Exhibit 13



The following tables set forth certain information concerning the consolidated position and certain performance ratios of the Company at the dates indicated:



|                                                    |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------- |  | ---------------------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                    |  | At or for the Year Ended December 31,                |        
|                                                    |  | 2003                                                 |         |   | 2002 |   |         | 2001 |  |   | 2000    |   |  | 1999 |        
|                                                    |  | (Dollars in Thousands, Except Per Share Information) |        
|Balance Sheet Data                                  |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Assets                                              |  | $                                                    | 89,372  |   |      | $ | 77,358  |      |  | $ | 74,533  |   |  | $    | 69,892  |   |  | $ | 63,456  |  
|Investment securities                               |  |                                                      | 31,843  |   |      |   | 23,287  |      |  |   | 22,235  |   |  |      | 22,544  |   |  |   | 22,886  |  
|Loans                                               |  |                                                      | 45,241  |   |      |   | 45,396  |      |  |   | 42,767  |   |  |      | 39,236  |   |  |   | 32,586  |  
|Allowance for loan losses                           |  |                                                      | 514     |   |      |   | 514     |      |  |   | 443     |   |  |      | 448     |   |  |   | 375     |  
|Deposits                                            |  |                                                      | 71,379  |   |      |   | 62,135  |      |  |   | 59,585  |   |  |      | 55,601  |   |  |   | 53,676  |  
|Borrowings                                          |  |                                                      | 8,533   |   |      |   | 5,206   |      |  |   | 5,805   |   |  |      | 5,487   |   |  |   | 4,489   |  
|Stockholders equity                                |  |                                                      | 9,263   |   |      |   | 9,611   |      |  |   | 8,757   |   |  |      | 8,495   |   |  |   | 5,119   |  
|                                                    |  |                                                      |         |   |     
|Summary of Operations                               |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Interest income                                     |  | $                                                    | 4,634   |   |      | $ | 4,714   |      |  | $ | 5,024   |   |  | $    | 5,012   |   |  | $ | 4,199   |  
|Interest expense                                    |  |                                                      | 1,137   |   |      |   | 1,372   |      |  |   | 1,958   |   |  |      | 1,998   |   |  |   | 1,714   |  
|                                                    |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net interest income                                 |  |                                                      | 3,497   |   |      |   | 3,342   |      |  |   | 3,066   |   |  |      | 3,014   |   |  |   | 2,485   |  
|Provision for loan losses                           |  |                                                      | 76      |   |      |   | 108     |      |  |   | 111     |   |  |      | 129     |   |  |   | 79      |  
|                                                    |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net interest income after provision for loan losses |  |                                                      | 3,421   |   |      |   | 3,234   |      |  |   | 2,955   |   |  |      | 2,885   |   |  |   | 2,406   |  
|Other operating income                              |  |                                                      | 1,140   |   |      |   | 974     |      |  |   | 822     |   |  |      | 662     |   |  |   | 549     |  
|Other operating expense                             |  |                                                      | 3,732   |   |      |   | 3,387   |      |  |   | 3,107   |   |  |      | 2,761   |   |  |   | 2,329   |  
|                                                    |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income before income taxes                          |  |                                                      | 829     |   |      |   | 821     |      |  |   | 670     |   |  |      | 786     |   |  |   | 626     |  
|Income taxes                                        |  |                                                      | 128     |   |      |   | 165     |      |  |   | 111     |   |  |      | 113     |   |  |   | 76      |  
|                                                    |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income                                          |  | $                                                    | 701     |   |      | $ | 656     |      |  | $ | 559     |   |  | $    | 673     |   |  | $ | 550     |  
|                                                    |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Per Share Data (1)                                  |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Basic earnings                                      |  | $                                                    | 0.78    |   |      | $ | 0.73    |      |  | $ | 0.62    |   |  | $    | 0.74    |   |  | $ | 0.70    |  
|Diluted earnings                                    |  |                                                      | 0.78    |   |      |   | 0.73    |      |  |   | 0.61    |   |  |      | 0.73    |   |  |   | 0.70    |  
|Cash dividends declared                             |  |                                                      | 0.28    |   |      |   | 0.23    |      |  |   | 0.20    |   |  |      | 0.20    |   |  |   | 0.18    |  
|Book value                                          |  |                                                      | 10.36   |   |      |   | 10.52   |      |  |   | 9.73    |   |  |      | 9.26    |   |  |   | 6.47    |  
|Basic average shares outstanding                    |  |                                                      | 901,715 |   |      |   | 901,176 |      |  |   | 908,839 |   |  |      | 909,325 |   |  |   | 779,249 |  
|Diluted average shares outstanding                  |  |                                                      | 902,095 |   |      |   | 903,927 |      |  |   | 919,268 |   |  |      | 921,715 |   |  |   | 790,573 |  
|                                                    |  |                                                      |         |   |     
|Market Information                                  |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|High                                                |  | $                                                    | 20.25   |   |      | $ | 19.20   |      |  | $ | 21.80   |   |  | $    | 21.82   |   |  | $ | 19.64   |  
|Low                                                 |  |                                                      | 16.50   |   |      |   | 16.84   |      |  |   | 17.20   |   |  |      | 16.00   |   |  |   | 16.91   |  
|At December 31                                      |  |                                                      | 18.50   |   |      |   | 18.40   |      |  |   | 19.20   |   |  |      | 17.46   |   |  |   | 19.64   |  
|                                                    |  |                                                      |         |   |     
|Selected Financial Ratios                           |  |                                                      |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Return on average assets                            |  |                                                      | 0.80    | % |      |   | 0.84    | %    |  |   | 0.74    | % |  |      | 0.97    | % |  |   | 0.89    | %
|Return on average equity                            |  |                                                      | 7.46    |   |      |   | 7.19    |      |  |   | 6.43    |   |  |      | 9.07    |   |  |   | 10.87   |  
|Average equity to average assets                    |  |                                                      | 10.76   |   |      |   | 11.70   |      |  |   | 11.56   |   |  |      | 10.69   |   |  |   | 8.19    |  
|Equity to assets at end of period                   |  |                                                      | 10.36   |   |      |   | 12.42   |      |  |   | 11.75   |   |  |      | 12.15   |   |  |   | 8.07    |  
|Non-performing assets to total assets               |  |                                                      | 1.57    |   |      |   | 0.38    |      |  |   | 0.39    |   |  |      | 0.27    |   |  |   | 0.47    |  
|Non-performing loans to total loans                 |  |                                                      | 3.01    |   |      |   | 0.65    |      |  |   | 0.67    |   |  |      | 0.49    |   |  |   | 0.85    |  

---

|(1) | Adjusted for a five-for-stock split effective January 24, 2003, a 10% stock dividend effective January 11, 2002, a five-for-four stock split effective August 25, 1999.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

Tri-State 1st Banc, Inc.s common stock is traded on the NASDAQ OTC Bulletin Board under the trade symbol TSEO. The
following table presents the quarterly high and low prices in the Companys common stock for the two-year period ended December 31, 2003. Also included in the table are dividends declared per share on the outstanding common stock.



|                   |  |                                 |       |     |   |       |  |   |      
|------------------ |  | ------------------------------- | ----- | --- | - | ----- |  | - | -----
|Common Stock Price |  | Cash DividendsDeclared PerShare
|                   |  | High                            |       | Low |  
|2003               |  |                                 |       |     |   |       |  |   |      
|First Quarter      |  | $                               | 18.40 |     | $ | 16.50 |  | $ | 0.070
|Second Quarter     |  |                                 | 18.40 |     |   | 18.15 |  |   | 0.070
|Third Quarter      |  |                                 | 19.50 |     |   | 18.50 |  |   | 0.070
|Fourth Quarter     |  |                                 | 20.25 |     |   | 18.50 |  |   | 0.070
|                   |  |                                 |       |     |   |       |  |   |      
|                   |  |                                 |       |     |   |       |  | $ | 0.280
|                   |  |                                 |       |     |   |       |  |   |      
|2002               |  |                                 |       |     |   |       |  |   |      
|First Quarter      |  | $                               | 19.20 |     | $ | 16.84 |  | $ | 0.056
|Second Quarter     |  |                                 | 18.40 |     |   | 17.04 |  |   | 0.056
|Third Quarter      |  |                                 | 18.88 |     |   | 17.20 |  |   | 0.056
|Fourth Quarter     |  |                                 | 18.40 |     |   | 17.20 |  |   | 0.064
|                   |  |                                 |       |     |   |       |  |   |      
|                   |  |                                 |       |     |   |       |  | $ | 0.232
|                   |  |                                 |       |     |   |       |  |   |      



All market prices
and cash dividend amounts have been restated to reflect a five-for-four stock split effective January 24, 2003.



At December 31, 2003, there were 893,921 of common shares outstanding, which were held by approximately 475 shareholders of record.



The Companys ability to pay dividends to shareholders may be dependent upon the receipt
of dividends from the Bank. The Bank may not declare or pay dividends on its common stock if such payment will cause its regulatory capital to be reduced below minimum requirements imposed by OCC regulations. The Company is also subject to certain
regulatory restrictions imposed by the Federal Reserve Board on the payment of dividends to its shareholders.



---

The following table sets forth certain information relating to the Companys consolidated average balance sheets and
statements of income for the years ended December 31, 2003 and 2002, and reflects the average yield on assets and average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing income or expense by the average
daily balance of assets or liabilities, respectively, for the periods shown.



|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|----------------------------------------------------------------- |  | ------------------ | ---------- | -------- | ---- | ----------------- |  | ---- | -------------- |  | -------- | ---------- | ----------------- | - | --------- |  | ---- | -
|                                                                  |  | For the Year Ended |           
|                                                                  |  | 2003               |            |          | 2002 |                  
|                                                                  |  | AverageBalance     |            | Interest |      | AverageYield/Rate |  |      | AverageBalance |  | Interest |            | AverageYield/Rate |  
|Interest-earning assets:                                          |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Interest-bearing deposits with other banks and federal funds sold |  | $                  | 3,903,940  |          | $    | 41,463            |  | 1.06 | %              |  | $        | 3,590,859  |                   | $ | 58,390    |  | 1.63 | %
|Taxable investment securities                                     |  |                    | 20,287,209 |          |      | 859,304           |  | 4.24 | %              |  |          | 14,536,737 |                   |   | 817,766   |  | 5.63 | %
|Non taxable investment securities (2)                             |  |                    | 7,522,469  |          |      | 545,668           |  | 7.25 | %              |  |          | 8,384,074  |                   |   | 585,948   |  | 6.99 | %
|Loans (1)(2)                                                      |  |                    | 44,794,970 |          |      | 3,392,975         |  | 7.57 | %              |  |          | 43,555,539 |                   |   | 3,461,876 |  | 7.95 | %
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Total interest-earning assets                                     |  |                    | 76,508,588 |          |      | 4,839,410         |  | 6.33 | %              |  |          | 70,067,209 |                   |   | 4,923,980 |  | 7.03 | %
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Noninterest-earning assets                                        |  |                    | 11,186,275 |          |      |                   |  |      |                |  |          | 9,092,692  |                   |   |           |  |      |  
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Total assets                                                      |  | $                  | 87,694,863 |          |      |                   |  |      |                |  | $        | 79,159,901 |                   |   |           |  |      |  
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Interest-bearing liabilities:                                     |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Interest bearing demand                                           |  | $                  | 16,283,175 |          |      | 137,288           |  | 0.84 | %              |  | $        | 14,554,272 |                   |   | 162,411   |  | 1.12 | %
|Money market accounts                                             |  |                    | 3,842,791  |          |      | 52,375            |  | 1.36 | %              |  |          | 3,593,368  |                   |   | 53,476    |  | 1.49 | %
|Savings deposits                                                  |  |                    | 12,894,488 |          |      | 128,278           |  | 0.99 | %              |  |          | 11,496,766 |                   |   | 127,387   |  | 1.11 | %
|Time deposits                                                     |  |                    | 24,607,583 |          |      | 730,735           |  | 2.97 | %              |  |          | 23,663,866 |                   |   | 914,196   |  | 3.86 | %
|Short-term borrowings                                             |  |                    | 7,053,399  |          |      | 88,408            |  | 1.25 | %              |  |          | 5,969,999  |                   |   | 114,484   |  | 1.92 | %
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Total interest-bearing liabilities                                |  |                    | 64,681,436 |          |      | 1,137,084         |  | 1.76 | %              |  |          | 59,278,271 |                   |   | 1,371,954 |  | 2.31 | %
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Noninterest-bearing liabilities                                   |  |                    | 14,348,948 |          |      |                   |  |      |                |  |          | 11,623,715 |                   |   |           |  |      |  
|Stockholders equity                                              |  |                    | 8,664,479  |          |      |                   |  |      |                |  |          | 8,257,915  |                   |   |           |  |      |  
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Total liabilities and stockholders equity                        |  | $                  | 87,694,863 |          |      |                   |  |      |                |  | $        | 79,159,901 |                   |   |           |  |      |  
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Net earning assets                                                |  | $                  | 11,827,152 |          |      |                   |  |      |                |  | $        | 10,788,938 |                   |   |           |  |      |  
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Net interest income                                               |  |                    |            |          | $    | 3,702,326         |  |      |                |  |          |            |                   | $ | 3,552,026 |  |      |  
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Net interest spread (3)                                           |  |                    |            |          |      |                   |  | 4.58 | %              |  |          |            |                   |   |           |  | 4.72 | %
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  
|Net interest margin (4)                                           |  |                    |            |          |      |                   |  | 4.84 | %              |  |          |            |                   |   |           |  | 5.07 | %
|                                                                  |  |                    |            |          |      |                   |  |      |                |  |          |            |                   |   |           |  |      |  

---

|(1) | For the purpose of these computations, non-accrual loans (if any) are included in the daily average loan amounts outstanding and interest on loans includes fee income.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Yields are computed on a tax equivalent basis using a 34% federal income tax rate.
|--- | ----------------------------------------------------------------------------------

|(3) | Net interest rate spread represents the difference between the average yield on interest-earning assets, and the average cost of interest-bearing liabilities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Net interest margin is calculated by dividing the difference between total interest earned and total paid by total interest earning assets.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------



---

Managements Discussion and Analysis of Financial Condition and Results of Operations



The following is Managements discussion and analysis of the financial condition and
results of operations of Tri-State 1stBanc, Inc. for the years ended December 31, 2003 and 2002. The discussion
should be read in conjunction with the consolidated financial statements and notes thereto and the summary financial information included elsewhere in this annual report.



