Exhibit 13



NSD BANCORP, INC.

2003

A N N U A L
R E P O R T



<PAGE>



Table of Contents

  Consolidated Financial Highlights........................................1
  Letter to Stockholders...................................................2
  Selected Consolidated Financial Data.....................................4
  Management's Discussion and Analysis of
           Financial Condition and Results of Operations...................5
  Consolidated Financial Statements.......................................24
  Notes to Consolidated Financial Statements..............................29
  Report of Independent Auditors..........................................51
  Stock and Dividend Information..........................................52
  Corporate Information...................................................53
  Board of Directors and Officers.........................................54
  Office Locations and Branch Managers....................................56


Corporate Profile

       NSD Bancorp, Inc. (NASDAQ: NSDB), a publicly traded Pennsylvania
       corporation and bank holding company, provides a wide range of retail and
       commercial financial products and services to customers in western
       Pennsylvania through its wholly owned subsidiary bank, NorthSide Bank.

       NorthSide Bank is an FDIC-insured state chartered bank based in
       Pittsburgh, Pennsylvania, that operates twelve branch offices serving
       Pittsburgh and its northern suburbs. In addition to providing traditional
       lending and depository products and related banking services, the Bank
       offers investment advisory, brokerage and insurance services. The Bank
       also provides title searches and other real estate settlement services
       through its wholly owned subsidiary, NSB Financial Services, LLC, a
       limited liability corporation, which operates as a licensed title
       insurance agency.

       For more information visit the Corporation's website at
       www.nsdbancorp.com.


Vision and Mission Statement

       Vision. NSD Bancorp, Inc. and NorthSide Bank will aspire to set the
       standard for performance for community banks in our market area by being
       a recognized model of excellence to customers, competitors, shareholders
       and the community.

       Mission Statement. Based on our commitment to provide outstanding and
       innovative customer service, we as a community-based financial
       institution will establish and maintain mutually beneficial long-term
       relationships with customers, professionals, businesses and the
       communities we serve. We will provide an array of products and services
       necessary to serve our customers, across a regional market, investing our
       capital in people, technology and effectively placed retail service
       centers. As a result of our commitment to the above, our financial
       service company will build shareholder value to the highest prudently
       attainable levels while providing rewarding careers for employees.




<PAGE>


Consolidated Financial Highlights
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)

<TABLE>
<CAPTION>

                                                 As of or for the
                                             year ended December 31,
                                                2003          2002       Change
                                             ----------    ----------    ----------
<S>                                          <C>             <C>           <C>

      Balance Sheet:

        Total assets                          $506,620      $510,448         (0.7%)
        Loans receivable, net                  305,626       329,280         (7.2%)
        Securities available for sale          151,141       123,226          22.7%
        Deposits                               366,039       369,199         (0.9%)
        Borrowed funds                          94,000        94,000           0.0%
        Stockholders' equity                    38,887        38,822           0.2%

      Income Statement:

        Net income                              $2,739        $4,466        (38.7%)
        Net interest income                     15,367        16,720         (8.1%)
        Net income per share, basic              $0.86         $1.39        (38.1%)
        Net income per share, diluted            $0.84         $1.37        (38.7%)
        Cash dividends per share                 $0.87         $0.76          14.5%

      Key Ratios:

        Return on average assets                  0.54%         0.89%       (39.3%)
        Return on average stockholders'equity     7.03%        12.56%       (44.0%)

</TABLE>

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      1                      2003 Annual Report

<PAGE>

Letter to Stockholders
--------------------------------------------------------------------------------


Dear Stockholders and Friends:

The year 2003 was a time of  considerable  change at NSD  Bancorp,  Inc. and our
subsidiary  bank,  NorthSide  Bank.  Significant  efforts  during  the year were
focused on  analyzing  our  current  position  and, in turn,  repositioning  the
Corporation and the Bank for long-term growth and profitability. The goal of the
organization  is to build  shareholder  value.  In an effort to ensure that this
objective is attained,  the Board of Directors appointed me as the new President
in  September  2003 and charged me with  guiding the  Corporation  through  this
period of  change.  I look  forward  to  providing  the  vision  and  leadership
necessary to guide the institution through this transition period.

In  connection  with this  repositioning,  one of the first  initiatives  I have
pursued  and  continue  to set  forth  is the  establishment  of an  experienced
executive  management team. I am proud to have as part of my management team our
new Chief Financial  Officer,  William C. Marsh, who joined the Corporation this
past  October.  Bill  brings  with  him  a  proven  track  record  of  improving
profitability, operating activities, financial condition and financial reporting
systems for publicly traded community banks.

Earnings  for 2003 were below  desired  results  and levels  recognized  in past
years, as the Corporation  reported  consolidated  net income of $2.7 million or
$0.84 per diluted share for the year ended December 31, 2003, as compared to net
income of $4.5  million or $1.37 per diluted  share for the year ended  December
31, 2002.  Contributing to the decline in earnings between the two years was the
necessity of additional  loan loss  provisions  totaling $2.5 million related to
the  deterioration of certain lending  relationships  realized during the second
quarter  of 2003,  as well as a  decline  in net  interest  income  and  certain
restructuring costs experienced during 2003.

During 2003,  interest  rates  declined to their  lowest  levels in more than 40
years and the banking industry saw unprecedented  levels of loan prepayments and
refinancing.   NorthSide  Bank  continued  to  experience  net  interest  income
compression as the decrease in yield on earning-assets  outpaced the decrease in
the cost of  interest-bearing  liabilities.  This  reduction  in spread  was the
direct result of continued loans repricing downward in the current interest rate
environment, while the cost of deposit funding has stabilized near the effective
floor of these  products.  Contributing  to the decline in  interest  income was
lower loan demand in 2003 versus prior years and the  necessity  of  redeploying
funds  in  lower  yielding  marketable  securities.   Further,  the  Corporation
continues  to feel the effects of  previously  retained  Federal  Home Loan Bank
advances  totaling  $94.0  million  that are  locked  in for a longer  term at a
weighted-average  interest rate of 5.72%,  whereby loans and securities  matched
against these advances have prepaid and or repriced lower.

During the year, the  Corporation's  total assets  decreased  slightly to $506.6
million at December  31, 2003.  Total loans  decreased  $23.7  million to $305.6
million while  securities  increased $27.9 million to $151.1 million at December
31, 2003. Deposits remained relatively steady ending the year at $366.0 million.
The Bank remains well capitalized for regulatory  purposes,  and the Corporation
is positioned for future growth and improvement with total stockholders'  equity
of $38.9 million or approximately 7.7% of total assets at December 31, 2003.

We look  forward  to 2004  and  beyond  with a great  deal of  excitement  as we
continue  to move  NorthSide  Bank into a full  service  financial  institution.
During early 2004 we will be finalizing changes to our management infrastructure
enabling the Bank to better leverage our human capital.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      2                      2003 Annual Report

<PAGE>

Letter to Stockholders (continued)
--------------------------------------------------------------------------------


While we are confident that we can grow earnings through further improvements in
operating  efficiencies  and business  development  efforts,  we recognize  that
sustainable  long-term growth in our stock value comes from the development of a
business model which creates additional franchise value and earnings growth.

We anticipate that the following strategic  initiatives  currently underway will
result in positive results being recognized in 2004 and beyond:

     --   We will  continue with  initiatives  and programs  implemented  in the
          third and  fourth  quarters  of 2003 to  improve  the asset  liability
          management process and overall commercial loan credit quality.
     --   We will expand  mortgage  and home  equity  programs to offer a better
          array of  products  and  services  and  develop a referral  network to
          increase potential opportunities.
     --   We will expand our retail,  commercial and wealth  management  base to
          provide competitive and best-in-class products.
     --   We  will  be  making   considerable   investments  in  technology  and
          infrastructure to afford the opportunity to expand our services to our
          customer  base,  as well as allow  the  Bank's  employees  to  provide
          enhanced levels of service.
     --   In the coming months and years,  we will be going through a process of
          transforming  and enhancing  the  organization's  traditional  banking
          model to a  performance-based  sales and  service  engine.  We will be
          challenged with recruiting  people who will enhance our platform while
          continuing  to train  and work  with  our  existing  staff to meet the
          challenges of this new environment.

These  programs  will  undoubtedly  establish the framework for future growth in
earnings  and market  value,  and your  management  team has made the  necessary
commitment to see these goals through to fruition.

Despite the down year in earnings,  the  Corporation  has a solid  franchise,  a
strong capital base and excellent prospects for future growth. To our customers,
stockholders  and  employees  we vow to  conduct  our  business  with  honor and
integrity, and to not assume unreasonable risks, regardless of possible rewards.
On behalf of the Board of  Directors,  officers and  employees,  I thank you for
your support.

Very truly yours,



Andrew W. Hasley
President
Chief Operating Officer


March 1, 2004

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      3                      2003 Annual Report

<PAGE>

Selected Consolidated Financial Data
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)

<TABLE>
<CAPTION>

                               ----------------------------------------------------------
                                                  As of December 31,
Financial Condition Data           2003        2002        2001        2000        1999
------------------------       ----------------------------------------------------------
<S>                            <C>          <C>         <C>         <C>          <C>

 Total assets                 $  506,620  $  510,448  $  479,270  $  435,619  $  392,285
 Securities                      151,141     123,226     117,099      97,347     103,254
 Loans receivable, net           305,626     329,280     317,319     299,460     264,402
 Deposits                        366,039     369,199     340,983     307,078     289,440
 Borrowed funds                   94,000      94,000      94,000      87,000      66,350
 Stockholders' equity             38,887      38,822      36,673      33,641      30,349

                               ----------------------------------------------------------
                                            For the year ended December 31,
Operations Data                    2003        2002        2001        2000        1999
---------------                ----------------------------------------------------------

 Interest income              $   27,709  $   30,803  $   31,707  $   30,608  $   26,506
 Interest expense                 12,342      14,083      15,940      14,706      11,306
                               ----------  ----------  ----------  ----------  ----------
 Net interest income              15,367      16,720      15,767      15,902      15,200
 Provision for loan losses         3,465         960       1,200         825         840
                               ----------  ----------  ----------  ----------  ----------
 Net interest income after
  provision for loan losses       11,902      15,760      14,567      15,077      14,360
 Noninterest income                3,789       3,493       3,392       1,919       1,812
 Noninterest expense              12,456      13,098      10,668       9,772       9,296
                               ----------  ----------  ----------  ----------  ----------
 Net income before income
  taxes                            3,235       6,155       7,291       7,224       6,876
 Provision for income taxes          496       1,689       2,086       2,293       2,311
                               ----------  ----------  ----------  ----------  ----------

 Net income                   $    2,739  $    4,466  $    5,205  $    4,931  $    4,565
                               ==========  ==========  ==========  ==========  ==========

  Average common shares
   outstanding, basic (1)      3,196,171   3,219,328   3,272,008   3,356,574   3,419,440
  Average common shares
   outstanding, diluted (1)    3,251,509   3,268,143   3,297,825   3,368,476   3,451,766
  Net income per common share,
   basic (1)                       $0.86       $1.39       $1.59       $1.47       $1.34
  Net income per common share,
   diluted (1)                     $0.84       $1.37       $1.58       $1.46       $1.32
  Dividends per share (1)          $0.87       $0.76       $0.69       $0.65       $0.58

