff, annual salary increases and health insurance increases. Staffing levels
increased from 75 full time equivalents in 2002 to 90 in 2003. With the addition
in mortgage loan sales volume, amounts paid for commissions have also increased.

For the quarters ended June 30, 2003 and 2002, noninterest income increased from
$412,000 to $753,000, a change of $341,000 or 82.8%. Much of this increase is
attributable to the increased loan sale revenue and gains from the sale of
securities.

Noninterest expense for the second quarters of 2003 and 2002 posted an increase,
rising by $391,000 or 31.5%. Salaries and employee benefits accounted for the
majority of the increase rising by $305,000 from quarter to quarter.

13



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##### 



FIRST SHARES BANCORP, INC.

Income Taxes

A tax benefit of $125,000 was recorded in the second quarter of 2002. The
benefit represented the elimination of the reserve on deferred tax assets.
Having fully utilized a net operating loss carryforward during 2002, we recorded
income tax expense of $230,000 for the first half of 2003.

FINANCIAL CONDITION

Total assets reached $177.9 million at June 30, 2003 compared to $155.3 million
at year-end 2002, an increase of $22.6 million or 14.6%. Increased loans and
securities were funded primarily by increased deposits.

Securities

Securities are designated as available for sale. With the influx of deposits,
investments in securities increased $3.7 million from year-end 2002 with the
increase occurring in tax-exempt state and political subdivisions as we have
become subject to tax. The portfolio remains largely comprised of state and
political subdivision securities and government agency issues.

In addition to securities of the U.S. Government and its agencies, we had
concentrations in a corporate security and municipal securities that exceeded
10% of shareholders equity at June 30, 2003. The corporate obligor was Ford
Motor Credit with an amortized cost and fair value of $1.3 million. The
municipality obligor was Tell City Troy Township of Indiana with an amortized
cost and fair value of $1.1 million.

Loans

Total loans, including loans held for sale, increased $8.4 million or 7.1% from
year-end 2002 to June 30, 2003. Loan growth occurred primarily in the
residential real estate area and commercial areas.

Residential mortgages, including loans held for sale, compromise the largest
single segment of our loan portfolio. From year-end 2002 to June 30, 2003,
residential mortgages increased $3.4 million or 10.5% to $36.4 million. The
increase is attributed to refinancing activity from the continued low interest
rate environment. At period end 2003, loans held for sale, which are carried at
the lower of cost or fair value, totaled $2.3 million, declining from the
year-end total of $5.8 million. All loans are sold servicing released. Mortgage
banking provides our customers with a wider array of mortgage loan products.

Consumer loans comprise the second largest single segment of the portfolio at
22.6%. Consumer loans totaled $28.4 million at June 30, 2003, increasing
$563,000 or 2.0% from year-end. The indirect loan market has stabilized
currently as customers have taken advantage of zero percent financing rates
offered by auto manufacturers. Relationships maintained with local auto and
recreational vehicle dealers continue to provide this segment with growth

4



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FIRST SHARES BANCORP, INC.

opportunities. Underwriting standards for indirect loans are consistent with the
standards applied to direct loans in an effort to maintain strong asset quality.

Commercial and commercial real estate loans grew by 8.4% or $3.5 million from
December 31, 2002 to June 30, 2003 and combined comprised 35.5% of our portfolio
at the period end. Growth in these segments was attributed to the continued
focus upon the Greenwood area, and further penetration in our market areas.

Deposits and Other Borrowings

Total deposits increased $23.3 million or 19.0%, from year-end 2002 to June 30,
2003, as we continue to gain market share. Noninterest-bearing deposits
increased to $20.7 million from $15.7 million. At June 30, 2003, $39.8 million
or 47.8% of our time deposits had balances greater than $100,000. The average
balance of time deposits issued in amounts greater than $100,000 totaled $41.4
million in 2003 and $31.6 million in 2002, representing 48.8% and 47.1% of total
average time deposits in each period.

While deposits have funded a significant portion of our growth, we have also
obtained funding from the Federal Home Loan Bank (FHLB). The advances from the
FHLB have various terms, with rates ranging from 1.35% to 5.30% at June 30, 2003
and maturities from December 2003 to March 2011. Additionally, we have a note
payable and debenture at the holding company level, with a significant portion
of the proceeds contributed to First Bank as additional capital to support
continued growth.

Capital

We are subject to various regulatory capital guidelines as required by federal
banking agencies. These guidelines define the various components of core capital
and assign risk weights to various categories of assets.

Tier 1 capital consists of shareholders equity net of intangible assets and
excluding unrealized gains and losses on securities available for sale, as
defined by bank regulators. The definition of Tier 2 capital includes the amount
of allowance for loan losses which does not exceed 1.25% of gross risk weighted
assets. Total capital is the sum of Tier 1 and Tier 2 capital.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
requires federal regulatory agencies to define capital tiers. These are: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Under these regulations, a
well-capitalized institution must achieve a Tier 1 risk-based capital ratio of
at least 6.00%, and a total capital ratio of at least 10.00%, and a leverage
ratio of at least 5.00% and not be under a capital directive order. Failure to
meet capital requirements can result in regulatory action that could have a
direct material effect on our financial statements. If only adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions, asset growth, and expansion are
limited, in addition to the institution being required to submit a capital
restoration plan.

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FIRST SHARES BANCORP, INC.

At June 30, 2003, our Tier 1 risk-based capital ratio, total risk-based capital
and leverage ratio for the Bank were 9.98%, 11.07% and 8.49%, levels which meet
the regulatory guidelines of well capitalized. Consolidated numbers for the
Tier 1 risk-based capital ratio, total risk-based capital and leverage ratio
were 6.31%, 10.86% and 5.39%, levels which meet the regulatory guidelines of
well-capitalized.