Business



Tri-State 1stBanc, Inc. (the
Company) is an Ohio Corporation organized as the parent Company of 1st National Community Bank, a national banking association (the Bank), and Gateminder Corporation, an Ohio corporation (Gateminder). The Company
controls all of the capital stock of the Bank and Gateminder Corporation. The Company is a bank holding company regulated by the Board of Governors of the Federal Reserve System.



The Bank, chartered as a national banking association and headquartered in East Liverpool, Ohio, conducts business through seven
full-service banking offices. Branch offices are located throughout the tri-state area of Columbiana County, Ohio; Hancock County, West Virginia; and Beaver County, Pennsylvania. The Banks deposits are insured to the legal maximum amount
provided by the Federal Deposit Insurance Corporation.



Gateminder Corporation
was incorporated under the laws of the state of Ohio as a wholly owned non-bank subsidiary of the Company. Headquartered in East Liverpool, Ohio, Gateminder provides non-bank activities for Automated Teller Machines (ATM). The non-bank
subsidiary sells ATM machines to businesses and merchants that operate ATMs at their place of business and provides the means for processing the ATM transactions that are generated at the merchants ATM.



Management Strategy



The Companys philosophy is to provide personal community banking services through strategic office locations that offer customer
friendly hours and a variety of loan and deposit products tailored to fit the needs of its customers.



The lending strategy of the Bank has historically focused on the origination of real estate commercial mortgages, one-to-four family mortgage loans, working capital commercial loans in the form of credit lines and
term notes, personal loans, automobile loans and home equity loans.



The Bank
attempts to manage the interest rates it pays on deposits, while maintaining a stable to growing deposit base by providing convenient and quality service at competitive rates to its customers. Historically, the Bank has relied upon its customer
deposit base as its primary source of funds but has from time to time borrowed other funds through credit arrangements with the Federal Home Loan Bank of Cincinnati (FHLB), the use of repurchase agreements with its business
customers and federal funds purchased.



The Bank monitors its interest rate
sensitivity through an asset/liability management program. The goal of this program is to manage the relationship between interest-earning assets and interest-bearing liabilities to minimize the fluctuations in net interest spread and achieve
constant growth in net interest income during periods of changing interest rates.



Summary of Financial Condition



Total consolidated assets of
the Company at December 31, 2003 were $89,372,000, an increase of 15.5% or $12,014,000 from year-end 2002. This increase was well above the 3.8% or $2,825,000 increase for the 2002 period. Total deposits for the year grew by $9,244,000 or 14.9% and
were the primary funding source for the Companys asset growth. Much of the new deposit growth was invested in the Companys investment portfolio, as demand for loans in 2003 was down from previous years. Total investments increased by
$8,556,000 or 36.7% while total loans decreased by $155,000 or 0.3%. Total earning assets, which principally include loans, investment securities and federal funds sold equaled $77,159,000 at December 31, 2003, an increase of $8,403,000 or 12.2%
over total earning assets at December 31, 2002.



---

Managements Discussion and Analysis of Financial Condition and Results of Operations



Federal Funds Sold and Investment Securities



At year-end 2003 and 2002, the Company had no federal funds sold. On an average daily basis,
federal funds sold were $3.9 million in 2003 and $3.6 million in 2002. The Company generally attempts to average between $2 million and $4 million in federal funds sold, however, this range may shift as cash flows fluctuate or liquidity needs
change.



The investment activities of the Company play a key role in managing
the overall yield on earning assets while supporting interest rate sensitivity and liquidity positions. Securities purchased with the intent and ability to retain until maturity are classified as held to maturity and carried at amortized cost. All
other securities are classified as securities available for sale and are carried at market value. The decision to purchase or sell securities is based upon the current assessment of economic and financial conditions, including the interest rate
environment and other on and off-balance sheet positions.



Investment
securities available for sale were $30,718,000 at December 31, 2003. This compares to $22,355,000 at December 31, 2002, an increase of $8,363,000 or 37.4%. The sizeable increase in the investment portfolio was a direct result of the strong deposit
growth and a lack of funding needs for the loan portfolio. Total purchases for 2003 were $23,870,000 compared to $9,481,000 in 2002, a $14,389,000 or 151.8% increase. New purchases for the year were offset by securities that were called, matured or
had principal payments and totaled $13,750,000 for 2003 and $6,294,000 for 2002. A total of $1,109,000 in securities were sold in 2003 and $2,382,000 in 2002.



Investment securities held to maturity increased $193,000 or 20.7% in 2003 when compared to the prior year as a result of a single security purchase in the amount of
$375,000 offset by principal pay-downs, maturities and calls.



Loans



Total loans for the year decreased $155,000 or 0.3% to $45,241,000. Average
loans outstanding for the year were $44.8 million, a 2.9% or $1.2 million increase over average loans outstanding last year. Loan originations were $18.1 million in 2003 compared to $19.7 million in 2002, a decrease of $1.6 million. Overall loan
demand was slow in 2003 while pay-offs remained at all time highs. The current historically low interest rate environment has brought about strong demand for loan refinancings at a time when management remains cautious on originating new loans at
such low interest rates. With so much of the refinancings having occurred and the possibility of interest rates rising in the future, it is expected the refinancing trend will slow to a level more normally experienced by the Bank.



Bank Owned Life Insurance



At December 31, 2003 the Company had $2,171,000 in Bank-owned life insurance
(BOLI). In early 2003, the Bank purchased $2,100,000 of BOLI from two separate insurance carriers. The insurance is carried by the Bank at the current cash surrender values of the underlying policies. The earnings received from the cash
value life insurance plans, which are tax exempt, will be used to offset employee benefit costs.



Deposits



Deposits are generally the
Banks primary source for funding its earning assets. The Bank offers a wide variety of products designed to attract new customers and retain existing customers while at the same time attempting to maintain a cost-effective funding source.
Total deposits were up $9,244,000 or 14.9% when compared to total deposits at December 31, 2002. All deposit types were up for the year with the exception of money market accounts which decreased by $211,000 or 5.5%. The increase in deposits is
attributable to an increase in new deposit accounts as well as an increase in balances from existing accounts. Most, if not all of the new are accounts are within the Companys market area.



---

Managements Discussion and Analysis of Financial Condition and Results of Operations



Borrowings



The Company may from time to time use various funding sources other than deposits to provide the funds necessary for the loan and investment
securities portfolios. Alternative funding sources may include securities sold under repurchase agreements and advances with the FHLB. Securities that are sold under repurchase agreements are funding agreements with customers of the Bank that are
collateralized by various Bank owned investment securities.



At December 31,
2003 total short-term borrowings consisted of $2,000,000 in advances with the FHLB and $6,533,000 in securities sold under repurchase agreements. For year-ended 2002 total short-term borrowings were made up of $200,000 in federal funds purchased and
the $5,006,000 in securities sold under repurchase agreements.



Summary of
Earnings



The Companys 2003 net income was $701,000, an increase of
$45,000, or 6.9%, from 2002s net income of $656,000. On a per share basis, net income for 2003 was $0.78 per basic and diluted share compared to 2002s net income per share of $0.73 for basic and diluted shares, respectively. The increase
in net income for the year was primarily a result of an increase in net interest income and noninterest income offset by an increase in noninterest expenses.



Interest Income



Interest income on loans decreased $78,000 or 2.2% during 2003 when compared to 2002. This decrease was a result of a 38 basis point drop on the yield earned for total loans offset by a $1,239,000 or 2.9% increase in
the average loan balance outstanding.



Interest income on federal funds sold
decreased $15,000 or 29.1% during 2003 when compared to 2002 due to a decrease of 57 basis points in the yield earned offset by an increase of $313,000 or 8.7% in the average balance outstanding.



Interest income earned on investment securities increased in 2003 by $15,000 or 1.2% from
2002. This increase was a result of a $4,889,000 or 21.3% increase in the average balance outstanding offset by a 70 basis point decrease in the yield earned.



Interest Expense



Interest expense on deposits for 2003 decreased $209,000 or 16.6% when compared to 2002. This decrease was a result of a 54 basis point drop on the rate paid on deposits for the year offset by a $4,320,000 or 8.1%
increase in average interest-bearing deposits outstanding.



Interest expense on
short-term borrowings decreased $26,000 or 22.8% in 2003 when compared to 2002 and was due to a decrease of 109 basis points on the rate paid on these funds offset by an increase of $156,000 or 2.7% in the average balance of borrowed funds
outstanding



Provision and Allowance for Loan Losses



Current expense reflecting expected credit losses are referred to by the Company as the
provision for loan losses on the consolidated statements of income. Actual losses on loans are charged against the allowance for loan losses, which is a reserve built up on the consolidated balance sheet. The Companys policy is to charge-off
loans when, in managements opinion, the collection of loan principal is in doubt. All loans charged-off are subject to continuous review and concerted efforts are made to maximize the recovery of charged-off loans.



---

Managements Discussion and Analysis of Financial Condition and Results of Operations



The amount of the provision for loan losses charged to operations is determined by the
Companys loan committee and approved by the Board of Directors. In determining the amount of the provision, the committee considers such factors as credit risks inherent in the loan portfolio, asset quality, economic conditions and portfolio
trends. For 2003, the provision for loan losses was $76,000, compared to $108,000 charged in 2002. This represents a $32,000 or 30.0% decrease for the year. Prior to 2003, the Company recorded off-balance sheet credit exposures from outstanding loan
commitments as part of the reserve in the allowance for loan loss. In 2003 these off-balance sheet credit exposures were recorded as contingent liabilities rather than as a reserve in the allowance for loan loss. As a result of this change, the
allowance for loan loss and provision expense for 2003 were reduced by $15,000 and an offsetting contingent liability was established for the same amount.



The Company believes that the allowance for loan losses at December 31, 2003 of $514,000 is adequate to cover probable losses in the portfolio as of such date. However,
there can be no assurance that the Company will not sustain losses in future periods, which could be substantial in relation to the size of the allowance at December 31, 2003.



Other Operating Income



Total other operating income, excluding gains from investment securities sold, totaled $1,072,000, an increase of $170,000 or 18.8% over 2003. Service fees on deposit
accounts increased $87,000 or 14.3% in 2003. This increase was attributable to an increase in the number of accounts serviced by the Bank, and to a lessor extent, increases in the fees charged for these services. Other operating income increased
$83,000 or 28.2% due to: (1) an increase in revenues earned from the Companys non-bank subsidiary, Gateminder Corporation for ATM related services, (2) an increase in income earned from the increase in the cash value of the Banks BOLI
insurance, (3) an increase in transaction based fees from ATM and Debit card usage and (4) an overall increase in other operating income.



Investment securities available for sale totaling $1,109,000 and $2,382,000 were sold in 2003 and 2002, respectively and resulted in gains of $68,000 in 2003 and $72,000
for 2002. The sales for both periods were in conjunction with the interest rate environments at the time of the sales and managements overall investment strategy.