                               ----------------------------------------------------------
                                       As of or for the year ended December 31,
Other Data                         2003        2002        2001        2000        1999
----------                     ----------------------------------------------------------

 Performance Ratios
  Return on average assets          0.54%       0.89%       1.15%       1.20%       1.23%
  Return on average equity          7.03%      12.56%      15.34%      16.70%      14.43%
  Yield on interest-earning
   assets (2)                       5.84%       6.81%       7.48%       7.92%       7.59%
  Cost of interest-bearing
   liabilities                      3.15%       3.73%       4.58%       4.69%       4.12%
  Cost of funds                     2.67%       3.19%       3.90%       3.93%       3.41%
  Interest rate spread (2)          2.69%       3.08%       2.90%       3.23%       3.47%
  Net interest margin (2)           3.28%       3.74%       3.76%       4.14%       4.37%
  Noninterest expense to
   average assets                   2.43%       2.70%       2.36%       2.38%       2.50%
  Interest-earning assets to
   average assets                  94.47%      94.20%      94.66%      94.52%      94.67%
  Loans to deposits                83.50%      89.19%      93.06%      97.52%      91.35%
  Dividend payout ratio            99.78%      54.10%      43.33%      44.08%      43.19%
 Asset Quality Ratios
  Non-performing loans to
   total loans                      2.69%       0.27%       0.20%       0.17%       0.29%
  Non-performing assets to
   total assets                     1.70%       0.23%       0.19%       0.20%       0.27%
  Allowance for loan losses to
   total loans                      2.20%       1.27%       1.30%       1.11%       1.17%
  Allowance for loan losses to
   non-performing loans            81.78%     476.63%     652.24%     646.06%     396.97%
 Capital Ratios
  Stockholders' equity to
   assets                           7.68%       7.61%       7.65%       7.72%       7.74%
  Average equity to average
   assets                           7.62%       7.31%       7.50%       7.19%       8.51%

-----------------------------------------------------------------------------------------
(1)  Adjusted for 5% stock dividends distributed each year in April 2003, 2002, 2001 and
     2000 and a 10% stock dividend distributed in January 1999.
(2)  Interest income utilized in calculation is on a fully tax equivalent basis.

</TABLE>

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      4                      2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations
--------------------------------------------------------------------------------

Overview
--------

NSD Bancorp,  Inc. (the  Corporation)  is a  Pennsylvania  corporation  and bank
holding  company that provides a full range of retail and  commercial  financial
products and services to customers in the Pittsburgh, Pennsylvania, metropolitan
area through its wholly owned subsidiary bank, NorthSide Bank (the Bank).

The  Bank,  organized  in 1934,  is a  financial  intermediary  whose  principal
business  consists of attracting  deposits from the general public and investing
such funds in real estate loans secured by liens on  residential  and commercial
property,  consumer  loans,  commercial  business  loans and leases,  marketable
securities and interest-earning deposits. The Bank operates through a network of
twelve offices in Allegheny and Butler  counties,  Pennsylvania.  In addition to
providing  traditional  banking  services,  the Bank  offers  retail  investment
advisory,  brokerage  and  insurance  services.  The Bank  also  provides  title
searches  and other real estate  settlement  services,  through its wholly owned
subsidiary, NSB Financial Services, LLC, a limited liability corporation,  which
operates as a licensed title insurance agency.  The Corporation and the Bank are
headquartered in Pittsburgh, Pennsylvania.

The  Corporation  and the Bank are  subject  to  examination  and  comprehensive
regulation  by the  Pennsylvania  Department  of  Banking,  which is the  Bank's
chartering  authority and primary  regulator,  and the Federal Deposit Insurance
Corporation (FDIC), which insures customer deposits held by the Bank to the full
extent  provided  by law.  The Bank is a member of the Federal  Reserve  Bank of
Cleveland  (FRB) and the Federal  Home Loan Bank of  Pittsburgh  (FHLB),  each a
regional bank part of their respective federal banking systems.  The Corporation
is a registered bank holding company pursuant to the Bank Holding Company Act of
1956, as amended,  and a Securities  and Exchange  Commission  (SEC)  registrant
filing annual, quarterly and other requisite forms as required by law.

The  Federal  funds and prime  rates  along with the U.S.  treasury  yield curve
generally  serve as  economic  market  interest  yield and rate  indicators  for
community financial institutions. Management uses these market rates and related
indicators in pricing loan and deposit products, in evaluating security purchase
and sale strategies and in assessing the need for funding  through  borrowing as
part of the  Corporation's  overall asset liability  management.  In addition to
national market interest rate information,  management also evaluates pricing of
competitor   institutions  in  establishing   offered  rates  for  consumer  and
commercial loan and deposit products and related services.

During the past three  years,  the  Corporation  and the  nation  experienced  a
historically  dramatic drop in national  market  interest rates with the Federal
funds discount rate decreasing 450 basis points to 1.00% in July 2003 from 5.50%
in January  2001.  Over the same  period,  the national  prime-lending  rate has
declined  similarly  from 9.50% to 4.00%.  The Federal funds and prime  interest
rates remained steady at 1.00% and 4.00%,  respectively,  from July 2003 through
year end 2003.

As discussed and outlined in detail below,  this declining rate  environment has
resulted in a  significant  repricing  of the  Corporation's  loan  products and
securities portfolio,  reducing the yield of the Corporation's  interest-earning
assets as new loan  production  and  refinancing  of existing loans during 2003,
2002 and 2001 has resulted in lower  yielding loan assets.  As  securities  have
matured or otherwise repaid,  funds from these cash inflows have been redeployed
similarly at lower yields in the current environment.  Because the Corporation's
time deposit products do not afford a call feature, the cost of funds during the
periods  did not  decrease as quickly as the yield on  interest-earning  assets,
however,  such  repricing of deposits has  approached  that of  interest-earning
assets during 2003 while the current lower interest rate environment continued.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      5                      2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


Management  regularly evaluates the pricing of interest-bearing  demand deposits
(checking,  savings and money market  products) and  certificates  of deposit in
light of the current rate  environment  and adjusts  pricing to reflect  current
market  conditions.  There will be some  opportunity for continued  repricing of
interest-bearing  demand  deposits and certain  certificates  of  deposits.  The
Corporation  has $26.3 million in certificates  at a weighted  average  interest
rate of  approximately  3.60% expected to re-price during the first three months
of 2004 - these certificates are currently priced above current market rates and
assuming  they  mature  and are  reinvested  with the Bank and that the low rate
environment  persists,  a  reduction  in the cost of these funds  should  occur.
However, as indicated, there is more opportunity in continued downward repricing
of interest-earning  assets (given their inherently higher levels) than there is
for cost reduction of interest-bearing liabilities.

As a result of this, the Corporation continues to experience net interest income
compression as the decrease in yield on earning-assets  outpaced the decrease in
the  cost  of   interest-bearing   liabilities.   During   2003  the   yield  on
earning-assets  decreased 97 basis points to 5.84% for 2003 from 6.81% for 2002.
The cost of interest-bearing  liabilities decreased 58 basis points to 3.15% for
2003 from 3.73% for 2002.  This  reduction  in spread  was the direct  result of
continued loan repricing downward in the current interest rate environment while
the cost of deposit  funding has  stabilized  near the effective  floor of these
products.  Contributing  to the decline in interest income was lower loan demand
in 2003 versus  prior years and the  necessity of  redeploying  funds into lower
yielding marketable  securities.  Further, the Corporation continues to feel the
effects of previously  retained FHLB  advances  totaling  $94.0 million that are
locked in for a longer term at a weighted  average  interest  rate cost of 5.72%
and whereby loans and securities  previously matched against these advances have
prepaid and/or re-priced lower.

The Corporation plans to address this margin  compression  through growth of the
Corporation's loan portfolios, more stringent asset liability management efforts
and increased focus on revenue sources that, although financial service related,
are not reliant on financial  assets and  liabilities,  particularly  investment
advisory services through the Bank's wealth  management  division and settlement
services through the Bank's title company, as well as through prudent control of
noninterest expenses among other strategies.

During 2003 and 2002, the Corporation has  experienced  significant  loan losses
associated with the  deterioration of three larger credit  relationships  during
2003 and the Bank's Cashflow Maximizer product in 2002.

During 2003,  three large  commercial  loan  relationships  were  identified  as
impaired  increasing the Corporation's  nonperforming  assets to $8.6 million at
December 31, 2003,  compared to $1.2 million at December 31, 2002, and resulting
in an  increase  in the  provision  for loan  losses  to $3.5  million  in 2003,
compared to $960,000 for in 2002. The outstanding loan balances  associated with
these three relationships  totaled $7.5 million at December 31, 2003. Management
has  identified  $2.8 million of the  allowance  for loan losses at December 31,
2003, to cover the losses associated with these  relationships and believes that
this level of  allowance is adequate to cover the losses  associated  with these
credits. Management has engaged legal counsel and is pursuing all avenues in the
interest of realizing the highest possible recovery associated with these loans.

During 2002,  the  Corporation  realized a loss of $2.0  million in  noninterest
expense  associated with its former  Cashflow  Maximizer  product.  This product
provided customers with the opportunity to sell accounts receivable to the Bank,
and the Bank would in turn provide working capital funds to these customers. The
loss was  associated  with the accounts  receivable  purchased from one customer
that was  subsequently  restructured  as a term loan to  facilitate  collection.
During the second  quarter of 2002,  management  identified  an  external  fraud
related to this  customer  and charged off the term loan and  discontinued  this
product.  Management continues to seek recovery of the loss associated with this
product and the related fraud,  but the  collection of additional  funds appears
doubtful.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      6                      2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------

Management  and the  Board of  Directors  of the  Corporation  have  implemented
strategic initiatives during 2003 to further mitigate the risks of credit losses
including the following:

     --   The  Corporation  has  identified and hired a Vice President of Credit
          Administration whose primary  responsibilities  include monitoring and
          managing loan underwriting and the credit review function of the Bank.
     --   Management  and the Board of Directors  have revisited the Bank's loan
          policies  and   procedures   and  are  in  the  process  of  improving
          underwriting   standards,   examining  lending  authority  limits  and
          strengthening the loan administration and credit review process.
     --   The Bank  has  retained  an  outside  consulting  firm to  review  all
          commercial  credits on a regular  recurring  basis in the  interest of
          identifying  problems earlier versus later and to assist management in
          appropriately  classifying loans. In addition,  the Board of Directors
          retained a separate outside firm to review all commercial credit files
          to ensure the consistency of file structure and determine the adequacy
          of documentation maintained in loan files.
     --   The Bank has  established  new Board and  Officer  level  loan  review
          committees to approve large loans and review  problem  credits as well
          as  evaluating  the adequacy of the Bank's  allowance for loan losses.
          The Officer loan committee meets weekly,  and the Board loan committee
          meets monthly or more frequently, as needed.
     --   The Corporation  anticipates hiring a Chief Lending Officer during the
          second or third quarter of 2004.

These initiatives  along with other  organizational  changes  experienced by the
Corporation  are  expected to alleviate  future loan losses and identify  credit
problems on a more timely basis in the interest of minimizing credit exposure.