At December 31, 2002 our Tier 1 risk-based capital ratio, total risk based
capital ratio and leverage ratio for the Bank were 10.46%, 11.53% and 8.52%,
levels which meet the regulatory guidelines of well-capitalized. The
consolidated numbers for the Tier 1 risk-based capital ratio, total risk-based
capital and leverage ratio were 6.55%, 11.46% and 5.34%, levels which meet the
regulatory guidelines of well-capitalized.

Liquidity and Rate Sensitivity

Liquidity refers to the availability of funds to meet deposit withdrawals and
borrowing repayments, fund loan commitments and pay expenses. We have many
sources of liquid funds, including cash and cash equivalents, payments and
maturities of loans and securities, and growth in deposits. In addition, we have
the ability to sell securities available for sale, and may borrow from the
Federal Reserve and the Federal Home Loan Bank.

We believe we have sufficient liquidity to meet reasonable borrower, depositor,
and creditor needs in the present economic environment. We have not received any
recommendations from regulatory authorities which would materially affect
liquidity, capital resources or operations.

Our interest rate sensitivity position is influenced by the timing of the
maturity or re-pricing of interest earning assets and interest-bearing
liabilities. One method of gauging sensitivity is by a static gap analysis.

Rate sensitivity gap is defined as the difference between the re-pricing of
interest earning assets and the re-pricing of interest bearing liabilities
within certain defined time frames. Rising interest rates are likely to increase
net interest income in a positive gap position, while declining rates are likely
to be beneficial in a negative gap position.

At June 30, 2003, we had a negative one-year interest rate gap of 34.74% of
interest earning assets. This compares to a negative 27.62% at December 31,
2002. The increased negative gap is primarily the result of more
interest-bearing liabilities re-pricing during the one-year time frame at June
30, 2003 than at year-end 2002.

16



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##### 



Item 3. Controls and Procedures

As of the end of the quarterly period covered by this report, an evaluation was
carried out under the supervision and with the participation of First Shares
Bancorp, Inc.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 Rule 13a-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 were, to the best of their knowledge, effective as of
such date.

Part II. OTHER INFORMATION

ITEM 4. Submission of Matters To a Vote of Security Holders.

On May 20, 2003 the registrant held an annual meeting of shareholders. Two
directors, Gary W. Lewis and Norman D. Stockton, were elected to three-year
terms. The terms of the following other directors continued after the meeting:

|                    |  |  |      | 
|------------------- |  |  | ---- | 
|
|Jerry R. Engle      |  |  | 2004 | 
|Ralph M. Foley      |  |  | 2005 | 
|H. Dean Hawkins     |  |  | 2004 | 
|R. J. McConnell     |  |  | 2004 | 
|William J. Meredith |  |  | 2005 | 
|Frank A. Rogers     |  |  | 2005 | 

The votes were as follows:

|                   |  |     |           |  |                  |  |       |         |  |  |   | 
|------------------ |  | --- | --------- |  | ---------------- |  | ----- | ------- |  |  | - | 
|Nominee            |  | For |           |  | Against/Withheld |  |       | Abstain | 
|                   |  |     |           |  |                  |  |       |         | 
|Gary W. Lewis      |  |     | 1,289,558 |  |                  |  | 1,275 |         |  |  |  | 
|Norman D. Stockton |  |     | 1,289,558 |  |                  |  | 1,275 |         |  |  |  | 

ITEM 6. Exhibits and Reports on Form 8-K

|    |  |          |  |                                                                                                                                                                                                                                                                      
|--- |  | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a.) |  | Exhibits |  |                                                                                                                                                                                                                                                                      
|   
|    |  | 3.1      |  | Amended and Restated Articles of Incorporation of First Shares Bancorp, Inc.,
incorporated by reference to Exhibit 3.1 to the registration statement on Form SB-2 of
First Shares Bancorp, Inc. (file no. 333-31520), as amended (the 2000 Registration
Statement).
|   
|    |  | 3.2      |  | Amended and Restated By-Laws of First Shares Bancorp, Inc., incorporated by reference
to Exhibit 3.2 to the 2000 Registration Statement.                                                                                                                             

17



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##### 



FIRST SHARES BANCORP, INC.

|    |  |                                                              |  |                                                                                              
|--- |  | ------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------
|    |  | 31.1                                                         |  | Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act
of 2002.
|   
|    |  | 31.2                                                         |  | Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act
of 2002.
|   
|    |  | 32.1                                                         |  | Certification of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act
of 2002.
|   
|    |  | 32.2                                                         |  | Certification of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act
of 2002.
|   
|b.) |  | Reports on 8-K                                               |  |                                                                                              
|   
|    |  | May 6, 2003   Report on First Quarter Earnings Press Release

|                      |  |     |  |                           
|--------------------- |  | --- |  | --------------------------
|SIGNATURES            |  |     |  |                           
|                      |  |     |  | FIRST SHARES BANCORP, INC.
|                     
|                     
|Date: August 14, 2003 |  | By: |  | /s/ Jerry R. Engle        
|                      |  |     |  | Jerry R. Engle            
|                      |  |     |  | President and Chief       
|                      |  |     |  | Executive Officer         
|                     
|                     
|Date: August 14, 2003 |  | By: |  | /s/ Kimberly B. Kling     
|                      |  |     |  | Kimberly B. Kling         
|                      |  |     |  | Secretary, Treasurer and  
|                      |  |     |  | Chief Financial Officer   
|                      |  |     |  | (Principal Financial and  
|                      |  |     |  | Accounting Officer)       

18