Other Operating Expense



Total salary and employee benefits increased $129,000 or 7.8% in 2003. Employee wages increased $75,000 or 7.5% due to the hiring of additional personnel throughout 2003
as well as normal merit increases relating to existing employees. Total employee benefit costs for the year increased by $54,000 due to increases in health insurance costs and other employee related benefit expenses.



Furniture and equipment costs increased $66,000 or 24.4% in 2003 from 2002. This increase was
mostly due to an increase in depreciation expense from capitalized costs associated with a new core processing and check imaging system purchased in 2002.



Other expenses increased $139,000 or 13.1%, in 2003 as a result of an increase in: (1) ATM related costs for the Companys non-bank subsidiary, Gateminder
Corporation, (2) an increase in expenses for contingent liabilities relating to off-balance sheet credit exposures, (3) an increase in stationery, printing and supplies and (4) an increase in directors fees, advertising, audit and examination
fees and other general administrative expenses.



The provision for income tax
was $128,000 in 2003 compared to $165,000 in 2002. This represents a decrease of $37,000 or 22.5% and is due mostly to a decrease in taxable income.



---

Managements Discussion and Analysis of Financial Condition and Results of Operations



Capital Resources



Total consolidated stockholders equity decreased $348,000 or 3.6% when compared to December 31, 2002. For the year, treasury shares
purchased totaled $799,000, less shares reissued in the amount of $432,000 for a net increase in treasury stock and a net decrease to stockholders equity of $368,000. Also contributing to the decrease in stockholders equity was a
decrease in accumulated comprehensive income from a decline in the market value of the available for sale securities, offset be 2003s net income of $701,000, less cash dividends declared of $251,000.



Liquidity



The liquidity of a Banking institution reflects its ability to provide funds to meet loan requests, to accommodate the possible outflows of
deposits and to take advantage of interest rate market opportunities. It requires continuous analysis by management in order to match the maturities of short-term loans and investments with the various types of deposits and borrowings. Liquidity is
normally considered in terms of the nature and the mix of the Banks sources and uses of funds.



The Banks primary sources of funds are deposits, borrowings, proceeds from principal and interest payments on loans and interest payments and maturities on investment securities. While scheduled principal
repayments on loans and interest payments on investment securities are a relatively predictable source of funds, deposit and short-term borrowing outflows are greatly influenced by interest rates, economic conditions, competition and other factors.



Management is not aware of any known trends, events or uncertainties that
would have a material effect on the liquidity, capital resources or operations of the Company. Management is not aware of any current regulatory recommendations, which, if implemented, would have a material effect on the liquidity, capital resources
or operations of the Company.



Impact of Inflation and Changing Prices



The financial statements and related data have been prepared in accordance
with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars, without consideration for changes in the relative purchasing power of money over time caused by
inflation.



The effects of inflation on the local economy and the
Companys operating results have been relatively modest for the past several years. However, unlike industrial companies, nearly all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates
have a more significant impact on a financial institutions performance than general levels of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the price of goods or services, since such goods
and services are affected by inflation. In the current interest rate environment, liquidity and the maturity structure of the Banks assets and liabilities are critical to the maintenance of the acceptable performance levels.



---

REPORT OF INDEPENDENT AUDITORS



Board of Directors and Stockholders

Tri-State
1st Banc, Inc.



We have audited the consolidated balance sheet of Tri-State 1st
Banc, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in stockholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in
all material respects, the financial position of Tri-State 1st Banc, Inc. and Subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.



Wexford, PA

February 6, 2004



/s/ SR Snodgrass



1000 Stonewood Drive

Suite 200

Wexford, PA 15090



---

TRI-STATE 1ST BANC, INC.

CONSOLIDATED BALANCE SHEET



|                                                                                   |  |              |            |   |      |   |            |  
|---------------------------------------------------------------------------------- |  | ------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                   |  | December 31, |           
|                                                                                   |  | 2003         |            |   | 2002 |  
|ASSETS                                                                             |  |              |            |   |      |   |            |  
|Cash and due from banks                                                            |  | $            | 6,005,898  |   |      | $ | 4,807,465  |  
|Interest-bearing deposits with other banks                                         |  |              | 74,894     |   |      |   | 72,133     |  
|                                                                                   |  |              |            |   |      |   |            |  
|Cash and cash equivalents                                                          |  |              | 6,080,792  |   |      |   | 4,879,598  |  
|Investment securities available-for-sale                                           |  |              | 30,718,135 |   |      |   | 22,354,936 |  
|Investment securities held to maturity (market value of $1,188,816 and $1,005,188) |  |              | 1,125,279  |   |      |   | 932,553    |  
|Loans                                                                              |  |              | 45,240,680 |   |      |   | 45,395,942 |  
|Less allowance for loan losses                                                     |  |              | 514,260    |   |      |   | 514,276    |  
|                                                                                   |  |              |            |   |      |   |            |  
|Net loans                                                                          |  |              | 44,726,420 |   |      |   | 44,881,666 |  
|Premises and equipment                                                             |  |              | 3,484,002  |   |      |   | 3,361,803  |  
|Bank-owned life insurance                                                          |  |              | 2,170,682  |   |      |   |           |  
|Accrued interest and other assets                                                  |  |              | 1,066,659  |   |      |   | 947,671    |  
|                                                                                   |  |              |            |   |      |   |            |  
|TOTAL ASSETS                                                                       |  | $            | 89,371,969 |   |      | $ | 77,358,227 |  
|                                                                                   |  |              |            |   |      |   |            |  
|LIABILITIES                                                                        |  |              |            |   |      |   |            |  
|Deposits:                                                                          |  |              |            |   |      |   |            |  
|Noninterest-bearing demand                                                         |  | $            | 15,104,257 |   |      | $ | 9,822,378  |  
|Interest-bearing demand                                                            |  |              | 13,994,300 |   |      |   | 13,494,969 |  
|Money market                                                                       |  |              | 3,631,875  |   |      |   | 3,842,359  |  
|Savings                                                                            |  |              | 14,113,973 |   |      |   | 11,617,664 |  
|Time                                                                               |  |              | 24,534,581 |   |      |   | 23,357,634 |  
|                                                                                   |  |              |            |   |      |   |            |  
|Total deposits                                                                     |  |              | 71,378,986 |   |      |   | 62,135,004 |  
|Short-term borrowings                                                              |  |              | 8,532,649  |   |      |   | 5,206,114  |  
|Accrued interest and other liabilities                                             |  |              | 197,522    |   |      |   | 406,517    |  
|                                                                                   |  |              |            |   |      |   |            |  
|TOTAL LIABILITIES                                                                  |  |              | 80,109,157 |   |      |   | 67,747,635 |  
|                                                                                   |  |              |            |   |      |   |            |  
|STOCKHOLDERS EQUITY                                                               |  |              |            |   |      |   |            |  
|Common stock, no par value; 3,000,000 shares authorized, 915,764 shares issued     |  |              | 8,195,467  |   |      |   | 8,182,945  |  
|Retained earnings                                                                  |  |              | 1,319,285  |   |      |   | 914,595    |  
|Treasury stock, at cost (21,843 and 1,881 shares)                                  |  |              | (402,637   | ) |      |   | (34,755    | )
|Accumulated other comprehensive income                                             |  |              | 150,697    |   |      |   | 547,807    |  
|                                                                                   |  |              |            |   |      |   |            |  
|TOTAL STOCKHOLDERS EQUITY                                                         |  |              | 9,262,812  |   |      |   | 9,610,592  |  
|                                                                                   |  |              |            |   |      |   |            |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                         |  | $            | 89,371,969 |   |      | $ | 77,358,227 |  
|                                                                                   |  |              |            |   |      |   |            |  



See accompanying notes to the
consolidated financial statements.



2



---

TRI-STATE 1ST BANC, INC.

CONSOLIDATED STATEMENT OF INCOME



|                                                    |  |                         |           |      |   |          
|--------------------------------------------------- |  | ----------------------- | --------- | ---- | - | ---------
|                                                    |  | Year Ended December 31,
|                                                    |  | 2003                    |           | 2002
|INTEREST INCOME                                     |  |                         |           |      |   |          
|Loans, including fees                               |  | $                       | 3,373,228 |      | $ | 3,450,872
|Interest-bearing deposits with other banks          |  |                         | 4,968     |      |   | 6,903    
|Federal funds sold                                  |  |                         | 36,495    |      |   | 51,487   
|Investment securities:                              |  |                         |           |      |   |          
|Taxable                                             |  |                         | 859,304   |      |   | 817,766  
|Exempt from federal income tax                      |  |                         | 360,142   |      |   | 386,726  
|                                                    |  |                         |           |      |   |          
|Total interest income                               |  |                         | 4,634,137 |      |   | 4,713,754
|                                                    |  |                         |           |      |   |          
|INTEREST EXPENSE                                    |  |                         |           |      |   |          
|Deposits                                            |  |                         | 1,048,676 |      |   | 1,257,470
|Short-term borrowings                               |  |                         | 88,408    |      |   | 114,484  
|                                                    |  |                         |           |      |   |          
|Total interest expense                              |  |                         | 1,137,084 |      |   | 1,371,954
|                                                    |  |                         |           |      |   |          
|NET INTEREST INCOME                                 |  |                         | 3,497,053 |      |   | 3,341,800
|                                                    |  |                        
|Provision for loan losses                           |  |                         | 75,620    |      |   | 108,000  
|                                                    |  |                         |           |      |   |          
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                         | 3,421,433 |      |   | 3,233,800
|                                                    |  |                         |           |      |   |          
|OTHER OPERATING INCOME                              |  |                         |           |      |   |          
|Service fees on deposit accounts                    |  |                         | 694,706   |      |   | 608,050  
|Investment securities gains, net                    |  |                         | 68,407    |      |   | 71,744   
|Earnings on bank-owned life insurance               |  |                         | 70,682    |      |   |         
|Other                                               |  |                         | 306,367   |      |   | 294,166  
|                                                    |  |                         |           |      |   |          
|Total other operating income                        |  |                         | 1,140,162 |      |   | 973,960  
|                                                    |  |                         |           |      |   |          
|OTHER OPERATING EXPENSE                             |  |                         |           |      |   |          
|Salaries and employee benefits                      |  |                         | 1,791,298 |      |   | 1,662,377
|Occupancy                                           |  |                         | 404,761   |      |   | 392,713  
|Furniture and equipment                             |  |                         | 333,874   |      |   | 268,340  
|Other                                               |  |                         | 1,202,169 |      |   | 1,062,883
|                                                    |  |                         |           |      |   |          
|Total other operating expense                       |  |                         | 3,732,102 |      |   | 3,386,313
|                                                    |  |                         |           |      |   |          
|Income before income taxes                          |  |                         | 829,493   |      |   | 821,447  
|Income taxes                                        |  |                         | 128,100   |      |   | 165,317  
|                                                    |  |                         |           |      |   |          
|NET INCOME                                          |  | $                       | 701,393   |      | $ | 656,130  
|                                                    |  |                         |           |      |   |          
|EARNINGS PER SHARE                                  |  |                         |           |      |   |          
|Basic                                               |  | $                       | 0.78      |      | $ | 0.73     
|Diluted                                             |  |                         | 0.78      |      |   | 0.73     



See accompanying notes to the
consolidated financial statements.