Changes in Financial Condition
------------------------------

Total assets  decreased  $3.8 million or 0.8% to $506.6  million at December 31,
2003,  from $510.4 million at December 31, 2002. This decrease was primarily due
to decreases in loans  receivable of $23.7 million and cash and cash equivalents
of $9.4 million. Partially offsetting the net decrease in assets was an increase
in securities of $27.9 million.  The decrease in the Corporation's  total assets
was directly related to a decrease in deposits of $3.2 million.

Cash and cash equivalents.  Cash on hand,  interest-earning deposits and federal
funds sold  decreased  a  combined  $9.4  million  or 27.9% to $24.2  million at
December 31, 2003,  from $33.6 million at December 31, 2002.  These accounts are
typically  decreased by customer deposit  withdrawals,  new loan originations or
other loan fundings,  security purchases,  repayments of borrowed funds and cash
dividends to stockholders. Increases result from net operating results, deposits
by customers into savings and checking  accounts,  loan and security  repayments
and proceeds  from  borrowed  funds.  The decrease  experienced  during 2003 was
primarily the result of purchases of securities and deposit withdrawals.

Securities.  Securities  increased  $27.9 million or 22.7% to $151.1  million at
December  31,  2003,  from $123.2  million at  December  31,  2002.  The overall
increase in securities  for the year resulted from  management  deploying  funds
obtained  through loan  repayments into  marketable  securities  within targeted
maturity  terms and where  optimal  yields could be  realized.  The net increase
resulted from security  purchases  totaling $104.3 million,  partially offset by
security  maturities and calls totaling $77.0 million.  Also contributing to the
change in  securities  for the year was an  increase in the  unrealized  gain on
securities  available  for  sale of  $504,000,  primarily  due to  increases  of
unrealized gains in corporate and equity securities.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      7                      2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


Loans receivable. Net loans receivable decreased $23.7 million or 7.2% to $305.6
million at December 31,  2003,  from $329.3  million at December  31, 2002.  The
Corporation began  establishing  correspondent  relationships  during the second
quarter of 2002 with other mortgage businesses to sell residential  mortgages at
the time of  funding;  consequently,  residential  mortgages  declined  by $17.2
million or 41.4%. During 2003, the Corporation originated and sold $15.9 million
in residential mortgage loans in connection with managing  interest-rate risk in
this  lower  interest  rate  environment.  Management  has and will  continually
monitor market conditions and the Corporation's  balance sheet mix in evaluating
the end result of mortgage production.

Commercial, financial and agricultural loans decreased $5.3 million or 14.2% due
to lower loan demand  coupled  with an  aggressive  loan  pricing  market  which
ultimately  resulted  in the  refinancing  of certain  larger  relationships  by
customers with other institutions. Consumer loans decreased $5.0 million or 3.4%
primarily as a result of a general  reduction in market demand.  Lease financing
declined $2.3 million or 21.2% due to decreased  business activity and increased
repayments  as a result  of a shift in market  demand  toward  more  traditional
commercial  financing.  Nonresidential  mortgages increased $1.6 million or 1.8%
despite the  reclassification  of three lending  relationships  to nonperforming
status.  Lines of  credit  and  nonaccrual  loans  increased  $682,000  and $7.5
million,  respectively.  Refer to the "Nonperforming assets" section for further
discussion of this increase in nonaccrual loans.

Nonperforming assets. Nonperforming assets include nonaccrual loans, repossessed
assets and real estate acquired through foreclosure (REO).  Nonperforming assets
increased  $7.4  million to $8.6 million or 1.7% of total assets at December 31,
2003  from  $1.2  million  or  0.23% of  total  assets  at  December  31,  2002.
Nonperforming  assets consisted of nonperforming  loans,  repossessed assets and
REO of $8.4 million,  $116,000 and $89,000,  respectively,  at December 31, 2003
and $890,000,  $186,000 and $83,000,  respectively,  at December 31, 2002.  This
increase was primarily due to the Bank placing  three lending  relationships  on
nonaccrual status during 2003. These three relationships totaled $7.5 million as
of December 31, 2003.

Nonaccrual  loans  include  loans  identified  as  impaired  of $7.5  million at
December 31, 2003. Impaired loans include troubled credits associated with three
lending customers of the Bank.  Individually,  each customer relationship totals
$5.3  million,  $1.3 million and $910,000,  respectively.  The  Corporation  has
initiated  collection  strategies,  including  legal action,  in the interest of
realizing  the highest  potential  recovery  associated  with these  loans.  The
allowance for loan losses allocated to these impaired loans totaled $2.8 million
at December 31, 2003.  Management believes that potential losses associated with
these loans are adequately provided for based on information available.

Federal Home Loan Bank stock. FHLB stock remained constant totaling $5.0 million
at December 31, 2003. This stock is purchased and redeemed at par as directed by
the FHLB,  and levels  maintained  are based  primarily on  borrowing  and other
correspondent relationships between the Corporation and the FHLB.

Bank-owned  life insurance  (BOLI).  The cash surrender  value of BOLI increased
$378,000  or 4.6% from $8.2  million at  December  31,  2002 to $8.5  million at
December 31, 2003, as a result of normal policy value appreciation.  In addition
to  providing  life  insurance  coverage  on  certain  groups of  employees  and
directors  whereby the Bank as well as the officers and  employees  receive life
insurance  benefits,  the  appreciation  of the cash surrender value of the BOLI
will serve to offset and finance existing and future employee benefit costs.

Premises and  equipment.  Premises and equipment  decreased  $288,000 or 8.0% to
$3.3 million at December 31, 2003,  from $3.6 million at December 31, 2002.  The
net  decrease  resulted  from normal  depreciation  of fixed assets of $634,000,
partially offset by capital expenditures of $346,000,  primarily for renovations
of certain branch offices.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      8                      2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


Deposits.  Total deposits  decreased  slightly by $3.2 million or 0.9% to $366.0
million at December 31, 2003,  from $369.2 million at December 31, 2002. For the
year, time deposits decreased $16.0 million or 11.0% as previous,  higher-priced
certificates  of deposit left the Bank.  This decrease was offset by an increase
in non-interest-bearing  demand deposits and interest-bearing demand deposits of
$4.3 million or 6.08% and $8.5 million or 5.6%, respectively.

Capital Resources
-----------------

Total  stockholders'  equity  increased  $65,000  or 0.2% to  $38.9  million  at
December  31,  2003  from  $38.8  million  at  December  31,  2002.  Net  income
contributed $2.7 million to stockholders'  equity in 2003 representing a decline
in earnings of $1.7 million  compared to the prior year. The slight  increase in
stockholders'  equity was also due to an increase in other comprehensive  income
of $332,000 and stock options  exercised  totaling  $695,000.  Offsetting  these
increases were treasury stock repurchases totaling $915,000.  Returns on average
equity and assets were 7.03% and 0.54%, respectively, for 2003.

The  Corporation  has  maintained a strong  capital  position  with a capital to
assets ratio of 7.7% at December 31, 2003, a slight  increase  over the ratio of
7.6% a year  earlier.  While  continuing to sustain this capital  position,  the
Corporation declared regular quarterly dividends that increased to an average of
$0.22 per share in 2003 from an average of $0.19 per share in 2002.

Capital adequacy is the Corporation's ability to support growth while protecting
the interest of  shareholders  and  depositors and to ensure that capital ratios
are in compliance with regulatory minimum requirements. Regulatory agencies have
developed  certain  capital ratio  requirements  that are used to assist them in
monitoring the safety and soundness of financial  institutions.  At December 31,
2003,  the  Corporation  and the Bank  were in  compliance  with all  regulatory
capital requirements.

Liquidity
---------

The Corporation's primary sources of funds generally have been deposits obtained
through  the offices of the Bank,  borrowings  from the FHLB,  amortization  and
prepayments of outstanding loans and called, sold or maturing securities. During
2003, the Corporation used its sources of funds primarily to purchase securities
and fund  loan  commitments.  As of  December  31,  2003,  the  Corporation  had
outstanding loan commitments,  including undisbursed loans and amounts available
under  credit  lines,  totaling  $39.7  million,  and standby  letters of credit
totaling  $700,000.  The Bank is required by regulation to establish policies to
monitor and manage liquidity levels to ensure the Bank's ability to meet demands
for customer  withdrawals  and the repayment of short-term  borrowings,  and the
Bank is currently in compliance with all liquidity policy limits.

At December 31, 2003,  time deposits  amounted to $129.4 million or 35.4% of the
Corporation's  total  consolidated  deposits,   including   approximately  $70.9
million,  which are scheduled to mature within the next year.  Management of the
Corporation  believes  that  they  have  adequate  resources  to fund all of its
commitments,  that all of its commitments  will be funded as required by related
maturity  dates and  that,  based  upon  past  experience  and  current  pricing
policies,  it can  adjust  the rates of time  deposits  to retain a  substantial
portion of maturing liabilities.

Aside from liquidity  available from customer  deposits or through sales,  calls
and  maturities  of  securities,  the  Corporation  has  alternative  sources of
short-term  and  long-term  funds  such as a line of credit  and term  borrowing
capacity from the FHLB and, to a limited  extent,  through the sale of loans. At
December 31, 2003, the  Corporation's  borrowing  capacity with the FHLB, net of
funds  borrowed,  was $41.3 million.  Management is not aware of any conditions,
including any regulatory  recommendations  or requirements  that would adversely
impact its liquidity or its ability to meet funding needs in the ordinary course
of business.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      9                      2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------

Changes in Results of Operations
--------------------------------

The  Corporation  reported  net income of $2.7  million,  $4.5  million and $5.2
million in 2003, 2002 and 2001,  respectively.  The following  "Average  Balance
Sheet and Yield/Rate  Analysis" and "Analysis of Changes in Net Interest Income"
tables  should be utilized in  conjunction  with the  discussion of net interest
income.

Average Balance Sheet and Yield/Rate  Analysis.  The following table sets forth,
for  periods  indicated,  information  concerning  the total  dollar  amounts of
interest income from  interest-earning  assets and the resultant average yields,
the total dollar amounts of interest expense on interest-bearing liabilities and
the resulting  average costs, net interest income,  interest rate spread and the
net interest margin earned on average  interest-earning  assets. For purposes of
this table,  average  loan  balances  include  nonaccrual  loans and exclude the
allowance  for loan  losses,  and  interest  income  includes  accretion  of net
deferred loan fees. To compare the  tax-exempt  asset yields to taxable  yields,
amounts  are  adjusted to pretax  equivalents  based on the  marginal  corporate
Federal tax rate of 34%. The  tax-equivalent  adjustments to net interest income
for 2003, 2002 and 2001 were $510,000, $411,000 and $327,000, respectively.

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------
(Dollar amounts in  thousands)                        Year ended December 31,

                                      2003                     2002                      2001
                            ------------------------  ------------------------  ----------------------------
                             Average           Yield/ Average           Yield/  Average             Yield/
                             Balance  Interest Rate   Balance  Interest  Rate   Balance  Interest   Rate
-----------------------------------------------------------------------------------------------------------

Interest-earning assets:
--------------------------
<S>                          <C>       <C>     <C>    <C>       <C>      <C>    <C>       <C>         <C>

 Loans receivable           $323,113  $20,987  6.50% $336,810  $24,723   7.34% $312,474  $25,093      8.03%
                            --------- -------- ----- --------- -------- ------ --------- -------- ---------

 Securities, taxable         116,380    5,503  4.73%   88,287    5,025   5.69%   87,851    5,414      6.16%
 Securities, tax exempt       22,864    1,464  6.40%   16,010    1,108   6.92%   11,074      788      7.12%
                            --------- -------- ----- --------- -------- ------ --------- -------- ---------
                             139,244    6,967  5.00%  104,297    6,133   5.88%   98,925    6,202      6.27%
                            --------- -------- ----- --------- -------- ------ --------- -------- ---------

 Interest-earning cash
  equivalents                 15,922      107  0.67%   12,099      181   1.50%   12,099      434      3.59%
 Federal Home Loan Bank
  stock                        5,043      158  3.13%    4,990      177   3.55%    4,687      305      6.51%
                            --------- -------- ----- --------- -------- ------ --------- -------- ---------
                              20,965      265  1.26%   17,089      358   2.09%   16,786      739      4.40%
                            --------- -------- ----- --------- -------- ------ --------- -------- ---------

 Total interest-earning
  assets                     483,322   28,219  5.84%  458,196   31,214   6.81%  428,185   32,034      7.48%

 Cash and due from banks      13,211                   11,497                    11,368
 Other noninterest-earning
  assets                      15,097                   16,732                    12,777
                            ---------                ---------                 ---------

   Total assets             $511,630                 $486,425                  $452,330
                            =========                =========                 =========

Interest-bearing
 liabilities:
----------------
 Interest-bearing demand
  deposits                  $160,981   $1,606  1.00% $155,414   $2,464   1.59% $143,810   $4,034      2.81%
 Time deposits               137,243    5,286  3.85%  127,774    6,152   4.81%  110,728    6,492      5.86%
                            --------- -------- ----- --------- -------- ------ --------- -------- ---------
                             298,224    6,892  2.31%  283,188    8,616   3.04%  254,538   10,526      4.14%
                            --------- -------- ----- --------- -------- ------ --------- -------- ---------

 Borrowed funds               94,000    5,450  5.80%   94,474    5,467   5.79%   93,126    5,414      5.81%
                            --------- -------- ----- --------- -------- ------ --------- -------- ---------

 Total interest-bearing
  liabilities                392,224   12,342  3.15%  377,662   14,083   3.73%  347,664   15,940      4.58%
 Noninterest-bearing demand
  deposits                    70,490        -     -    63,738        -      -    61,231        -         -
                            --------- -------- ----- --------- -------- ------ --------- -------- ---------

 Funding and cost of funds   462,714   12,342  2.67%  441,400   14,083   3.19%  408,895   15,940      3.90%

 Other noninterest-bearing
  liabilities                  9,932                    9,458                     9,504
                            ---------                ---------                 ---------
   Total liabilities         472,646                  450,858                   418,399
   Stockholders' equity       38,984                   35,567                    33,931
                            ---------                ---------                 ---------

   Total liabilities and
    equity                  $511,630                 $486,425                  $452,330
                            ========= --------       ========= --------        ========= --------

Net interest income                   $15,877                  $17,131                   $16,094
                                      ========                 ========                  ========

Interest rate spread
 (difference between
 weighted average rate on
 interest-earning assets
 and interest-bearing
 liabilities)                                  2.69%                     3.08%                        2.90%
                                               =====                    ======                    =========

Net interest margin (net
 interest income as a
 percentage of average
 interest-earning assets)                      3.28%                     3.74%                        3.76%
                                               =====                    ======                    =========

-----------------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      10                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


Analysis of Changes in Net Interest  Income.  The following  table  analyzes the
changes in  interest  income and  interest  expense in terms of: (1)  changes in
volume of  interest-earning  assets  and  interest-bearing  liabilities  and (2)
changes in yields and rates.  The table  reflects the extent to which changes in
the  Corporation's  interest  income and interest  expense are  attributable  to
changes in rate (change in rate  multiplied  by prior year  volume),  changes in
volume   (changes  in  volume   multiplied  by  prior  year  rate)  and  changes
attributable to the combined impact of volume/rate (change in rate multiplied by
change  in  volume).   The  changes  attributable  to  the  combined  impact  of
volume/rate  are  allocated  on a consistent  basis  between the volume and rate
variances.  Changes  in  interest  income on loans and  securities  reflect  the
changes in interest income on a fully tax equivalent basis.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------
 (In thousands)                           2003 versus 2002          2002 versus 2001

                                    Increase (decrease) due to  Increase (decrease) due to
                                    --------------------------  --------------------------
                                      Volume   Rate     Total   Volume    Rate    Total
------------------------------------------------------------------------------------------
 Interest income:
   <S>                               <C>       <C>    <C>       <C>     <C>       <C>

    Loans                             $(975) $(2,761) $(3,736) $1,874  $(2,244)  $(370)
    Securities                        1,843   (1,009)     834     327     (396)    (69)
    Interest-earning cash equivalents    46     (120)     (74)      -     (253)   (253)
    Federal Home Loan Bank stock          2      (21)     (19)     19     (147)   (128)
                                      ------ -------- -------- ------- -------- -------

    Total interest-earning assets       916   (3,911)  (2,995)  2,220   (3,040)   (820)
                                      ------ -------- -------- ------- -------- -------

 Interest expense:
    Deposits                            438   (2,162)  (1,724)  1,091   (3,001) (1,910)
    Borrowed funds                      (27)      10      (17)     78      (25)     53
                                      ------ -------- -------- ------- -------- -------

    Total interest-bearing liabilities  411   (2,152)  (1,741)  1,169   (3,026) (1,857)
                                      ------ -------- -------- ------- -------- -------

 Net interest income                   $505  $(1,759) $(1,254) $1,051     $(14) $1,037
                                      ====== ======== ======== ======= ======== =======
------------------------------------------------------------------------------------------

</TABLE>

2003 Results Compared to 2002 Results

The  Corporation  reported  net income of $2.7 million and $4.5 million for 2003
and 2002, respectively.  The $1.7 million or 61.3% decrease in net income can be
attributed  primarily to an  additional  $2.5 million loan loss  provision  made
during 2003 related to three lending relationships. Also contributing to the net
decrease in net income was a decrease in net  interest  income of $1.4  million,
partially offset by an increase in noninterest  income of $296,000 and decreases
in  noninterest  expense and  provision  for income  taxes of $677,000  and $1.2
million, respectively.

Net interest  income.  The primary  source of the  Corporation's  revenue is net
interest income.  Net interest income is the difference  between interest income
on  earning  assets,  such as loans and  securities,  and  interest  expense  on
liabilities,  such as  deposits  and  borrowed  funds,  used to fund the earning
assets.  Net  interest  income is  impacted  by the  volume and  composition  of
interest-earning  assets and  interest-bearing  liabilities,  and changes in the
level of interest  rates.  Tax  equivalent  net interest  income  decreased $1.3
million or 7.3% to $15.9  million for 2003,  compared to $17.1 million for 2002.
This  decrease in net  interest  income can be  attributed  to a decrease in tax
equivalent  interest income of $3.0 million,  partially  offset by a decrease in
interest expense of $1.7 million.

Interest income.  Tax equivalent  interest income decreased $3.0 million or 9.6%
to $28.2 million for 2003, compared to $31.2 million for 2002. This decrease can
be attributed to decreases in interest  earned on loans,  cash  equivalents  and
Federal Home Loan Bank stock of $3.7 million, $74,000 and $19,000, respectively,
partially offset by an increase in interest earned on securities of $834,000.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      11                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


Tax equivalent  interest  earned on loans  receivable  decreased $3.7 million or
15.1% to $21.0 million for 2003,  compared to $24.7 million for 2002. Due to the
continually  lower  interest  rate  environment  in 2003 versus  2002,  the loan
portfolio  lost $2.8  million in  interest  income  related to an 85 basis point
reduction  in the  average  interest  rate  earned on loans.  Further  impacting
interest  earned on loans was a decrease in average loans  outstanding  of $13.7
million or 4.1%,  accounting for $975,000 of the decrease in interest income. As
mentioned above, the Corporation  experienced lower loan demand during 2003 than
in the  prior  two years and  experienced  significant  refinancing  of loans by
customers  whereby loans were paid off and placed by those  customers with other
financial institutions.

Tax equivalent interest earned on securities increased $834,000 or 13.6% to $7.0
million for 2003,  compared to $6.1  million  for 2002.  The average  balance of
these assets  increased  $34.9 million or 33.5% as a result of the deployment of
funds from loan repayments and federal funds  accounting for $1.8 million of the
increase in interest income.  The average rate of securities  decreased 88 basis
points during 2003 resulting in an offsetting  reduction in such interest income
of  $1.0  million.  The  increase  in  the  average  volume  of  securities  was
necessitated by the decrease in loan demand as management  sought  alternatively
to redeploy funds received from loan payoffs in marketable securities.

Interest earned on  interest-earning  deposit accounts,  including federal funds
sold,  decreased $74,000 or 40.9% to $107,000 for 2003, compared to $181,000 for
2002, primarily as a result of a decline in the yield on these funds of 83 basis
points  resulting  in a  decrease  in  interest  earned of  $120,000.  Partially
offsetting  this  decline in yield was a slight  increase in average  balance of
$3.8 million resulting in an increase in interest earned of $46,000.

Interest  expense.  Interest  expense  decreased  $1.7 million or 12.4% to $12.3
million for 2003,  compared to $14.1 million for 2002. This decrease in interest
expense can be attributed to a decrease in interest incurred on deposits of $1.7
million,  as well as a  decrease  in  interest  incurred  on  borrowed  funds of
$17,000.

Deposit  interest  expense  decreased  $1.7 million or 20.0% to $6.9 million for
2003,  compared to $8.6 million for 2002. This decrease in interest  expense can
be  attributed  to a 73 basis  point  decline  in the  cost of  interest-bearing
deposits to 2.31% for 2003 versus  3.04% for 2002  resulting  in a reduction  in
expense due to rate of $2.2 million.  This favorable rate variance was partially
offset by an increase in average  interest-bearing  deposits of $15.0 million or
5.3% between 2003 and 2002 resulting in additional interest expense of $438,000.

Interest expense on borrowed funds decreased $17,000 due primarily to a decrease
in average balance of $474,000 resulting in $27,000 of interest saved, partially
offset by a slight increase in rate.

Provision for loan losses. The Corporation records provisions for loan losses to
bring the total  allowance  for loan losses to a level deemed  adequate to cover
probable losses  inherent in the loan portfolio.  In determining the appropriate
level of  allowance  for  loan  losses,  management  considers  historical  loss
experience,  the present  and  prospective  financial  condition  of  borrowers,
current and  prospective  economic  conditions  (particularly  as they relate to
markets where the Corporation  originates  loans),  the status of  nonperforming
assets,  the  estimated  underlying  value of the  collateral  and other factors
related to the collectibility of the loan portfolio.