3



---

TRI-STATE 1ST BANC, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY



|                                                                                                      |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  
|----------------------------------------------------------------------------------------------------- |  | ----------- | --------- | - | ---------------- | - | --------- | ------------- |  | - | ------------------------------------------ | - |  | ----- | -------- | - |  | - | ---------- | -
|                                                                                                      |  | CommonStock |           |   | RetainedEarnings |   |           | TreasuryStock |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | Total |         
|Balance, December 31, 2001                                                                            |  | $           | 8,142,398 |   |                  | $ | 683,647   |               |  | $ | (303,943                                   | ) |  | $     | 234,591  |   |  | $ | 8,756,693  |  
|Comprehensive income:                                                                                 |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  
|Net income                                                                                            |  |             |           |   |                  |   | 656,130   |               |  |   |                                            |   |  |       |          |   |  |   | 656,130    |  
|Net unrealized gain on securities, net of reclassification adjustment, net of taxes of $161,354       |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       | 313,216  |   |  |   | 313,216    |  
|                                                                                                      |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  
|Total comprehensive income                                                                            |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   | 969,346    |  
|Purchase of treasury stock                                                                            |  |             |           |   |                  |   |           |               |  |   | (1,437,564                                 | ) |  |       |          |   |  |   | (1,437,564 | )
|Sale of treasury stock                                                                                |  |             |           |   |                  |   |           |               |  |   | 1,185,316                                  |   |  |       |          |   |  |   | 1,185,316  |  
|Stock options exercised                                                                               |  |             | 41,411    |   |                  |   | (211,665  | )             |  |   | 521,436                                    |   |  |       |          |   |  |   | 351,182    |  
|Dividends declared ($0.23 per share)                                                                  |  |             |           |   |                  |   | (210,286  | )             |  |   |                                            |   |  |       |          |   |  |   | (210,286   | )
|Cash paid in lieu of fractional shares                                                                |  |             | (864      | ) |                  |   | (3,231    | )             |  |   |                                            |   |  |       |          |   |  |   | (4,095     | )
|                                                                                                      |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  
|Balance, December 31, 2002                                                                            |  |             | 8,182,945 |   |                  |   | 914,595   |               |  |   | (34,755                                    | ) |  |       | 547,807  |   |  |   | 9,610,592  |  
|Comprehensive income:                                                                                 |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  
|Net income                                                                                            |  |             |           |   |                  |   | 701,393   |               |  |   |                                            |   |  |       |          |   |  |   | 701,393    |  
|Net unrealized loss on securities, net of reclassification adjustment, net of tax benefit of $204,572 |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       | (397,110 | ) |  |   | (397,110   | )
|                                                                                                      |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  
|Total comprehensive income                                                                            |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   | 304,283    |  
|Purchase of treasury stock                                                                            |  |             |           |   |                  |   |           |               |  |   | (799,517                                   | ) |  |       |          |   |  |   | (799,517   | )
|Stock options exercised                                                                               |  |             | 12,522    |   |                  |   | (45,230   | )             |  |   | 431,635                                    |   |  |       |          |   |  |   | 398,927    |  
|Dividends declared ($0.28 per share)                                                                  |  |             |           |   |                  |   | (251,473  | )             |  |   |                                            |   |  |       |          |   |  |   | (251,473   | )
|                                                                                                      |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  
|Balance, December 31, 2003                                                                            |  | $           | 8,195,467 |   |                  | $ | 1,319,285 |               |  | $ | (402,637                                   | ) |  | $     | 150,697  |   |  | $ | 9,262,812  |  
|                                                                                                      |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  
|                                                                                                      |  |             |           |   |                 
|                                                                                                      |  |             |           |   |                  |   |           |               |  |   | 2003                                       |   |  | 2002  |         
|Components of other comprehensive income (loss):                                                      |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  
|Change in net unrealized gain (loss) on investment securities available-for-sale                      |  |             |           |   |                  |   |           |               |  |   |                                            |   |  | $     | (351,961 | ) |  | $ | 360,567    |  
|Realized gains included in net income, net of taxes of $23,259 and $24,393                            |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       | (45,149  | ) |  |   | (47,351    | )
|                                                                                                      |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  
|Total                                                                                                 |  |             |           |   |                  |   |           |               |  |   |                                            |   |  | $     | (397,110 | ) |  | $ | 313,216    |  
|                                                                                                      |  |             |           |   |                  |   |           |               |  |   |                                            |   |  |       |          |   |  |   |            |  



See accompanying notes to the
consolidated financial statements.



4



---

TRI-STATE 1ST BANC, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS



|                                                                                  |  |                         |             |   |      |   |            |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ---------- | -
|                                                                                  |  | Year Ended December 31, |            
|                                                                                  |  | 2003                    |             |   | 2002 |  
|OPERATING ACTIVITIES                                                              |  |                         |             |   |      |   |            |  
|Net income                                                                        |  | $                       | 701,393     |   |      | $ | 656,130    |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                         |             |   |      |   |            |  
|Provision for loan losses                                                         |  |                         | 75,620      |   |      |   | 108,000    |  
|Depreciation and amortization, net                                                |  |                         | 508,546     |   |      |   | 381,613    |  
|Investment securities gains, net                                                  |  |                         | (68,407     | ) |      |   | (71,744    | )
|Deferred income taxes                                                             |  |                         | 4,864       |   |      |   | (24,576    | )
|Earnings on bank-owned life insurance                                             |  |                         | (70,682     | ) |      |   |           |  
|Decrease (increase) in accrued interest receivable                                |  |                         | (36,725     | ) |      |   | 8,569      |  
|Decrease in accrued interest payable                                              |  |                         | (7,436      | ) |      |   | (30,520    | )
|Other, net                                                                        |  |                         | (28,587     | ) |      |   | 4,624      |  
|                                                                                  |  |                         |             |   |      |   |            |  
|Net cash provided by operating activities                                         |  |                         | 1,078,586   |   |      |   | 1,032,096  |  
|                                                                                  |  |                         |             |   |      |   |            |  
|INVESTING ACTIVITIES                                                              |  |                         |             |   |      |   |            |  
|Investment securities available-for-sale:                                         |  |                         |             |   |      |   |            |  
|Proceeds from sales                                                               |  |                         | 1,109,157   |   |      |   | 2,382,091  |  
|Proceeds from principal repayments and maturities                                 |  |                         | 13,750,241  |   |      |   | 6,294,449  |  
|Purchases of securities                                                           |  |                         | (23,869,849 | ) |      |   | (9,480,680 | )
|Investment securities held to maturity:                                           |  |                         |             |   |      |   |            |  
|Proceeds from sales                                                               |  |                         |            |   |      |   | 36,016     |  
|Proceeds from principal repayments and maturities                                 |  |                         | 181,480     |   |      |   | 228,509    |  
|Purchases of securities                                                           |  |                         | (375,000    | ) |      |   |           |  
|Net increase in loans                                                             |  |                         | (19,031     | ) |      |   | (2,706,223 | )
|Purchase of bank-owned life insurance                                             |  |                         | (2,100,000  | ) |      |   |           |  
|Proceeds from the sale of premises and equipment                                  |  |                         | 6,995       |   |      |   |           |  
|Purchase of premises and equipment                                                |  |                         | (467,317    | ) |      |   | (369,651   | )
|                                                                                  |  |                         |             |   |      |   |            |  
|Net cash used for investing activities                                            |  |                         | (11,783,324 | ) |      |   | (3,615,489 | )
|                                                                                  |  |                         |             |   |      |   |            |  
|FINANCING ACTIVITIES                                                              |  |                         |             |   |      |   |            |  
|Net increase in deposits                                                          |  |                         | 9,243,982   |   |      |   | 2,550,316  |  
|Net increase (decrease) in short-term borrowings                                  |  |                         | 3,326,535   |   |      |   | (599,063   | )
|Purchase of treasury stock                                                        |  |                         | (799,517    | ) |      |   | (1,437,564 | )
|Sale of treasury stock                                                            |  |                         |            |   |      |   | 1,185,316  |  
|Stock options exercised                                                           |  |                         | 386,405     |   |      |   | 309,771    |  
|Cash dividends paid including cash in lieu of fractional shares                   |  |                         | (251,473    | ) |      |   | (214,381   | )
|                                                                                  |  |                         |             |   |      |   |            |  
|Net cash provided by financing activities                                         |  |                         | 11,905,932  |   |      |   | 1,794,395  |  
|                                                                                  |  |                         |             |   |      |   |            |  
|Increase (decrease) in cash and cash equivalents                                  |  |                         | 1,201,194   |   |      |   | (788,998   | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    |  |                         | 4,879,598   |   |      |   | 5,668,596  |  
|                                                                                  |  |                         |             |   |      |   |            |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                          |  | $                       | 6,080,792   |   |      | $ | 4,879,598  |  
|                                                                                  |  |                         |             |   |      |   |            |  

See accompanying notes to the consolidated financial statements.



5



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TRI-STATE 1ST BANC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



Nature of Operations and Basis of Presentation



A summary of significant accounting and reporting policies applied in the presentation of the accompanying financial statements follows:



Tri-State 1st Banc, Inc. (the Company) is an Ohio corporation
organized as the holding company of the 1st National Community Bank (the Bank) and Gateminder Corporation (Gateminder). The Bank is a national banking association headquartered in East Liverpool, Ohio. The Banks
principal sources of revenue emanate from its commercial, commercial mortgage, residential real estate, and consumer loan financing, its investment securities portfolio, as well as a variety of deposit services offered to its customers through seven
branch offices which are located in the tri-state area of East Liverpool, Ohio. Gateminder was established by the Company to provide non-banking services to businesses with automated teller machines (ATM). Gateminder sells ATM machines
and provides the means for processing transactions for businesses.



The Companys principal assets are represented by its ownership of the Bank and Gateminder. The Company and Gateminder are supervised by the Board of Governors of the Federal Reserve System, while the Bank is subject to regulation and
supervision by the Office of the Comptroller of the Currency.



The consolidated financial statements of the Company include its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation. The investment in subsidiaries on the parent company financial statements is
carried at the Companys equity position in the underlying net assets of each entity. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the
financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period. Actual results could differ
significantly from those estimates.



Investment
Securities



Investment securities are classified at
the time of purchase, based on managements abilities and intention, as securities held to maturity or available for sale. Debt securities acquired with the ability and intent to hold to maturity are stated at cost adjusted for amortization of
premium and accretion of discount, which are computed using the interest method and recognized as adjustments of interest income. All other debt securities have been classified as available for sale to serve principally for liquidity purposes.
Unrealized holding gains and losses for available-for-sale securities are reported as a separate component of stockholders equity, net of tax, until realized. Realized securities gains and losses are computed using the specific identification
method. Interest and dividends on investment securities are recognized as income when earned.



Common stock of the Federal Home Loan Bank of Cincinnati (FHLB) and the Federal Reserve Bank represents ownership in institutions that are wholly owned by other financial institutions. These equity
securities are accounted for at cost and are classified as other assets.



6



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|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Loans



Loans are reported at their principal amount, net of the allowance for loan losses. Interest on all loans is recognized as income when earned on the
accrual method. The Companys general policy is to stop accruing interest on loans when it is determined that reasonable doubt exists as to the collectibility of additional interest. Payments received on nonaccrual loans are recorded as income
or applied against principal according to manage-ments judgment as to the collectibility of principal.



Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related
loans yield. The Company is amortizing these amounts over the contractual life of the related loans.



Allowance for Loan Losses



The allowance for loan losses represents the amount which management estimates is adequate to provide for probable losses inherent in its loan portfolio.
The allowance method is used in providing for loan losses. Accordingly, all loan losses are charged to the allowance, and all recoveries are credited to it. The allowance for loan losses is established through a provision for loan losses charged to
operations. The provision for loan losses is based on managements periodic evaluation of individual loans, economic factors, past loan loss experience, changes in the composition and volume of the portfolio, and other relevant factors. The
estimates used in determining the adequacy of the allowance for loan losses, including the amounts and timing of future cash flows expected on impaired loans, are particularly susceptible to changes in the near term.



Impaired loans are commercial and commercial real estate loans for which it
is probable the Company will not be able to collect all amounts due according to the contractual terms of the loan agreement. The Company individually evaluates such loans for impairment and does not aggregate loans by major risk classifications.
The definition of impaired loans is not the same as the definition of nonaccrual loans, although the two categories overlap. The Company may choose to place a loan on nonaccrual status due to payment delinquency or uncertain
collectibility, while not classifying the loan as impaired, provided the loan is not of a commercial or commercial real estate classification. Factors considered by management in determining impairment include payment status and collateral value.
The amount of impairment for these types of loans is determined by the difference between the present value of the expected cash flows related to the loan, using the original interest rate, and its recorded value, or as a practical expedient in the
case of collateralized loans, the difference between the fair value of the collateral and the recorded amount of the loans. When foreclosure is probable, impairment is measured based on the fair value of the collateral.



Mortgage loans secured by one-to-four family properties and all consumer
loans are large groups of smaller balance homogeneous loans and are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less, generally are not classified as impaired. Management
determines the significance of payment delays on a case-by-case basis taking into consideration all circumstances concerning the loan, the creditworthiness and payment history of the borrower, the length of the payment delay, and the amount of
shortfall in relation to the principal and interest owed.



Premises and Equipment



Premises and
equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets, which range from three to twenty years for furniture, fixtures, and equipment and three
to forty years for buildings and leasehold improvements. Expenditures for maintenance and repairs are charged against income as incurred. Costs of major additions and improvements are capitalized.



7



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|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Bank-Owned Life Insurance



Bank-Owned Life Insurance (BOLI) is carried by the Bank at the current cash surrender values of the underlying policies. The policies are single premium
policies that do not carry loads or surrender charges. Income earned on the policies is based on the crediting rate on the individual insurance contracts.



Intangible Asset



The intangible asset consists exclusively of a core deposit acquisition premium. This core deposit acquisition premium, which was developed based upon a
specific core deposit life study, is amortized using the straight-line method over eight years. Annual assessments of carrying value and remaining amortization periods are made to determine possible carrying value impairment and appropriate
adjustments as deemed necessary. This asset is a component of other assets on the Consolidated Balance Sheet.



Real Estate Owned



Real estate owned acquired in the settlement of foreclosed loans is carried as a component of other assets at the lower of cost or fair value minus
estimated cost to sell. Valuation allowances for estimated losses are provided when the carrying value of the real estate acquired exceeds the fair value. Direct costs incurred in the foreclosure process and subsequent holding costs incurred on such
properties are recorded as expenses of current operations.



Advertising Costs



Advertising costs
are expensed as the costs are incurred. Advertising expenses amounted to $76,624 and $60,590 for 2003 and 2002, respectively.



Earnings Per Share



The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated utilizing net income as reported in
the numerator and average shares outstanding in the denominator. The computation of diluted earnings per share differs in that the dilutive effects of any stock options, warrants, and convertible securities are adjusted in the denominator.



Employee Benefits



Employee benefits include contributions to a defined contribution Section
401(k) plan covering eligible employees. Limited matching contributions are made for participating employees subject to plan criteria. In addition, an elective contribution is made annually at the discretion of the Board of Directors. The Company
also maintains an Employee Stock Ownership Plan (ESOP) covering substantially all employees and officers. The amount of the contribution to the ESOP is at the discretion of the Board of Directors.



Stock Options



The Company maintains stock option plans for the directors, officers, and
key employees. The Company accounts for its stock option plans under the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Under this opinion, no compensation expense has been recognized
with respect to the plans because the exercise price of the Companys employee stock options equal the market price of the underlying stock on the grant date.



8



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|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Stock Options (Continued)



Had the compensation expense for the stock option plans been recognized in accordance with the fair value accounting provisions of FAS No. 123,
Accounting for Stock-Based Compensation,net income applicable to common stock and basic and diluted net income per common share for the year ended December 31 would have been as follows:



|                                         |  |      |         |      |   |        
|---------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                         |  | 2003 |         | 2002
|Net income applicable to common stock:   |  | $    | 701,393 |      | $ | 656,130
|Less pro forma expense related to option |  |      | 62,647  |      |   |       
|                                         |  |      |         |      |   |        
|Pro forma net income                     |  | $    | 638,746 |      | $ | 656,130
|                                         |  |      |         |      |   |        
|Basic net income per common share:       |  |      |         |      |   |        
|As reported                              |  | $    | 0.78    |      | $ | 0.73   
|Pro forma                                |  |      | 0.71    |      |   | 0.73   
|Diluted net income per common share:     |  |      |         |      |   |        
|As reported                              |  | $    | 0.78    |      | $ | 0.73   
|Pro forma                                |  |      | 0.71    |      |   | 0.73   



For purposes of
computing pro forma results, the Company estimated the fair values of stock options using the Black-Scholes option pricing model. The model requires the use of subjective assumptions which can materially affect fair value estimates. Therefore, the
pro forma results are estimates of results of operations as if compensation expense had been recognized for the stock option plans. The fair value of each stock option granted was estimated using the following weighted-average assumptions:



|           |  |                       |   |  |                        |   |  |                    |   |  |                        
|---------- |  | --------------------- | - |  | ---------------------- | - |  | ------------------ | - |  | -----------------------
|Grant Year |  | ExpectedDividendYield |   |  | Risk-freeInterest Rate |   |  | ExpectedVolatility |   |  | ExpectedLife (in years)
|2003       |  | 1.50                  | % |  | 3.94                   | % |  | 18.77              | % |  | 7.01                   



Income
Taxes



Deferred tax assets and liabilities are
reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, these assets and liabilities are adjusted
through the provision for income taxes.



Comprehensive
Income



The Company is required to present
comprehensive income and its components in a full set of general-purpose financial statements for all periods presented. The Companys other comprehensive income comprises the net unrealized gains and losses attributable to its investment
securities available for sale. The Company has elected to report the effects of comprehensive income as a part of the Consolidated Statement of Changes in Stockholders Equity.



Cash Flow Information



The Company has defined cash and cash equivalents as those amounts included in the balance sheet captions Cash and due
from banks and Interest-bearing deposits with other banks. Cash payments for interest expense in 2003 and 2002 were $1,144,520 and $1,402,474, respectively. Cash payments for income taxes in 2003 and 2002 were $133,039 and
$215,662, respectively.



9



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|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Reclassification of Comparative Amounts



Certain items previously reported have been reclassified to conform to the current years reporting format. Such reclassifications did not affect net
income or stockholders equity.



Recent Accounting
Pronouncements



In December 2003, the Financial
Accounting Standards Board (FASB) revised Statement of Financial Accounting Standards (FAS) No. 132, Employers Disclosures About Pension and Other Postretirement Benefit.This statement retains the disclosures
required by FAS No. 132, which standardized the disclosure requirements for pensions and other postretirement benefits to the extent practicable and requires additional information on changes in the benefit obligations and fair value of plan assets.
Additional disclosures include information describing the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. This statement
retains reduced disclosure requirements for nonpublic entities from FAS No. 132, and it includes reduced disclosure for certain of the new requirements. This statement is effective for financial statements with fiscal years ending after December 15,
2003. The interim disclosures required by this statement are effective for interim periods beginning after December 15, 2003. The adoption of this statement did not have a material effect on the Companys disclosure requirements.



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



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



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



10



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|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Recent Accounting Pronouncements (Continued)



In April 2003, the FASB issued FAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends and
clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under FAS No. 133. The amendments set forth in FAS No. 149 improve financial reporting by requiring
that contracts with comparable characteristics be accounted for similarly. In particular, this statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in FAS No.
133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. FAS No. 149 amends certain other existing pronouncements. Those changes will result in more consistent
reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. This statement is effective for contracts entered into or modified after September 30, 2003, except as stated below
and for hedging relationships designated after September 30, 2003. The guidance should be applied prospectively. The provisions of this statement that relate to FAS No. 133, Implementation Issues, that have been effective for fiscal quarters
that began prior to September 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do
not yet exist should be applied to existing contracts as well as new contracts entered into after September 30, 2003. The adoption of this statement did not have a material effect on the Companys financial position or results of operations.



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



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



11



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|1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | ------------------------------------------------------



Recent Accounting Pronouncements (Continued)



In December 2003, the FASB issued a revision to Interpretation No. 46, Consolidation of Variable Interest Entities, which established standards for
identifying a variable interest entity (VIE) and for determining under what circumstances a VIE should be consolidated with its primary beneficiary. Application of this interpretation is required in financial statements of public entities that have
interests in special-purpose entities for periods ending after December 15, 2003. Application by public entities, other than small business issuers, for all other types of VIEs is required in financial statements for periods ending after March 15,
2004. Small business issuers must apply this interpretation to all other types of VIEs at the end of the first reporting period ending after December 15, 2004. The adoption of this interpretation has not and is not expected to have a material effect
on the Companys financial position or results of operations.



|2. | EARNINGS PER SHARE
|-- | ------------------



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



|                                                                                                         |  |         |   |  |         |  
|-------------------------------------------------------------------------------------------------------- |  | ------- | - |  | ------- | -
|                                                                                                         |  | 2003    |   |  | 2002    |  
|Weighted average common shares                                                                           |  | 915,764 |   |  | 915,764 |  
|                                                                                                         |  |        
|Average treasury stock shares                                                                            |  | (14,049 | ) |  | (14,588 | )
|                                                                                                         |  |         |   |  |         |  
|Weighted average common shares outstanding used to calculate basic earnings per share                    |  | 901,715 |   |  | 901,176 |  
|                                                                                                         |  |        
|Additional common stock equivalents (stock options) used to calculate diluted earnings per share         |  | 380     |   |  | 2,751   |  
|                                                                                                         |  |         |   |  |         |  
|Weighted average common shares and common stock equivalents used to calculate diluted earnings per share |  | 902,095 |   |  | 903,927 |  
|                                                                                                         |  |         |   |  |         |  



Options to purchase
32,725 and 37,129 shares of common stock at prices from $19.20 to $20.36 were outstanding during 2003 and 2002, respectively, but were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.



|3. | STOCK SPLIT AND DIVIDEND
|-- | ------------------------



On December 20, 2002, the Board of Directors approved a five-for-four stock split, payable January 24, 2003, to stockholders of record on January 8, 2003.
Average shares outstanding and all per share amounts included in the consolidated financial statements are based on the increased number of shares giving retroactive effect to the stock split and stock dividend.





12



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|4. | INVESTMENT SECURITIES
|-- | ---------------------



The amortized cost and estimated market value of investment securities available for sale are as follows:



|                                                 |  |               |            |                      |   |                       |  |   |                       |   |  |   |           
|------------------------------------------------ |  | ------------- | ---------- | -------------------- | - | --------------------- |  | - | --------------------- | - |  | - | ----------
|                                                 |  | 2003         
|                                                 |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedMarket Value
|U.S. Government agency securities                |  | $             | 13,352,649 |                      | $ | 36,177                |  | $ | (222,393              | ) |  | $ | 13,166,433
|Obligations of states and political subdivisions |  |               | 6,663,850  |                      |   | 392,482               |  |   | (4,643                | ) |  |   | 7,051,689 
|Mortgage-backed securities                       |  |               | 9,473,308  |                      |   | 79,691                |  |   | (46,956               | ) |  |   | 9,506,043 
|                                                 |  |               |            |                      |   |                       |  |   |                       |   |  |   |           
|Total debt securities                            |  |               | 29,489,807 |                      |   | 508,350               |  |   | (273,992              | ) |  |   | 29,724,165
|                                                 |  |               |            |                     
|Equity securities                                |  |               | 1,000,000  |                      |   |                      |  |   | (6,030                | ) |  |   | 993,970   
|                                                 |  |               |            |                      |   |                       |  |   |                       |   |  |   |           
|Total                                            |  | $             | 30,489,807 |                      | $ | 508,350               |  | $ | (280,022              | ) |  | $ | 30,718,135
|                                                 |  |               |            |                      |   |                       |  |   |                       |   |  |   |           
|                                                 | 
|                                                 |  | 2002         
|                                                 |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedMarket Value
|U.S. Government agency securities                |  | $             | 9,560,123  |                      | $ | 248,417               |  | $ |                      |   |  | $ | 9,808,540 
|Obligations of states and political subdivisions |  |               | 8,447,182  |                      |   | 493,889               |  |   | (322                  | ) |  |   | 8,940,749 
|Mortgage-backed securities                       |  |               | 3,517,620  |                      |   | 88,392                |  |   | (365                  | ) |  |   | 3,605,647 
|                                                 |  |               |            |                      |   |                       |  |   |                       |   |  |   |           
|Total                                            |  | $             | 21,524,925 |                      | $ | 830,698               |  | $ | (687                  | ) |  | $ | 22,354,936
|                                                 |  |               |            |                      |   |                       |  |   |                       |   |  |   |           



The amortized cost and
estimated market value of investment securities held to maturity are as follows:



|                                                 |  |               |           |                      |   |                       |  |                      |   |  |   |          
|------------------------------------------------ |  | ------------- | --------- | -------------------- | - | --------------------- |  | -------------------- | - |  | - | ---------
|                                                 |  | 2003         
|                                                 |  | AmortizedCost |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | EstimatedMarketValue
|Obligations of states and political subdivisions |  | $             | 1,125,279 |                      | $ | 63,537                |  | $                    |  |  | $ | 1,188,816
|                                                 |  |               |           |                      |   |                       |  |                      |   |  |   |          
|Total                                            |  | $             | 1,125,279 |                      | $ | 63,537                |  | $                    |  |  | $ | 1,188,816
|                                                 |  |               |           |                      |   |                       |  |                      |   |  |   |          
|                                                 | 
|                                                 |  | 2002         
|                                                 |  | AmortizedCost |           | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | EstimatedMarketValue
|Obligations of states and political subdivisions |  | $             | 932,553   |                      | $ | 72,635                |  | $                    |  |  | $ | 1,005,188
|                                                 |  |               |           |                      |   |                       |  |                      |   |  |   |          
|Total                                            |  | $             | 932,553   |                      | $ | 72,635                |  | $                    |  |  | $ | 1,005,188
|                                                 |  |               |           |                      |   |                       |  |                      |   |  |   |          



13



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|4. | INVESTMENT SECURITIES (Continued)
|-- | ---------------------------------



The following table shows the Companys gross unrealized losses and fair value, aggregated by investment category and length of time, that the
individual securities have been in a continuous unrealized loss position, at December 31, 2003. All of these individual securities have been in an unrealized losses position for less than 12 months.



|                                                 |  |                       |            |                       |   |        
|------------------------------------------------ |  | --------------------- | ---------- | --------------------- | - | -------
|                                                 |  | EstimatedMarket Value |            | GrossUnrealizedLosses
|U.S. Government agency securities                |  | $                     | 8,909,212  |                       | $ | 222,393
|Obligations of states and political subdivisions |  |                       | 206,645    |                       |   | 4,643  
|Mortgage-backed securities                       |  |                       | 3,721,490  |                       |   | 46,956 
|                                                 |  |                       |            |                       |   |        
|Total debt securities                            |  |                       | 12,837,347 |                       |   | 273,992
|Equity securities                                |  |                       | 993,970    |                       |   | 6,030  
|                                                 |  |                       |            |                       |   |        
|Total                                            |  | $                     | 13,831,317 |                       | $ | 280,022
|                                                 |  |                       |            |                       |   |        



The Companys
investment securities portfolio contains unrealized losses of direct obligations of the U.S. Government, including mortgage-related instruments, issued or backed by the full faith and credit of the U.S. Government or are generally viewed as having
the implied guarantee of the U.S. Government, debt obligations of a U.S. state or political subdivision, and equity securities.