The provision for loan losses  increased  $2.5 million to $3.5 million for 2003,
compared to  $960,000  for 2002.  The  Corporation's  allowance  for loan losses
amounted to $6.9 million or 2.20% of the  Corporation's  total loan portfolio at
December 31, 2003,  compared to $4.2 million or 1.27% at December 31, 2002.  The
allowance for loan losses as a percentage of nonperforming loans at December 31,
2003 and 2002 was 81.8% and 476.6%, respectively.  The increase in the provision
for loan losses from 2002 to 2003 was  primarily  due to the Bank placing  three
loan  relationships  secured by two  properties  and business  assets located in
Washington  County,  Pennsylvania  on  nonperforming  status and  simultaneously
increasing the reserve for loan losses by an additional  $2.5 million to provide
for expected losses associated with this loan relationship.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      12                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


Noninterest  income.  Noninterest income includes items that, for the most part,
are not  related  to  interest  rates,  but  rather  to  services  rendered  and
activities  conducted in the  financial  services  industry,  including  fees on
depository  accounts,  general transaction and service fees, gains and losses on
the sale of securities and loans, title insurance premiums and earnings on BOLI.
Noninterest income increased $296,000 or 8.5% to $3.8 million for 2003, compared
to $3.5  million for 2002.  This  increase was  primarily  due to an increase in
customer  overdraft fees of $561,000 related to the implementation of the Bank's
courtesy  overdraft  program  started in late 2002.  Partially  offsetting  this
increase in  noninterest  income was a decrease  in gains on sale of  investment
securities  of  $81,000  and  $154,000   related  to  the   elimination  of  the
Corporation's Cashflow Maximizer program.

Noninterest  expense.  Noninterest  expense decreased  $642,000 or 4.9% to $12.5
million  for  2003,  compared  to $13.1  million  for  2002.  This  decrease  in
noninterest  expense is  comprised of  decreases  in data  processing  and other
expenses  of  $24,000  and  $1.5  million,  respectively,  partially  offset  by
increases  in  compensation  and employee  benefits  and premises and  equipment
expense of $747,000 and $157,000, respectively.

Other expenses  decreased $1.5 million or 29.4%  primarily due to a $2.1 million
charge, in 2002,  associated with the Cashflow Maximizer product, a discontinued
service aforementioned.  Partially offsetting the net decrease in other expenses
was an  increase in  professional  fees  expense of  $453,000.  The  increase in
professional  fees expense can be attributed to legal fees  associated  with the
work-out  of  the  aforementioned  problem  loan  relationships  as  well  as to
professional  costs associated with compliance with the FDIC Improvement Act and
the Sarbanes-Oxley Act of 2002.

Compensation and employee benefits expense  increased  $747,000 or 14.3% to $6.0
million for 2003, compared to $5.2 million for 2002. The major component of this
increase  was  salaries  expense,  which  increased  $600,000  partially  due to
nonrecurring  costs of $265,000  associated  with the termination of an officer,
additional  staffing  needed related to the opening of the Bank's new Fox Chapel
branch office during the second half of 2002 and normal salary  increases.  Also
contributing to the increase in compensation and employee  benefits expense were
increases in payroll  taxes,  health  insurance  and director  fees  expenses of
$39,000, $65,000 and $45,000, respectively. Partially offsetting these increases
was a decrease in profit sharing costs of $37,000.

Premises and equipment  expense  increased  $157,000 or 8.4% to $2.0 million for
2003,  compared to $1.9 million for 2002.  This  increase was  primarily  due to
increases in  depreciation,  rent expense,  insurance  and building  maintenance
expenses  associated  with the  opening of a new branch  office  during  2002 of
$59,000, $38,000, $28,000 and $30,000, respectively.  Partially offsetting these
increases was a decrease in equipment expense of $21,000.

Provision  for income  taxes.  The  provision  for income taxes  decreased  $1.2
million or 70.6% to $496,000  in 2003  compared  to $1.7  million in 2002.  This
decrease was  primarily the result of a decrease in pre-tax  income  between the
two years.  Also  contributing  to this decrease was a decrease in the effective
tax rate, which decreased to 15.3% for 2003 from 27.6% for 2002.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      13                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


2002 Results Compared to 2001 Results

The  Corporation  reported net income of $4.5 million for 2002  compared to $5.2
million in 2001.  The $740,000 or 14.2% decline in earnings was primarily due to
the charge-off of $1.8 million,  in excess of specific loss reserves,  resulting
from an external fraud,  which was identified and recognized as other expense in
third  quarter  2002 results of  operations.  The fraud was isolated to accounts
receivable  purchased  from  one  customer  under  the  Corporation's   Cashflow
Maximizer  program.  Including the impact of this loss, other expenses increased
$2.5 million or 23.1%,  net interest income  increased  $953,000 or 6.0%,  other
income  increased  $100,000 or 3.0% and  provision  for income  taxes  decreased
$432,000 or 20.7%.

Net interest  income.  Tax equivalent net interest income increased $1.0 million
or 6.4% to $17.1  million  for 2002,  compared to $16.1  million for 2001.  This
increase  in net  interest  income can be  attributed  to a decrease in interest
expense  of $1.9  million,  partially  offset by a  decrease  in tax  equivalent
interest income of $820,000.

Interest income.  Tax equivalent  interest income decreased  $820,000 or 2.6% to
$31.2 million for 2002, compared to $32.0 million for 2001. This decrease can be
attributed   to   decreases   in   interest   earned   on   loans,   securities,
interest-earning deposits and federal funds sold of $370,000,  $197,000, $31,000
and $222,000, respectively.

Tax equivalent interest earned on loans receivable decreased $370,000 or 1.5% to
$24.7 million for 2002,  compared to $25.1  million for 2001.  During that time,
interest  rates  decreased  resulting  in $2.2 million of lost  interest  income
relating to the 69 basis point reduction in the average  interest rate earned on
the portfolio.  Partially  offsetting  this decrease in interest earned on loans
due to rate was an increase in average  loans  outstanding  of $24.3  million or
7.8%, accounting for $1.9 million in increased interest income.

Tax equivalent interest earned on securities  decreased $197,000 or 3.0% to $6.3
million for 2002,  compared to $6.5 million for 2001.  While the average balance
of these assets increased $6.1 million or 5.9% resulting in a $413,000  increase
in interest  earned on securities,  the average rate of securities  decreased 53
basis points during 2002  resulting in an offsetting  reduction in such interest
income of $610,000.

Interest earned on  interest-earning  deposit accounts,  including federal funds
sold,  decreased  $253,000 to $181,000 for 2002,  compared to $434,000 for 2001,
primarily  as a result  of a decline  in the  yield on these  funds of 208 basis
points  resulting  in a  decrease  in  interest  earned of  $254,000.  Partially
offsetting  this decline in yield was an increase in average balance of $969,000
resulting in an increase in interest earned of $881,000.

Interest  expense.  Interest  expense  decreased  $1.9 million or 11.6% to $14.1
million for 2002,  compared to $15.9 million for 2001. This decrease in interest
expense can be attributed to a decrease in interest incurred on deposits of $1.9
million,  partially offset by an increase in interest incurred on borrowed funds
of $53,000.

Deposit  interest  expense  decreased  $1.9 million or 18.1% to $8.6 million for
2002,  compared to $10.5 million for 2001. This decrease in interest expense can
be  attributed  to a 110 basis  point  decline  in the cost of  interest-bearing
deposits to 3.04% for 2002 versus  4.14% for 2001  resulting  in a reduction  in
expense due to rate of $3.2 million.  This favorable rate variance was partially
offset by an increase in average  interest-bearing  deposits of $2.9  million or
11.3%  between 2002 and 2001  resulting in additional  interest  expense of $1.2
million.

Interest  expense on  borrowed  funds  increased  $53,000  due  primarily  to an
increase in average  balance of $1.8  million  resulting  in $86,000 of interest
lost,  partially  offset by a decrease in rate  resulting  in interest  saved of
$33,000.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      14                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


Provision for loan losses.  The provision for loan losses decreased  $240,000 to
$960,000 for 2002,  compared to $1.2 million for 2001. Net  charge-offs for 2002
were $808,000  compared to $425,000 for 2001. During the second quarter of 2002,
$757,000  in  purchased  accounts  receivable  from the  Corporation's  Cashflow
Maximizer program, related to one customer relationship,  were restructured as a
term loan to facilitate  the  collection of amounts  outstanding.  Subsequent to
September  30,  2002,  however,  an  apparent  fraud was  identified  related to
accounts  receivable  purchased from that customer under the Cashflow  Maximizer
program. Due to the apparent fraud related to that customer's Cashflow Maximizer
accounts receivable, management determined that full collection of the term loan
was impaired and, consequently,  charged off $384,000 of the remaining term loan
balance of $684,000  during the third  quarter of 2002. As of December 31, 2002,
the $300,000  restructured  term loan  remaining at September 30, 2002 was fully
collected   through   liquidation  of  marketable   equity  securities  held  as
collateral.   With  the  exception  of  the  one  significant   commercial  loan
relationship noted above, the Corporation  continued to experience moderate loan
losses in relation to average loans outstanding.

Noninterest  income.  Noninterest  income  increased  $100,000  or  3.0% to $3.5
million  in 2002  from  $3.4  million  in 2001.  Net gains on sales and calls of
investment  securities  available for sale during 2002 increased $240,000 due to
the partial  divestiture of equity holdings in one financial  institution during
2002.  Service fees increased  $42,000 due to an increase of $64,000 in customer
overdraft  charges,  partially offset by a decrease in service charges collected
on savings  accounts of  $22,000.  Other  operating  income  decreased  $182,000
largely due to the impact of $558,000 in  non-recurring  BOLI income realized in
2001  resulting  from a death benefit claim related to one of the  Corporation's
key managers.  Also  contributing to the net decrease in other operating  income
were decreases in net losses  recognized on the sale of other assets and service
fees from the Cashflow  Maximizer program that the Corporation began eliminating
in 2002 of  $17,000  and  $153,000,  respectively.  Partially  offsetting  these
decreases were increases in mortgage fees,  title  insurance  premium income and
investment services commissions of $235,000, $22,000 and $39,000, respectively.

Noninterest  expense.  Noninterest  expense  increased  $2.4 million or 22.8% to
$13.1  million for 2002,  compared to $10.7  million for 2001.  The  increase in
noninterest expense was primarily due to a $1.8 million charge-off, in excess of
specific  loss  reserves,  associated  with an  external  fraud  related  to the
Cashflow Maximizer product. A $211,000 additional reserve for Cashflow Maximizer
losses was also recognized during 2002. Also contributing to the net increase in
noninterest  expense were increases in salaries and employee benefits expense of
$413,000  due to normal  salary  increases,  additional  incentive  compensation
accruals and increased life and health  insurance costs, as well as the addition
of a new branch opened during the third  quarter of 2002,  occupancy  expense of
$80,000 related to an increase in rent expense related to the opening of the new
branch and data  processing  expense of $50,000  due to an  increase  in charges
incurred for third-party data processing.  Also contributing to the net increase
in noninterest  expense were increases in legal and financial  services expenses
of  $76,000  and  $24,000,  respectively,  related to the  process of  reviewing
corporate matters concerning  compliance with the Sarbanes-Oxley Act and also in
preparation of the Corporation's shareholders' rights plan. These increases were
partially offset by decreases in deposit premium  amortization  corresponding to
the completion of the amortization schedule in December of 2001, asset recovery,
parking,   protection,   education   and   advertising   expenses   related   to
higher-than-normal expenses incurred during the first quarter of 2001 to support
the Bank's  special  promotion of its new savings  account  product and business
banking campaign of $177,000,  $61,000,  $31,000,  $36,000, $30,000 and $28,000,
respectively.