On a quarterly basis, the Company evaluates the severity and duration of impairment for its investment securities portfolio unless the Company has the
ability to hold the security to maturity without incurring a loss. Generally, impairment is considered other than temporary when an investment security has sustained a decline of 10 percent or more for six months.



The Company has concluded that any impairment of its investment securities
portfolio is not other than temporary but is the result of interest rate changes that are not expected to result in the noncollection of principal and interest, during the period.



|                                       |  |                    |            |                       |   |               |  |                      |           |  |   |          
|-------------------------------------- |  | ------------------ | ---------- | --------------------- | - | ------------- |  | -------------------- | --------- |  | - | ---------
|                                       |  | Available for Sale |            | Held to Maturity     
|                                       |  | AmortizedCost      |            | EstimatedMarket Value |   | AmortizedCost |  | EstimatedMarketValue
|Due in one year or less                |  | $                  | 1,811,017  |                       | $ | 1,842,224     |  | $                    | 105,651   |  | $ | 108,465  
|Due after one year through five years  |  |                    | 7,283,473  |                       |   | 7,514,835     |  |                      | 379,530   |  |   | 405,224  
|Due after five years through ten years |  |                    | 13,588,791 |                       |   | 13,535,780    |  |                      | 265,098   |  |   | 291,127  
|Due after ten years                    |  |                    | 6,806,526  |                       |   | 6,831,326     |  |                      | 375,000   |  |   | 384,000  
|                                       |  |                    |            |                       |   |               |  |                      |           |  |   |          
|Total                                  |  | $                  | 29,489,807 |                       | $ | 29,724,165    |  | $                    | 1,125,279 |  | $ | 1,188,816
|                                       |  |                    |            |                       |   |               |  |                      |           |  |   |          



The amortized cost and
estimated market value of debt securities by contractual maturity at December 31, 2003, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.



14



---

|4. | INVESTMENT SECURITIES (Continued)
|-- | ---------------------------------



Proceeds from the sales of securities available for sale and the gross realized gains and losses for the years ended December 31 were as follows:



|                      |  |      |           |      |   |          
|--------------------- |  | ---- | --------- | ---- | - | ---------
|                      |  | 2003 |           | 2002
|Proceeds from sales   |  | $    | 1,109,157 |      | $ | 2,418,107
|Gross realized gains  |  |      | 68,407    |      |   | 72,853   
|Gross realized losses |  |      |          |      |   | 1,109    



Included with proceeds
from the sale of investment securities in 2002 is $36,016 from the sale of held-to-maturity mortgage-backed securities. These securities had been repaid in excess of 85 percent of the original amount purchased.



Investment securities with an amortized cost of $9,647,902 and $8,952,611
and an estimated market value of $9,631,092 and $9,229,662, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, and other purposes as required by law at December 31, 2003 and 2002.



|5. | LOANS
|-- | -----



Major classifications of loans are summarized as follows:



|                               |  |      |            |      |   |           
|------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                               |  | 2003 |            | 2002
|Commercial and agricultural    |  | $    | 17,631,742 |      | $ | 16,242,973
|Real estate mortgages:         |  |      |            |      |   |           
|Residential                    |  |      | 18,229,479 |      |   | 19,232,867
|Construction                   |  |      | 162,492    |      |   | 354,813   
|Commercial                     |  |      | 3,795,636  |      |   | 4,073,735 
|Consumer                       |  |      | 5,421,331  |      |   | 5,491,554 
|                               |  |      |            |      |   |           
|                               |  |      | 45,240,680 |      |   | 45,395,942
|Less allowance for loan losses |  |      | 514,260    |      |   | 514,276   
|                               |  |      |            |      |   |           
|Net loans                      |  | $    | 44,726,420 |      | $ | 44,881,666
|                               |  |      |            |      |   |           



The Company grants
consumer, commercial, and mortgage loans to customers throughout its trade area that encompasses the immediate tri-state area of East Liverpool, Ohio. Although the Company has a diversified loan portfolio at December 31, 2003 and 2002, a substantial
portion of its debtors ability to honor their loan agreements is dependent upon the economic stability of the tri-state area.



Loans on which the accrual of interest has been discontinued or reduced, inclusive of impaired loans, amounted to $362,756 and $98,149 as of December 31,
2003 and 2002, respectively. Interest income on loans would have been increased by $8,130 and $5,179 during 2003 and 2002, respectively, if these loans had performed in accordance with their original terms.



15



---

|5. | LOANS (Continued)
|-- | -----------------



Information with respect to impaired loans and the related allowance for loan losses for the years ended December 31, 2003 and 2002, is noted below.



|                                              |  |      |         |      |   |       
|--------------------------------------------- |  | ---- | ------- | ---- | - | ------
|                                              |  | 2003 |         | 2002
|Impaired loans:                               |  |      |         |      |   |       
|With a related allowance for loan losses      |  | $    | 992,584 |      | $ | 62,128
|Without a related allowance for loan losses   |  |      |        |      |   |      
|                                              |  |      |         |      |   |       
|Total                                         |  | $    | 992,584 |      | $ | 62,128
|                                              |  |      |         |      |   |       
|Allowance for loan losses                     |  | $    | 186,824 |      | $ | 18,638
|Average recorded investment in impaired loans |  |      | 498,131 |      |   | 57,385
|Interest income recognized                    |  |      | 15,928  |      |   | 5,455 



As of December 31,
2003, aggregate loans of $60,000 or more extended to officers, directors, and related affiliates or associates were $1,520,391. A summary of activity during the year is as follows:



|           |  |           |         |                 |   |         |  |   |          
|---------- |  | --------- | ------- | --------------- | - | ------- |  | - | ---------
|2002       |  | Additions |         | AmountCollected |   | 2003   
|$1,341,026 |  | $         | 462,938 |                 | $ | 283,573 |  | $ | 1,520,391



|6. | ALLOWANCE FOR LOAN LOSSES
|-- | -------------------------



Changes in the allowance for loan losses for the years ended December 31 are as follows:



|                                |  |      |         |      |   |        
|------------------------------- |  | ---- | ------- | ---- | - | -------
|                                |  | 2003 |         | 2002
|Balance, January 1              |  | $    | 514,276 |      | $ | 443,350
|Add:                            |  |      |         |      |   |        
|Provision charged to operations |  |      | 75,620  |      |   | 108,000
|Recoveries                      |  |      | 33,669  |      |   | 49,084 
|Less loans charged off          |  |      | 109,305 |      |   | 86,158 
|                                |  |      |         |      |   |        
|Balance, December 31            |  | $    | 514,260 |      | $ | 514,276
|                                |  |      |         |      |   |        



16



---

|7. | PREMISES AND EQUIPMENT
|-- | ----------------------



Major classifications of premises and equipment are summarized as follows at December 31:



|                                   |  |      |           |      |   |          
|---------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                   |  | 2003 |           | 2002
|Land and improvements              |  | $    | 429,141   |      | $ | 428,391  
|Buildings and improvements         |  |      | 2,277,434 |      |   | 2,264,069
|Leasehold improvements             |  |      | 610,783   |      |   | 609,584  
|Furniture, fixtures, and equipment |  |      | 2,028,516 |      |   | 1,905,106
|Construction in progress           |  |      | 272,146   |      |   |         
|                                   |  |      |           |      |   |          
|                                   |  |      | 5,618,020 |      |   | 5,207,150
|Less accumulated depreciation      |  |      | 2,134,018 |      |   | 1,845,347
|                                   |  |      |           |      |   |          
|Total                              |  | $    | 3,484,002 |      | $ | 3,361,803
|                                   |  |      |           |      |   |          



Depreciation and
amortization charged to operations was $345,118 in 2003 and $307,841 in 2002.



|8. | DEPOSITS
|-- | --------



Time deposits at December 31, 2003, mature $19,292,981, $2,983,183, $1,120,543, and $1,137,874, during 2004, 2005, 2006, and 2007, respectively.



Time deposits include certificates of deposit in
denominations of $100,000 or more. Such deposits aggregated $5,393,889 and $4,652,040 at December 31, 2003 and 2002, respectively.



Maturities on time deposits of $100,000 or more are as follows at December 31, 2003:



|                                    |  |   |          
|----------------------------------- |  | - | ---------
|Within three months                 |  | $ | 1,225,940
|Beyond three but within six months  |  |   | 933,794  
|Beyond six but within twelve months |  |   | 1,977,320
|Beyond one year                     |  |   | 1,256,835
|                                    |  |   |          
|Total                               |  | $ | 5,393,889
|                                    |  |   |          



|9. | SHORT-TERM BORROWINGS
|-- | ---------------------



Short-term borrowings can consist of federal funds purchased, securities sold under agreement to repurchase, and FHLB adjustable rate borrowings with
terms of 30 days or less.



The outstanding balances and
related information for short-term borrowings are summarized as follows:



|                                            |  |        |           |      |      |   |        |   |           |  |      |  
|------------------------------------------- |  | ------ | --------- | ---- | ---- | - | ------ | - | --------- |  | ---- | -
|                                            |  | 2003   |           |      | 2002 |  
|                                            |  | Amount |           | Rate |      |   | Amount |   | Rate      | 
|Balance at year-end                         |  | $      | 8,532,649 |      | 1.23 | % |        | $ | 5,206,114 |  | 1.37 | %
|Average balance outstanding during the year |  |        | 7,053,374 |      | 1.25 |   |        |   | 5,969,999 |  | 1.92 |  
|Maximum amount outstanding at any month-end |  |        | 8,577,316 |      |      |   |        |   | 7,707,641 |  |      |  



17



---

|9. | SHORT-TERM BORROWINGS (Continued)
|-- | ---------------------------------



The Bank also has a line of credit with a borrowing limit of approximately $12.6 million with the FHLB as of December 31, 2003. This credit line is
subject to annual renewal and incurs no service charges. Outstanding borrowings on this line are collateralized by a blanket security agreement on qualified residential mortgage loans and the Banks investment in stock of the FHLB. There were
no significant borrowings outstanding on this line of credit for the years ended December 31, 2003 or 2002.



|10. | OTHER EXPENSES
|--- | --------------



The following is an analysis of other expenses:



|                                           |  |      |           |      |   |          
|------------------------------------------ |  | ---- | --------- | ---- | - | ---------
|                                           |  | 2003 |           | 2002
|Stationery, printing, and supplies         |  | $    | 161,320   |      | $ | 128,248  
|State franchise tax                        |  |      | 94,446    |      |   | 95,041   
|Postage                                    |  |      | 70,301    |      |   | 66,867   
|ATM and debit card processing and supplies |  |      | 92,612    |      |   | 88,129   
|Advertising and public relations           |  |      | 76,624    |      |   | 60,590   
|Other                                      |  |      | 706,866   |      |   | 624,008  
|                                           |  |      |           |      |   |          
|Total                                      |  | $    | 1,202,169 |      | $ | 1,062,883
|                                           |  |      |           |      |   |          



|11. | INCOME TAXES
|--- | ------------



The provision for income taxes consists of:



|         |  |      |         |      |   |         |  
|-------- |  | ---- | ------- | ---- | - | ------- | -
|         |  | 2003 |         | 2002 |  
|Current  |  | $    | 123,236 |      | $ | 189,893 |  
|Deferred |  |      | 4,864   |      |   | (24,576 | )
|         |  |      |         |      |   |         |  
|Total    |  | $    | 128,100 |      | $ | 165,317 |  
|         |  |      |         |      |   |         |  