Provision for income taxes. The provision for income taxes decreased $397,000 or
19.0% to $1.7 million in 2002  compared to $2.1 million in 2001.  This  decrease
was primarily the result of a decrease in pre-tax  income between the two years.
Also  contributing  to this  decrease was a decrease in the  effective tax rate,
which decreased from 28.7% in 2001 to 27.6% in 2002.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      15                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


Market Risk Management
----------------------

The primary objective of the Corporation's  asset liability  management function
is to maximize  the  Corporation's  net  interest  income  while  simultaneously
maintaining  an acceptable  level of interest rate risk given the  Corporation's
operating   environment,   capital  and  liquidity   requirements,   performance
objectives  and  overall  business  focus.  One of the  primary  measures of the
exposure  of the  Corporation's  earnings  to  interest  rate risk is the timing
difference between the repricing or maturity of interest-earning  assets and the
repricing or maturity of its interest-bearing liabilities.

The  Corporation's   Board  of  Directors  has  established  an  Asset/Liability
Management  Committee,  consisting  of at  least  four  outside  directors,  the
President and the Chief  Financial  Officer,  to monitor market risk,  including
primarily  interest rate risk. This committee,  which meets at least  quarterly,
generally establishes and monitors the investment,  interest rate risk and asset
and liability management policies established by the Corporation.

Interest Rate Sensitivity Gap Analysis

The  implementation  of asset  and  liability  initiatives  and  strategies  and
compliance with related  policies,  combined with other external factors such as
demand  for  the   Corporation's   products  and  economic  and  interest   rate
environments in general, have resulted in the Corporation maintaining a one-year
cumulative interest rate sensitivity gap ranging between a positive and negative
20% of total assets. The one-year interest rate sensitivity gap is identified as
the  difference  between  the  Corporation's  interest-earning  assets  that are
scheduled  to  mature  or  reprice  within  one  year  and its  interest-bearing
liabilities that are scheduled to mature or reprice within one year.

The  interest  rate  sensitivity  gap is defined as the  difference  between the
amount of  interest-earning  assets maturing or repricing within a specific time
period and the amount of  interest-bearing  liabilities  maturing  or  repricing
within  that  time  period.  A gap is  considered  positive  when the  amount of
interest  rate-sensitive  assets  exceeds the amount of interest  rate-sensitive
liabilities,   and  is   considered   negative   when  the  amount  of  interest
rate-sensitive liabilities exceeds the amount of interest rate-sensitive assets.
Generally,  during a period of  rising  interest  rates,  a  negative  gap would
adversely  affect net  interest  income  while a positive gap would result in an
increase in net interest income. Conversely, during a period of falling interest
rates,  a negative gap would result in an increase in net interest  income and a
positive gap would adversely affect net interest income.  The closer to zero, or
more neutral, that gap is maintained, generally, the lesser the impact of market
interest rate changes on net interest income.

At December 31, 2003,  the  Corporation's  interest-earning  assets  maturing or
repricing  within  one-year  totaled  $135.1  million  while  the  Corporation's
interest-bearing  liabilities  maturing or  repricing  within  one-year  totaled
$236.8  million,  providing  an  excess  of  interest-bearing  liabilities  over
interest-earning  assets of $101.6  million or a negative 20.1% of total assets.
At December 31, 2003, the percentage of the Corporation's  assets to liabilities
maturing or repricing within one year was 57.1%.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      16                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------

The following table presents the amounts of interest-earning assets and
interest-bearing liabilities outstanding as of December 31, 2003, which are
expected to mature, prepay or reprice in each of the future time periods
presented:

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)        Due in    Due within  Due within    Due within   Due in
                                   six months  six months    one to       three to     over
                                    or less    to one year three years   five years  five years   Total
---------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>          <C>         <C>         <C>         <C>

Total interest-earning assets        $82,097    $53,043     $131,786      $66,289     $138,390   $471,605

Total interest-bearing liabilities   203,959     32,791       41,990       18,471       87,104    384,315
                                   ---------- ----------   ----------   ----------   ---------- ----------

Maturity or repricing gap during
 the period                        $(121,862)   $20,252      $89,796      $47,818      $51,286    $87,290
                                   ========== ==========   ==========   ==========   ========== ==========

Cumulative gap                     $(121,862) $(101,610)    $(11,814)     $36,004      $87,290
                                   ========== ==========   ==========   ==========   ==========

Ratio of gap during the period to
 total assets                        (24.05%)      4.00%       17.72%        9.44%       10.12%

Ratio of cumulative gap to total
 assets                              (24.05%)    (20.06%)      (2.33%)       7.11%       17.23%

Total assets                                                                                     $506,620
                                                                                                ==========
----------------------------------------------------------------------------------------------------------

</TABLE>

Although  certain assets and liabilities may have similar  maturities or periods
of repricing,  they may react in different degrees to changes in market interest
rates.  The  interest  rates on  certain  types of assets  and  liabilities  may
fluctuate in advance of changes in market interest  rates,  while interest rates
on other  types of assets  and  liabilities  may lag  behind  changes  in market
interest rates. In the event of a change in interest rates, prepayment and early
withdrawal  levels  would likely  deviate  significantly  from those  assumed in
calculating  the table.  The ability of many borrowers to service their debt may
decrease in the event of an interest rate increase.

The one-year  interest rate  sensitivity  gap has been the most common  industry
standard used to measure an institution's  interest rate risk position regarding
maturities, repricing and prepayments. In recent years, in addition to utilizing
interest  rate  sensitivity  gap  analysis,  the  Corporation  has increased its
emphasis on the utilization of interest rate sensitivity  simulation analysis to
evaluate and manage interest rate risk.

Interest Rate Sensitivity Simulation Analysis

The  Corporation  also  utilizes  income  simulation  modeling in measuring  its
interest   rate  risk  and   managing  its  interest   rate   sensitivity.   The
Asset/Liability Management Committee of the Corporation believes that simulation
modeling  enables the  Corporation  to more  accurately  evaluate and manage the
possible  effects on net interest  income due to the exposure to changing market
interest  rates,  the slope of the yield curve and  different  loan and security
prepayment and deposit decay assumptions under various interest rate scenarios.

As with gap analysis and earnings  simulation  modeling,  assumptions  about the
timing  and  variability  of cash flows are  critical  in net  portfolio  equity
valuation analysis.  Particularly important are the assumptions driving mortgage
prepayments  and the  assumptions  about expected  attrition of the core deposit
portfolios.   These  assumptions  are  based  on  the  Corporation's  historical
experience  and  industry  standards  and are  applied  consistently  across the
different rate risk measures.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      17                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------

The Corporation has established the following guidelines for assessing interest
rate risk:

     Net  interest  income  simulation.  Given a 200 basis  point  parallel  and
     gradual  increase or decrease in market interest rates, net interest income
     may not change by more than 25% for a one-year period.

     Portfolio equity  simulation.  Portfolio equity is the net present value of
     the Corporation's existing on and off-balance sheet assets and liabilities.
     Given a 200 basis point  immediate  and  permanent  increase or decrease in
     market interest rates, portfolio equity may not correspondingly decrease by
     more than 30% of stockholders' equity.

These guidelines take into  consideration the current interest rate environment,
the  Corporation's  financial  asset and  financial  liability  product  mix and
characteristics  and liquidity  sources among other  factors.  Given the current
rate environment, a drop in short-term market interest rates of 200 basis points
immediately  or over a one-year  horizon  would seem  unlikely.  This  should be
considered in evaluating modeling results outlined in the table below.

The following  table  presents the simulated  impact of a 100 basis point or 200
basis point upward or downward  shift of market  interest  rates on net interest
income,  return on  average  equity  and the change in  portfolio  equity.  This
analysis was done assuming that the interest-earning  asset and interest-bearing
liability  levels at December 31,  2003,  remained  constant.  The impact of the
market rate  movements on net interest  income and return on average  equity was
developed by simulating the effects of rates changing  gradually over a one-year
period from the December 31, 2003,  levels for net interest income and return on
average  equity.  The impact of market rate  movements on  portfolio  equity was
developed by  simulating  the effects of an immediate  and  permanent  change in
rates at December 31, 2003.

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------
                                                              Increase               Decrease
                                                        ---------------------  ---------------------
                                                           +100        +200       -100        -200
                                                            BP          BP         BP          BP
----------------------------------------------------------------------------------------------------
<S>                                                        <C>         <C>        <C>        <C>

Net interest income - increase (decrease)                   2.20%     (0.50%)     (5.20%)    (10.10%)

Return on average equity - increase (decrease)              2.20%     (0.50%)     (5.20%)    (10.10%)

Portfolio equity - increase (decrease)                    (11.40%)   (25.20%)      6.40%       6.90%
----------------------------------------------------------------------------------------------------

</TABLE>

Impact of Inflation and Changing Prices
---------------------------------------

The  consolidated  financial  statements  of the  Corporation  and related notes
presented  herein have been prepared in accordance  with  accounting  principles
generally  accepted  in  the  United  States  of  America,   which  require  the
measurement of financial  condition and operating results in terms of historical
dollars,  without  considering changes in the relative purchasing power of money
over time due to inflation.

Unlike  most  industrial   companies,   substantially  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 the effects of general levels of inflation.  Interest rates do
not  necessarily  move in the same  direction  or in the same  magnitude  as the
prices of goods and  services  since such prices are  affected by inflation to a
larger degree than interest  rates.  In the current  interest rate  environment,
liquidity and the maturity structure of the Corporation's assets and liabilities
are critical to the maintenance of acceptable performance levels.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      18                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


Critical Accounting Policies
----------------------------

The Corporation's  consolidated  financial statements are prepared in accordance
with accounting  principles  generally  accepted in the United States of America
and  follow  general  practices  within  the  industry  in  which  it  operates.
Application  of  these  principles  requires  management  to make  estimates  or
judgments  that affect the  amounts  reported in the  financial  statements  and
accompanying notes. These estimates are based on information available as of the
date of the financial statements;  accordingly, as this information changes, the
financial  statements could reflect  different  estimates or judgments.  Certain
policies inherently have a greater reliance on the use of estimates, and as such
have a  greater  possibility  of  producing  results  that  could be  materially
different than  originally  reported.  Estimates or judgments are necessary when
assets and liabilities are required to be recorded at fair value, when a decline
in the value of an asset not carried on the  financial  statements at fair value
warrants an impairment write-down or valuation reserve to be established or when
an asset or  liability  needs to be  recorded  contingent  upon a future  event.
Carrying  assets  and  liabilities  at fair  value  inherently  results  in more
financial  statement  volatility.  The fair values and the  information  used to
record valuation adjustments for certain assets and liabilities are based either
on quoted market prices or are provided by third-party sources,  when available.
When  third-party  information  is  not  available,  valuation  adjustments  are
estimated in good faith by management  primarily though the use of internal cash
flow modeling techniques.

The  most  significant  accounting  policies  followed  by the  Corporation  are
presented in Note 1 to the consolidated  financial  statements.  These policies,
along with the  disclosures  presented in the other  financial  statement  notes
provide  information on how significant assets and liabilities are valued in the
financial  statements  and how those  values are  determined.  Management  views
critical  accounting  policies  to  be  those  which  are  highly  dependent  on
subjective or complex judgments,  estimates and assumptions and where changes in
those estimates and assumptions could have a significant impact on the financial
statements.  Management  has  identified  the  following as critical  accounting
policies.