The components of the
net deferred tax assets (liabilities) are as follows at December 31:



|                                  |  |      |          |   |      |   |          |  
|--------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                  |  | 2003 |          |   | 2002 |  
|Deferred tax assets:              |  |      |          |   |      |   |          |  
|Allowance for loan losses         |  | $    | 152,143  |   |      | $ | 153,069  |  
|Other                             |  |      | 22,761   |   |      |   | 14,482   |  
|                                  |  |      |          |   |      |   |          |  
|Gross deferred tax assets         |  |      | 174,904  |   |      |   | 167,551  |  
|                                  |  |      |          |   |      |   |          |  
|Deferred tax liabilities:         |  |      |          |   |      |   |          |  
|Net unrealized gain on securities |  |      | 77,632   |   |      |   | 282,204  |  
|Premises and equipment            |  |      | 86,190   |   |      |   | 49,891   |  
|Accrual to cash conversion        |  |      | 54,357   |   |      |   | 81,535   |  
|Deferred loan fees                |  |      | 40,625   |   |      |   | 40,623   |  
|FHLB stock dividend               |  |      | 33,692   |   |      |   | 30,598   |  
|                                  |  |      |          |   |      |   |          |  
|Gross deferred tax liabilities    |  |      | 292,496  |   |      |   | 484,851  |  
|                                  |  |      |          |   |      |   |          |  
|Net deferred tax liabilities      |  | $    | (117,592 | ) |      | $ | (317,300 | )
|                                  |  |      |          |   |      |   |          |  



18



---

|11. | INCOME TAXES (Continued)
|--- | ------------------------



The reconciliation of the federal statutory rate and the Companys effective income tax rate is as follows:



|                                      |  |        |          |   |                    |       |   |        |   |          |                    |  |       |  
|------------------------------------- |  | ------ | -------- | - | ------------------ | ----- | - | ------ | - | -------- | ------------------ |  | ----- | -
|                                      |  | 2003   |          |   | 2002               |      
|                                      |  | Amount |          |   | % of Pre-TaxIncome |       |   | Amount |   |          | % of Pre-TaxIncome | 
|Provision at statutory rate           |  | $      | 282,028  |   |                    | 34.0  | % |        | $ | 279,292  |                    |  | 34.0  | %
|Effect of tax-free income             |  |        | (163,353 | ) |                    | (19.7 | ) |        |   | (144,764 | )                  |  | (17.6 | )
|Other                                 |  |        | 9,425    |   |                    | 1.1   |   |        |   | 30,789   |                    |  | 3.7   |  
|                                      |  |        |          |   |                    |       |   |        |   |          |                    |  |       |  
|Actual tax expense and effective rate |  | $      | 128,100  |   |                    | 15.4  | % |        | $ | 165,317  |                    |  | 20.1  | %
|                                      |  |        |          |   |                    |       |   |        |   |          |                    |  |       |  



|12. | EMPLOYEE BENEFITS
|--- | -----------------



Savings Plan



The Bank maintains a trusteed Section 401(k) plan for all eligible employees. The Bank makes matching contributions for eligible employees of 25 percent
of the employee contributions annually, to a maximum of 12 percent of base salary. The Bank also makes discretionary contributions as determined annually by the Board of Directors. The Banks total contribution to this plan was $30,556 in 2003
and $25,763 in 2002.



ESOP



The Company also maintains an ESOP covering substantially all employees and
officers. The Trustee has discretionary authority to purchase shares of common stock of the Company in the open market. The amount of the contribution to the ESOP is at the discretion of the Board of Directors with benefits vesting over a seven-year
period. Contributions of $8,000 and $9,200 were recorded during 2003 and 2002, respectively. The Trustee held 7,918 and 7,819 shares of the Companys common stock at December 31, 2003 and 2002, respectively.



Stock Option Plan



The Company maintains stock option plans for the Directors, officers, and
key employees. The stock options typically have expiration terms of five or ten years, subject to certain extensions and early terminations and are fully vested on the grant date. The per share exercise price of a stock option granted shall, at a
minimum, equal the fair market value of a share of common stock on the date the option is granted.



19



---

|12. | EMPLOYEE BENEFITS (Continued)
|--- | -----------------------------



Stock Option Plan (Continued)



The following table presents share data related to the outstanding options:



|                                  |  |         |   |  |                               |       |      |         |   |                               |   |      
|--------------------------------- |  | ------- | - |  | ----------------------------- | ----- | ---- | ------- | - | ----------------------------- | - | -----
|                                  |  | 2003    |   |  | Weighted-AverageExercisePrice |       | 2002 |         |   | Weighted-AverageExercisePrice
|Outstanding, at beginning of year |  | 62,570  |   |  | $                             | 18.31 |      | 84,882  |   |                               | $ | 17.15
|Granted                           |  | 21,000  |   |  |                               | 18.62 |      |        |   |                               |   |     
|Exercised                         |  | (23,719 | ) |  |                               | 16.29 |      | (22,312 | ) |                               |   | 13.88
|Forfeited                         |  | (6,126  | ) |  |                               | 8.78  |      |        |   |                               |   |     
|                                  |  |         |   |  |                               |       |      |         |   |                               |   |      
|Outstanding, at end of year       |  | 53,725  |   |  |                               | 19.33 |      | 62,570  |   |                               |   | 18.31
|                                  |  |         |   |  |                               |       |      |         |   |                               |   |      
|Exercisable, at end of year       |  | 53,725  |   |  |                               | 19.33 |      | 62,570  |   |                               |   | 18.31
|                                  |  |         |   |  |                               |       |      |         |   |                               |   |      



The following table
summarizes the characteristics of stock options outstanding at December 31, 2003:



|                  |  |               |  |                                 |  |                        |  |                     
|----------------- |  | ------------- |  | ------------------------------- |  | ---------------------- |  | --------------------
|Grant Date        |  | ExercisePrice |  | OutstandingandExercisableShares |  | ContractualAverageLife |  | AverageExercisePrice
|August 25, 1999   |  | 19.20         |  | 16,363                          |  | 5.73                   |  | 19.20               
|August 24, 2000   |  | 20.36         |  | 16,362                          |  | 6.65                   |  | 20.36               
|January 23, 2003  |  | 18.40         |  | 9,625                           |  | 9.07                   |  | 18.40               
|December 12, 2003 |  | 18.80         |  | 11,375                          |  | 9.95                   |  | 18.80               
|                  |  |               |  |                                 |  |                        |  |                     
|                  |  |               |  | 53,725                          |  |                        |  |                     
|                  |  |               |  |                                 |  |                        |  |                     



|13. | COMMITMENTS
|--- | -----------



In the normal course of business, the Company makes various commitments not reflected in the accompanying consolidated financial statements. The Company
offers such products to enable its customers to meet their financing objectives. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Companys
exposure to credit loss is represented by the contractual amounts as disclosed below. Losses, if any, are charged to the reserve for off-balance sheet risk.



The off-balance sheet commitments comprises the following at December 31:



|                             |  |      |           |      |   |          
|---------------------------- |  | ---- | --------- | ---- | - | ---------
|                             |  | 2003 |           | 2002
|Commitments to extend credit |  | $    | 4,503,785 |      | $ | 4,156,416
|Standby letters of credit    |  |      | 1,338,347 |      |   | 1,137,644



20



---

|13. | COMMITMENTS (Continued)
|--- | -----------------------



These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance
Sheet. The Companys exposure to credit loss, in the event of nonperformance by the other parties to the financial instruments, is represented by the contractual amounts as disclosed. The Company minimizes its exposure to credit loss under
these commitments by subjecting them to credit approval and review procedures and collateral requirements as deemed necessary. Commitments generally have fixed expiration dates within one year of their origination.



Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Performance letters of credit represent conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These instruments are issued primarily to
support bid or performance-related contracts. The coverage period for these instruments is typically a one-year period with an annual renewal option subject to prior approval by management. Fees earned from the issuance of these letters are
recognized over the coverage period. For secured letters of credit, the collateral is typically Bank deposit instruments or customer business assets.



The company leases various branch buildings under operating leases expiring in various years through 2016.



Minimum future rental payments under noncancelable operating leases having
remaining terms in excess of one year as of December 31, 2003, for each of the next five years and in the aggregate are $88,628, $84,347, $37,250, $37,250, $39,854, and $230,292 for the years ended December 31, 2004, 2005, 2006, 2007, 2008, and
thereafter, respectively.



|14. | FAIR VALUE OF FINANCIAL INSTRUMENTS
|--- | -----------------------------------



The estimated fair values of the Companys financial instruments are as follows:



|                                                                                            |  |               |            |            |   |               |  |            |            |  |   |           
|------------------------------------------------------------------------------------------- |  | ------------- | ---------- | ---------- | - | ------------- |  | ---------- | ---------- |  | - | ----------
|                                                                                            |  | 2003          |            | 2002      
|                                                                                            |  | CarryingValue |            | Fair Value |   | CarryingValue |  | Fair Value
|Financial assets:                                                                           |  |               |            |            |   |               |  |            |            |  |   |           
|Cash and due from banks, interest-bearing deposits with other banks, and federal funds sold |  | $             | 6,080,792  |            | $ | 6,080,792     |  | $          | 4,879,598  |  | $ | 4,879,598 
|Investment securities                                                                       |  |               | 31,843,414 |            |   | 31,906,951    |  |            | 23,287,489 |  |   | 23,360,124
|Net loans                                                                                   |  |               | 44,726,420 |            |   | 45,444,498    |  |            | 44,881,666 |  |   | 45,857,376
|Bank-owned life insurance                                                                   |  |               | 2,170,682  |            |   | 2,170,682     |  |            |           |  |   |          
|Regulatory stock                                                                            |  |               | 353,850    |            |   | 353,850       |  |            | 344,550    |  |   | 344,550   
|Accrued interest receivable                                                                 |  |               | 513,843    |            |   | 513,843       |  |            | 477,118    |  |   | 477,118   
|                                                                                            |  |               |            |           
|Financial liabilities:                                                                      |  |               |            |            |   |               |  |            |            |  |   |           
|Deposits                                                                                    |  | $             | 71,378,986 |            | $ | 71,308,696    |  | $          | 62,135,004 |  | $ | 62,925,338
|Short-term borrowings                                                                       |  |               | 8,532,649  |            |   | 8,532,649     |  |            | 5,206,114  |  |   | 5,206,114 
|Accrued interest payable                                                                    |  |               | 42,304     |            |   | 42,304        |  |            | 49,740     |  |   | 49,740    



Financial instruments
are defined as cash, evidence of an ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.



Fair value is defined as the amount at which a financial
instrument could be exchanged in a current transaction between willing parties other than in a forced or liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the
market price per trading unit of the instrument.



21



---

|14. | FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
|--- | -----------------------------------------------



If no readily available market exists, the fair value estimates for financial instruments are based upon managements judgment regarding current
economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. As many of these assumptions result from judgments made by
management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in the assumptions on which the
estimated fair values are based may have a significant impact on the resulting estimated fair values.



As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial
instruments would not represent the full value of the Company.



The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:



Cash and Due From Banks, Interest-Bearing Deposits with Other Banks,
Bank-Owned Life Insurance, Regulatory Stock, Accrued Interest Receivable, Short-Term Borrowings, and Accrued Interest Payable



The fair value is equal to the current carrying value.



Investment Securities



The fair value of investment securities is equal to the available quoted market price. If no quoted market price is available, fair value is estimated
using the quoted market price for similar securities.



Loans and Deposits



The fair value of
loans is estimated by discounting the future cash flows using a simulation model which estimates future cash flows and constructs discount rates that consider reinvestment opportunities, operating expenses, non- interest income, credit quality, and
prepayment risk. Demand, savings, and money market deposit accounts which are due within 30 days are valued at the amount payable as of year-end. Fair values for time are estimated using a discounted cash flow calculation that applies contractual
costs currently being offered in the existing portfolio to current market rates being offered for deposits of similar remaining maturities.



Commitments to Extend Credit and Commercial Letters of Credit



These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The
carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently
charged to enter into similar agreements with similar credit risk, are not considered material for disclosure. The contractual amounts of unfunded commitments and letters of credit are presented in Note 13.



|15. | REGULATORY MATTERS
|--- | ------------------



Cash and Due From Banks



The district Federal Reserve Bank requires the Bank to maintain certain reserve balances. As of December 31, 2003 and 2002, the Bank had required reserves
of $939,000 and $671,000, respectively, consisting of vault cash and a depository amount held with the Federal Reserve Bank.



22



---

|15. | REGULATORY MATTERS (Continued)
|--- | ------------------------------



Loans



Federal law prevents the Company from borrowing from the Bank unless the loans are secured by specific obligations. Further, such secured loans are
limited in amount to 10 percent of the Banks capital.



Dividends



The Bank is subject to a
dividend restriction that generally limits the amount of dividends that can be paid by a national bank. Prior approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year
exceeds net profits, as defined for the year, combined with its retained net profits for the two preceding calendar years less any required transfers to surplus. Using this formula, the amount available for payment of dividends by the Bank to the
Company in 2004, without approval of the Comptroller, will be limited to approximately $867,000 plus 2004 net profits retained up to the date of the dividend declaration.



Capital Requirements



Federal regulations require the Company to maintain minimum amounts of capital. Specifically, the Company and the Bank are
required to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average total assets. Management believes, as of December 31, 2003, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.



In addition to
capital requirements, the Federal Deposit Insurance Corporation Improvement Act (FDICIA) established five capital categories ranging from well capitalized to critically undercapitalized. Should any institution
fail to meet the requirements to be considered adequately capitalized, it would become subject to a series of increasingly restrictive regulatory actions.



As of December 31, 2003 and 2002, the FDIC categorized the Company and the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be classified as a well capitalized financial institution, Total risk-based, Tier 1 risk-based, and Tier 1 Leverage capital ratios must be at least 10 percent, 6 percent, and 5 percent, respectively.



The capital position of the Bank does not materially differ
from the Companys; therefore, the following table sets forth the Companys capital position and minimum requirements as of December 31:



|                                          |  |        |           |       |       |   |        |   |           |  |       |  
|----------------------------------------- |  | ------ | --------- | ----- | ----- | - | ------ | - | --------- |  | ----- | -
|                                          |  | 2003   |           |       | 2002  |  
|                                          |  | Amount |           | Ratio |       |   | Amount |   | Ratio     | 
|Total Capital  (to Risk-weighted Assets)  |  |        |           |       |       |   |        |   |           |  |       |  
|                                          |  |        |           |      
|Actual                                    |  | $      | 9,594,907 |       | 18.66 | % |        | $ | 9,536,172 |  | 20.28 | %
|For Capital Adequacy Purposes             |  |        | 4,114,000 |       | 8.00  |   |        |   | 3,762,160 |  | 8.00  |  
|To Be Well Capitalized                    |  |        | 5,142,500 |       | 10.00 |   |        |   | 4,702,700 |  | 10.00 |  
|                                          |  |        |           |      
|Tier I Capital  (to Risk-weighted Assets) |  |        |           |       |       |   |        |   |           |  |       |  
|                                          |  |        |           |      
|Actual                                    |  | $      | 9,065,647 |       | 17.63 | % |        | $ | 9,021,896 |  | 19.18 | %
|For Capital Adequacy Purposes             |  |        | 2,057,000 |       | 4.00  |   |        |   | 1,881,080 |  | 4.00  |  
|To Be Well Capitalized                    |  |        | 3,085,500 |       | 6.00  |   |        |   | 2,821,620 |  | 6.00  |  
|                                          |  |        |           |      
|Tier I Capital  (to Average Assets)       |  |        |           |       |       |   |        |   |           |  |       |  
|                                          |  |        |           |      
|Actual                                    |  | $      | 9,065,647 |       | 10.14 | % |        | $ | 9,021,896 |  | 11.41 | %
|For Capital Adequacy Purposes             |  |        | 3,574,523 |       | 4.00  |   |        |   | 3,163,320 |  | 4.00  |  
|To Be Well Capitalized                    |  |        | 4,468,154 |       | 5.00  |   |        |   | 3,954,150 |  | 5.00  |  



23



---

|16. | PARENT COMPANY
|--- | --------------



Following are condensed financial statements for the parent company:



CONDENSED BALANCE SHEET



|                                           |  |              |           |      |   |          
|------------------------------------------ |  | ------------ | --------- | ---- | - | ---------
|                                           |  | December 31,
|                                           |  | 2003         |           | 2002
|ASSETS                                     |  |              |           |      |   |          
|Cash                                       |  | $            | 106,506   |      | $ | 289,560  
|Investment in subsidiaries                 |  |              | 8,640,802 |      |   | 8,769,631
|Loans                                      |  |              | 495,000   |      |   | 510,000  
|Other assets                               |  |              | 20,504    |      |   | 45,492   
|                                           |  |              |           |      |   |          
|TOTAL ASSETS                               |  | $            | 9,262,812 |      | $ | 9,614,683
|                                           |  |              |           |      |   |          
|OTHER LIABILITIES                          |  | $            |          |      | $ | 4,091    
|STOCKHOLDERS EQUITY                       |  |              | 9,262,812 |      |   | 9,610,592
|                                           |  |              |           |      |   |          
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |  | $            | 9,262,812 |      | $ | 9,614,683
|                                           |  |              |           |      |   |          



CONDENSED STATEMENT OF
INCOME



|                                                                 |  |              |         |      |   |        
|---------------------------------------------------------------- |  | ------------ | ------- | ---- | - | -------
|                                                                 |  | December 31,
|                                                                 |  | 2003         |         | 2002
|INCOME                                                           |  | $            | 460,214 |      | $ | 77,007 
|                                                                 |  |             
|EXPENSES                                                         |  |              | 31,002  |      |   | 30,509 
|                                                                 |  |              |         |      |   |        
|Earnings before income taxes                                     |  |              | 429,212 |      |   | 46,498 
|Income tax expense                                               |  |              | 3,900   |      |   | 10,184 
|                                                                 |  |              |         |      |   |        
|Earnings before equity in undistributed earnings of subsidiaries |  |              | 433,112 |      |   | 56,682 
|Equity in undistributed earnings of subsidiaries                 |  |              | 268,281 |      |   | 599,448
|                                                                 |  |              |         |      |   |        
|NET INCOME                                                       |  | $            | 701,393 |      | $ | 656,130
|                                                                 |  |              |         |      |   |        



24



---

|16. | PARENT COMPANY (Continued)
|--- | --------------------------



CONDENSED STATEMENT OF CASH FLOWS



|                                                                                 |  |                         |          |   |      |   |            |  
|-------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ---------- | -
|                                                                                 |  | Year ended December 31, |         
|                                                                                 |  | 2003                    |          |   | 2002 |  
|OPERATING ACTIVITIES                                                             |  |                         |          |   |      |   |            |  
|Net income                                                                       |  | $                       | 701,393  |   |      | $ | 656,130    |  
|Adjustment to reconcile net income to net cash provided by operating activities: |  |                         |          |   |      |   |            |  
|Equity in undistributed earnings of subsidiaries                                 |  |                         | (268,281 | ) |      |   | (599,448   | )
|Other, net                                                                       |  |                         | 33,419   |   |      |   | 8,255      |  
|                                                                                 |  |                         |          |   |      |   |            |  
|Net cash provided by operating activities                                        |  |                         | 466,531  |   |      |   | 64,937     |  
|                                                                                 |  |                         |          |   |      |   |            |  
|INVESTING ACTIVITIES                                                             |  |                         |          |   |      |   |            |  
|Net decrease (increase) in loans                                                 |  |                         | 15,000   |   |      |   | (510,000   | )
|                                                                                 |  |                         |          |   |      |   |            |  
|Net cash provided by (used for) investing activities                             |  |                         | 15,000   |   |      |   | (510,000   | )
|                                                                                 |  |                         |          |   |      |   |            |  
|FINANCING ACTIVITIES                                                             |  |                         |          |   |      |   |            |  
|Cash dividends paid including cash paid in lieu of fractional shares             |  |                         | (251,473 | ) |      |   | (214,381   | )
|Purchase of treasury stock                                                       |  |                         | (799,517 | ) |      |   | (1,437,564 | )
|Sale of treasury stock                                                           |  |                         |         |   |      |   | 1,185,316  |  
|Stock options exercised                                                          |  |                         | 386,405  |   |      |   | 309,771    |  
|                                                                                 |  |                         |          |   |      |   |            |  
|Net cash used for financing activities                                           |  |                         | (664,585 | ) |      |   | (156,858   | )
|                                                                                 |  |                         |          |   |      |   |            |  
|Net decrease in cash                                                             |  |                         | (183,054 | ) |      |   | (601,921   | )
|                                                                                 |  |                        
|CASH AT BEGINNING OF YEAR                                                        |  |                         | 289,560  |   |      |   | 891,481    |  
|                                                                                 |  |                         |          |   |      |   |            |  
|CASH AT END OF YEAR                                                              |  | $                       | 106,506  |   |      | $ | 289,560    |  
|                                                                                 |  |                         |          |   |      |   |            |  



25



---

|17. | QUARTERLY DATA (Unaudited)
|--- | --------------------------



The following is a summary of the unaudited quarterly results of operations:



|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|--------------------------------------------------- |  | ------------------ | --------- | --------- | - | -------------- |  | ------------- | --------- |  | - | --------- | -
|                                                    |  | Three Months Ended |          
|                                                    |  | March 2003         |           | June 2003 |   | September 2003 |  | December 2003 |          
|Total interest income                               |  | $                  | 1,139,200 |           | $ | 1,159,469      |  | $             | 1,154,227 |  | $ | 1,181,241 |  
|Total interest expense                              |  |                    | 290,655   |           |   | 297,506        |  |               | 276,805   |  |   | 272,118   |  
|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Net interest income                                 |  |                    | 848,545   |           |   | 861,963        |  |               | 877,422   |  |   | 909,123   |  
|Provision for loan losses                           |  |                    | 30,000    |           |   | 30,000         |  |               | 30,000    |  |   | (14,380   | )
|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Net interest income after provision for loan losses |  |                    | 818,545   |           |   | 831,963        |  |               | 847,422   |  |   | 923,503   |  
|Total noninterest income                            |  |                    | 236,864   |           |   | 280,189        |  |               | 334,004   |  |   | 289,105   |  
|Total noninterest expense                           |  |                    | 893,651   |           |   | 902,669        |  |               | 911,260   |  |   | 1,024,522 |  
|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Income before income taxes                          |  |                    | 161,758   |           |   | 209,483        |  |               | 270,166   |  |   | 188,086   |  
|Income taxes                                        |  |                    | 23,100    |           |   | 29,000         |  |               | 45,000    |  |   | 31,000    |  
|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Net income                                          |  | $                  | 138,658   |           | $ | 180,483        |  | $             | 225,166   |  | $ | 157,086   |  
|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Per share data:                                     |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Net income                                          |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Basic                                               |  | $                  | 0.15      |           | $ | 0.20           |  | $             | 0.25      |  | $ | 0.17      |  
|Diluted                                             |  |                    | 0.15      |           |   | 0.20           |  |               | 0.25      |  |   | 0.17      |  
|Weighted-average shares outstanding                 |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Basic                                               |  |                    | 913,883   |           |   | 905,237        |  |               | 893,877   |  |   | 901,715   |  
|Diluted                                             |  |                    | 916,699   |           |   | 907,613        |  |               | 893,980   |  |   | 902,095   |  
|                                                    | 
|                                                    |  | Three Months Ended |          
|                                                    |  | March 2002         |           | June 2002 |   | September2002  |  | December2002  |          
|Total interest income                               |  | $                  | 1,160,082 |           | $ | 1,156,340      |  | $             | 1,207,581 |  | $ | 1,189,751 |  
|Total interest expense                              |  |                    | 363,712   |           |   | 355,870        |  |               | 345,989   |  |   | 306,383   |  
|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Net interest income                                 |  |                    | 796,370   |           |   | 800,470        |  |               | 861,592   |  |   | 883,368   |  
|Provision for loan losses                           |  |                    | 36,000    |           |   | 24,000         |  |               | 24,000    |  |   | 24,000    |  
|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Net interest income after provision for loan losses |  |                    | 760,370   |           |   | 776,470        |  |               | 837,592   |  |   | 859,368   |  
|Total noninterest income                            |  |                    | 188,758   |           |   | 218,739        |  |               | 278,629   |  |   | 287,834   |  
|Total noninterest expense                           |  |                    | 792,334   |           |   | 852,281        |  |               | 813,481   |  |   | 928,217   |  
|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Income before income taxes                          |  |                    | 156,794   |           |   | 142,928        |  |               | 302,740   |  |   | 218,985   |  
|Income taxes                                        |  |                    | 22,600    |           |   | 13,600         |  |               | 70,600    |  |   | 58,517    |  
|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Net income                                          |  | $                  | 134,194   |           | $ | 129,328        |  | $             | 232,140   |  | $ | 160,468   |  
|                                                    |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Per share data:                                     |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Net income                                          |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Basic                                               |  | $                  | 0.15      |           | $ | 0.14           |  | $             | 0.26      |  | $ | 0.18      |  
|Diluted                                             |  |                    | 0.15      |           |   | 0.14           |  |               | 0.26      |  |   | 0.18      |  
|Weighted-average shares outstanding                 |  |                    |           |           |   |                |  |               |           |  |   |           |  
|Basic                                               |  |                    | 897,623   |           |   | 896,741        |  |               | 906,529   |  |   | 914,075   |  
|Diluted                                             |  |                    | 908,725   |           |   | 904,880        |  |               | 907,651   |  |   | 915,608   |  



26