Allowance for loan losses.  The Corporation  considers that the determination of
the  allowance  for  loan  losses  involves  a higher  degree  of  judgment  and
complexity than its other significant  accounting  policies.  The balance in the
allowance  for loan  losses  is  determined  based on  management's  review  and
evaluation of the loan portfolio in relation to past loss  experience,  the size
and  composition of the portfolio,  current  economic  events and conditions and
other  pertinent  factors,  including  management's  assumptions  as  to  future
delinquencies, recoveries and losses. All of these factors may be susceptible to
significant  change.  Among the many factors  affecting  the  allowance for loan
losses;  some  are  quantitative  while  others  require  qualitative  judgment.
Although   management   believes  its  process  for  determining  the  allowance
adequately  considers all of the potential factors that could potentially result
in  credit  losses,  the  process  includes   subjective  elements  and  may  be
susceptible to significant  change.  To the extent actual  outcomes  differ from
management's  estimates,  additional  provisions for loan losses may be required
that would adversely impact the Corporation's financial condition or earnings in
future periods.

Accounting for stock options. As permitted by Statement of Financial  Accounting
Standards (SFAS) No. 123, the Corporation accounts for stock-based  compensation
in accordance with Accounting  Principles  Board Opinion (APB) No. 25 Accounting
for Stock  Issued to  Employees.  Under APB No. 25, no  compensation  expense is
recognized  in the income  statement  related to any options  granted  under the
Company's  stock option  plans.  The pro forma impact to net income and earnings
per share that would occur if compensation expense was recognized,  based on the
estimated  fair value of the options on the date of the grant,  is  disclosed in
the  notes  to  the  consolidated  financial  statements.  Certain  factors  and
assumptions  utilized in determining the fair value of stock options and related
compensation expense for disclosure of pro forma earnings under SFAS No. 123 are
subjective in nature.  These factors and assumptions include the dividend yield,
expected life and expected  volatility  associated  with stock options for which
the fair value is being estimated.  Management  utilizes  available stock market
data and  historic  experience  pertaining  to the  Corporation's  common  stock
performance in establishing these assumptions.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      19                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------

Recent Accounting Pronouncements
--------------------------------

In December 2003, the Financial  Accounting  Standards Board (FASB) revised SFAS
No. 132, Employers' Disclosures about Pension and Other Postretirement  Benefit.
This  statement  retains  the  disclosures  required  by  SFAS  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 SFAS 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  Corporation's  disclosure
requirements.

In July 2002, the FASB issued SFAS 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 Corporation's financial position or results of
operations.

On December 31, 2002, the FASB issued SFAS No. 148,  Accounting for  Stock-Based
Compensation - Transition and Disclosure,  which amends SFAS No. 123, Accounting
for Stock-Based Compensation. SFAS No. 148 amends the disclosure requirements of
SFAS No.  123 to  require  more  prominent  and  more  frequent  disclosures  in
financial  statements about the effects of stock-based  compensation.  Under the
provisions of SFAS 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,  SFAS 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.  SFAS 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 SFAS 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.  The
Corporation  elected to continue to account for stock-based  compensation  using
the  intrinsic  value  method  prescribed  by APB  No.  25 and has  adopted  the
disclosure provisions of SFAS No. 148.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      20                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


In April,  2003,  the FASB issued SFAS 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 SFAS
No. 133. The amendments set forth in SFAS 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 SFAS No. 133. In  addition,  it  clarifies  when a  derivative
contains a financing  component that warrants special reporting in the statement
of cash flows. SFAS 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 SFAS 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  Corporation's  financial  position  or
results of operations.

In May 2003,  the FASB  issued SFAS 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
Corporation'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 Corporation's financial position or results of
operations.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      21                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------


In January,  2003, the FASB issued Interpretation No. 46 (FIN 46), Consolidation
of  Variable  Interest  Entities,  in an effort to  expand  upon and  strengthen
existing accounting guidance that addresses when a company should include in its
financial  statements the assets,  liabilities and activities of another entity.
The objective of FIN 46 is not to restrict the use of variable interest entities
(VIEs) but to improve financial reporting by companies involved with VIEs. Until
now, one company  generally  has  included  another  entity in its  consolidated
financial  statements only if it controlled the entity through voting interests.
FIN 46 changes that by requiring a VIE to be  consolidated  by a company if that
company is subject to a majority  of the risk of loss from the VIE's  activities
or entitled to receive a majority of the entity's  residual returns or both. The
consolidation  requirements  of FIN 46 apply  immediately  to VIEs created after
January 31, 2003. The consolidation  requirements apply to older entities in the
first fiscal year or interim period  beginning  after June 15, 2003.  Certain of
the  disclosure  requirements  apply in all  financial  statements  issued after
January 31, 2003, regardless of when the VIE was established.  In October, 2003,
the FASB  decided  to defer to the fourth  quarter  from the third  quarter  the
implementation  date for FIN 46. This deferral only applies to variable interest
entities that existed prior to February 1, 2003.

In  December  2003,  the  FASB  issued  FIN  46R,  which  clarified  some of the
provisions  of  FIN  46  and  exempted   certain   entities  from  the  original
requirements of FIN 46. Under FIN 46R, an entity that holds a variable  interest
in a VIE is  required  to  consolidate  the VIE if the  entity is  subject  to a
majority of the risk of loss from the VIE's activities, is entitled to receive a
majority of the entity's residual returns,  or both. An entity that consolidates
the VIE is called the  primary  beneficiary.  Upon  consolidation,  the  primary
beneficiary  generally  must  record all of the VIE's  assets,  liabilities  and
noncontrolling  interests  at fair  value  with  subsequent  changes  based upon
consolidation principles.  FIN 46R also requires disclosures about VIEs that the
entity  is not  required  to  consolidate  but in which  it holds a  significant
variable  interest.  The  adoption  of FIN 46 and  FIN  46R  has  not and is not
expected to have a material effect on the Corporation's  financial  condition or
results of operations.

Recent Regulatory Pronouncements
--------------------------------

In July 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002. The
Act is organized into eleven  sections.  These sections deal with such issues as
auditor independence, corporate responsibility,  enhanced financial disclosures,
conflicts of interest and corporate  accountability.  The Act also establishes a
public company accounting  oversight board and requires attestation by the Chief
Executive Officer, Chief Financial Officer and external auditor.

Section 404 of the Act requires companies subject to the reporting  requirements
of the  Securities  Exchange  Act of  1934,  other  than  registered  investment
companies,  to include in their  annual  reports a report of  management  on the
company's internal control over financial reporting. The internal control report
must include a statement of management's  responsibility  for  establishing  and
maintaining  adequate internal control over financial reporting for the company,
management's  assessment of the effectiveness of the company's  internal control
over financial reporting as of the end of the company's most recent fiscal year,
a statement  identifying  the  framework  used by  management  to  evaluate  the
effectiveness of the company's  internal control over financial  reporting and a
statement that the registered  public accounting firm that audited the company's
financial  statements  included in the annual  report has issued an  attestation
report  on  management's  assessment  of the  company's  internal  control  over
financial  reporting.  Under the new rules,  a company is  required  to file the
registered  public accounting  firm's  attestation  report as part of the annual
report.  Also,  management  is required to evaluate any change in the  company's
internal control over financial  reporting that occurred during a fiscal quarter
that has materially affected,  or is reasonably likely to materially affect, the
company's  internal  control over financial  reporting.  Companies must begin to
comply  with  Section 404 of the Act in 2004 or 2005,  depending  on whether the
company is an accelerated filer as defined in Exchange Act Rule 12b-2.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      22                     2003 Annual Report

<PAGE>

Management's Discussion and Analysis of
Financial Condition and Results of Operations (continued)
--------------------------------------------------------------------------------

The  Corporation  is  not an  accelerated  filer  and  management  expects  full
compliance  with  Section  404 of the Act during  2005.  The  Corporation  is in
compliance  with other  sections of the Act that  required  earlier  adoption as
prescribed by law.

Forward-Looking Statements
--------------------------

Discussions of certain matters in this Annual Report and other related  year-end
documents  may  constitute  forward-looking  statements  within  the  meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities  Act), and
Section 21E of the  Securities  Exchange Act of 1934,  as amended (the  Exchange
Act),  and,  as such,  may  involve  risks  and  uncertainties.  Forward-looking
statements,  which are based on certain  assumptions  and describe future plans,
strategies, and expectations,  are generally identifiable by the use of words or
phrases such as "believe," "plan," "expect," "intend," "anticipate," "estimate,"
"project,"  "forecast,"  "may  increase,"  "may  fluctuate,"  "may improve," and
similar  expressions  of future or conditional  verbs such as "will,"  "should,"
"would," and "could." These  forward-looking  statements  relate to, among other
things,  expectations  of the  business  environment  in which  the  Corporation
operates, projections of future performance, potential future credit experience,
perceived   opportunities   in  the  market,   and   statements   regarding  the
Corporation's mission and vision. The Corporation's actual results, performance,
and  achievements  may differ  materially  from the  results,  performance,  and
achievements  expressed or implied in such  forward-looking  statements due to a
wide range of factors. These factors include, but are not limited to, changes in
interest rates,  general economic  conditions,  the demand for the Corporation's
products and services,  accounting  principles or  guidelines,  legislative  and
regulatory changes,  monetary and fiscal policies of the U.S.  Government,  U.S.
Treasury, and Federal Reserve, real estate markets, competition in the financial
services  industry,  attracting and retaining key personnel,  performance of new
employees,  regulatory actions,  changes in and utilization of new technologies,
and other risks  detailed in the  Corporation's  reports filed with the SEC from
time to time, including the Quarterly Reports on Form 10-Q. These factors should
be considered in evaluating the forward-looking  statements,  and undue reliance
should not be placed on such statements. The Corporation does not undertake, and
specifically disclaims any obligation, to update any forward-looking  statements
to reflect  occurrences or unanticipated  events or circumstances after the date
of such statements.

--------------------------------------------------------------------------------
NSD Bancorp, Inc.                      23                     2003 Annual Report

<PAGE>

Consolidated Balance Sheets
--------------------------------------------------------------------------------
(Dollar amounts in thousands)


                                                      December 31,
                                                   -------------------
                                                       2003      2002
                                                   --------- ---------

                      Assets
                    ---------

Cash and due from banks                             $14,117   $14,893
Interest-earning deposits in banks                      623       133
Federal funds sold                                    9,500    18,600
                                                   --------- ---------
    Cash and cash equivalents                        24,240    33,626
Securities available for sale                       151,141   123,226
Loans receivable, net of allowance for loan losses
 of $6,882 and $4,212                               305,626   329,280
Federal Home Loan Bank stock, at cost                 4,961     4,974
Bank-owned life insurance                             8,537     8,159
Accrued interest receivable                           2,580     2,530
Premises and equipment, net                           3,326     3,614
Prepaid expenses and other assets                     6,209     5,039
                                                   --------- ---------

         Total assets                              $506,620  $510,448
                                                   ========= =========

       Liabilities and Stockholders' Equity
     ---------------------------------------

Liabilities:
    Deposits:
       Non-interest-bearing                         $75,724   $71,383
       Interest-bearing                             290,315   297,816
                                                   --------- ---------
         Total deposits                             366,039   369,199
    Borrowed funds                                   94,000    94,000
    Accrued interest payable                          4,870     6,406
    Accrued expenses and other liabilities            2,824     2,021
                                                   --------- ---------

       Total liabilities                            467,733   471,626
                                                   --------- ---------

Stockholders' equity:
    Common stock, $1.00 par value, 12,000,000
     shares authorized;
       3,529,516 and 3,334,720 shares issued          3,530     3,335
    Additional paid-in capital                       26,117    21,554
    Treasury stock, at cost; 331,701 and 295,798
     shares                                          (6,626)   (5,711)
    Retained earnings                                13,077    17,187
    Accumulated other comprehensive income            2,789     2,457
                                                   --------- ---------

       Total stockholders' equity                    38,887    38,822
                                                   --------- ---------

         Total liabilities and stockholders'
          equity                                   $506,620  $510,448
                                                   ========= =========




--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    24                     2003 Annual Report


<PAGE>

Consolidated Statements of Income
--------------------------------------------------------------------------------
(Dollar amounts in thousands)


                                                   Year ended December 31,
                                                 ----------------------------
                                                    2003      2002      2001
                                                 -------- --------- ---------

Interest and dividend income:
  Loans receivable, including fees               $20,975   $24,689   $25,034
  Securities:
       Taxable                                     5,503     5,025     5,414
       Exempt from federal income tax                966       731       520
  Federal Home Loan Bank stock                       107       177       305
  Deposits with banks and federal funds sold         158       181       434
                                                 -------- --------- ---------
       Total interest and dividend income         27,709    30,803    31,707
                                                 -------- --------- ---------

Interest expense:
  Deposits                                         6,892     8,616    10,526
  Borrowed funds                                   5,450     5,467     5,414
                                                 -------- --------- ---------
       Total interest expense                     12,342    14,083    15,940
                                                 -------- --------- ---------

Net interest income                               15,367    16,720    15,767
  Provision for loan losses                        3,465       960     1,200
                                                 -------- --------- ---------

Net interest income after provision for loan
 losses                                           11,902    15,760    14,567
                                                 -------- --------- ---------

Noninterest income:
  Fees and service charges                         1,802     1,198     1,156
  Gain on sale of securities available for sale,
   net                                               364       446       205
  Earnings on bank-owned life insurance, net         378       369       289
  Other                                            1,245     1,480     1,742
                                                 -------- --------- ---------
       Total noninterest income                    3,789     3,493     3,392
                                                 -------- --------- ---------

Noninterest expense:
  Compensation and employee benefits               5,964     5,217     4,804
  Premises and equipment, net                      2,026     1,869     1,734
  Data processing                                    816       840       790
  Other                                            3,650     5,172     3,340
                                                 -------- --------- ---------
       Total noninterest expense                  12,456    13,098    10,668
                                                 -------- --------- ---------

Income before provision for income taxes           3,235     6,155     7,291
  Provision for income taxes                         496     1,689     2,086
                                                 -------- --------- ---------

Net income                                        $2,739    $4,466    $5,205
                                                 ======== ========= =========

Net income per share:
  Basic                                            $0.86     $1.39     $1.59
  Diluted                                          $0.84     $1.37     $1.58


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    25                     2003 Annual Report

<PAGE>


Consolidated Statements of Comprehensive Income
--------------------------------------------------------------------------------
(Dollar amounts in thousands)

<TABLE>
<CAPTION>

                                                                    Year ended December 31,
                                                              ------------------------------------
                                                                   2003         2002         2001
                                                              ----------   ----------   ----------
 <S>                                                          <C>          <C>          <C>

 Net income                                                      $2,739       $4,466       $5,205

 Other comprehensive income:

   Unrealized holding gains on available for sale securities        867        2,667        1,700
   Less reclassification adjustment for gains
    realized
         in income                                                  364          446          205
                                                              ----------   ----------   ----------
   Net unrealized gains                                             503        2,221        1,495

   Tax effect                                                       171          755          508
                                                              ----------   ----------   ----------

   Other comprehensive income                                       332        1,466          987
                                                              ----------   ----------   ----------

 Comprehensive income                                            $3,071       $5,932       $6,192
                                                              ==========   ==========   ==========

</TABLE>


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    26                     2003 Annual Report


<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)


<TABLE>
<CAPTION>
                                                                                              Accumulated
                                                Shares           Additional                      Other         Total
                                               of Common Common   Paid-in   Treasury Retained Comprehensive Stockholders'
                                                 Stock    Stock   Capital    Stock   Earnings    Income        Equity
                                              ---------- ------- ---------- -------- -------- ------------ -------------

<S>                                           <C>        <C>       <C>      <C>      <C>       <C>         <C>
Balance at December 31, 2000                  3,016,918  $3,017    $15,745  $(2,935) $17,810           $4       $33,641

Comprehensive income:
    Net income                                                                         5,205                      5,205
    Change in net unrealized gain on
     securities available for sale, net of
     reclassification and taxes of $505                                                               987           987
                                                                                     -----------------------------------

Comprehensive income                                                                   5,205          987         6,192
                                                                                     -----------------------------------

Stock dividend                                  141,839     142      2,340            (2,482)                         -
Cash paid in lieu of fractional shares                                                    (4)                        (4)
Treasury stock repurchases, 68,029 shares                                    (1,213)                             (1,213)
Stock options exercised net of income
    tax benefits                                 11,531      11        302                                          313
Cash dividends declared, $0.69 per share                                              (2,256)                    (2,256)
                                            ------------ ------- ---------- -------- -------- ------------ -------------

Balance at December 31, 2001                  3,170,288   3,170     18,387   (4,148)  18,273          991        36,673

Comprehensive income:
    Net income                                                                         4,466                      4,466
    Change in net unrealized gain on
     securities available for sale, net of
     reclassification and taxes of $755                                                             1,466         1,466
                                                                                     -----------------------------------

Comprehensive income                                                                   4,466        1,466         5,932
                                                                                     -----------------------------------

Stock dividend                                  146,585     147      2,948            (3,095)                         -
Cash paid in lieu of fractional shares                                                    (4)                        (4)
Treasury stock repurchases, 69,822 shares                                    (1,563)                             (1,563)
Stock options exercised net of income
    tax benefits                                 17,847      18        219                                          237
Cash dividends declared, $0.76 per share                                              (2,453)                    (2,453)
                                            ------------ ------- ---------- -------- -------- ------------ -------------

Balance at December 31, 2002                  3,334,720   3,335     21,554   (5,711)  17,187        2,457        38,822

Comprehensive income:
    Net income                                                                         2,739                      2,739
    Change in net unrealized gain on
     securities available for sale, net of
     reclassification and taxes of $171                                                               332           332
                                                                                     -----------------------------------

Comprehensive income                                                                   2,739          332         3,071
                                                                                     -----------------------------------

Stock dividend                                  152,342     152      3,911            (4,063)                         -
Cash paid in lieu of fractional shares                                                    (6)                        (6)
Treasury stock repurchases, 35,903 shares                                      (915)                               (915)
Stock options exercised net of income
    tax benefits                                 42,454      43        652                                          695
Cash dividends declared, $0.87 per share                                              (2,780)                    (2,780)
                                            ------------ ------- ---------- -------- -------- ------------ -------------

Balance at December 31, 2003                  3,529,516  $3,530    $26,117  $(6,626) $13,077       $2,789       $38,887
                                              ========== ======= ========== ======== ======== ============ =============

</TABLE>



--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    27                     2003 Annual Report

<PAGE>

Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
(Dollar amounts in thousands, except share data)


<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                                              -------------------------------
                                                                  2003       2002       2001
                                                              ---------  ---------  ---------

<S>                                                           <C>        <C>        <C>
Operating activities:
  Net income                                                    $2,739     $4,466     $5,205
  Adjustments to reconcile net income to net cash from
    operating activities:
      Depreciation and amortization for premises and equipment     634        571        680
      Provision for loan losses                                  3,465        960      1,200
      Amortization of premiums and accretion of discounts, net     466        240        245
      Gains on sale of securities available for sale,
       net                                                        (364)      (446)      (205)
      Gains on sale of loans held for sale, net                   (179)       (22)       (20)
      Proceeds from sale of loans held for sale                 15,922        914      2,120
      Loans originated for sale                                (15,743)      (892)    (2,100)
      Earnings on bank-owned life insurance, net                  (378)      (369)      (289)
      Benefit from bank-owned life insurance                         -          -       (558)
      Changes in:
        Accrued interest receivable                                (50)       (88)        62
        Prepaid expenses and other assets                       (2,045)     2,600     (2,310)
        Accrued interest payable                                (1,536)       637        (83)
        Accrued expenses and other liabilities                     803        123       (426)
                                                              ---------  ---------  ---------
    Net cash from operating activities                           3,734      8,694      3,521
                                                              ---------  ---------  ---------

Investing activities:
  Loan originations and payments, net                           20,189    (13,316)   (19,541)
  Purchases of securities available for sale                  (104,283)   (73,325)   (92,457)
  Purchases and redemptions of Federal Home Loan Bank stock,
   net                                                              13       (274)       (77)
  Repayment, maturities and calls of securities available for
   sale                                                         63,622     42,682     49,802
  Proceeds from sale of securities available for sale           13,336     22,309     24,465
  Purchase of bank-owned life insurance                              -     (2,986)         -
  Proceeds from bank-owned life insurance                            -          -      1,044
  Purchases of premises and equipment                             (346)    (1,682)      (517)
  Proceeds from the sale of foreclosed assets                      515        387        492
                                                              ---------  ---------  ---------
    Net cash from investing activities                          (6,954)   (26,205)   (36,789)
                                                              ---------  ---------  ---------

Financing activities:
  Net change in deposits                                        (3,160)    28,216     33,905
  Borrowings from the Federal Home Loan Bank                         -          -      7,000
  Cash dividends paid on common stock                           (2,780)    (2,453)    (2,256)
  Payments to acquire treasury stock                              (915)    (1,563)    (1,213)
  Proceeds from exercise of common stock options                   695        237        313
  Cash dividends paid in lieu of fractional common
   shares                                                           (6)        (4)        (4)
                                                              ---------  ---------  ---------
    Net cash from financing activities                          (6,166)    24,433     37,745
                                                              ---------  ---------  ---------

Change in cash and cash equivalents                             (9,386)     6,922      4,477
Cash and cash equivalents at beginning of period                33,626     26,704     22,227
                                                              ---------  ---------  ---------
Cash and cash equivalents at end of period                     $24,240    $33,626    $26,704
                                                              =========  =========  =========

Supplemental information:

  Interest paid                                                $13,878    $13,447    $16,022
  Income taxes paid                                              1,470      1,929      2,300

</TABLE>


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    28                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.     Summary of Significant Accounting Policies

       Basis of Presentation and Consolidation. The consolidated financial
       statements include the accounts of NSD Bancorp, Inc. (the Corporation),
       its wholly owned subsidiary, NorthSide Bank (the Bank) and the Bank's
       subsidiary, NSB Financial Services, LLC. All significant intercompany
       balances and transactions have been eliminated in consolidation.

       Business. The Corporation provides a variety of financial services to
       individuals and businesses through its offices in western Pennsylvania.
       Its primary deposit products are checking, money market, savings and term
       certificate accounts and its primary lending products are real estate
       loans secured by liens on residential and commercial property, consumer
       loans, commercial business loans and leases.

       Use of Estimates and Classifications. The preparation of financial
       statements in conformity with accounting principles generally accepted in
       the United States of America requires management to make estimates and
       assumptions based on available information that affect the reported
       amounts in the consolidated financial statements and accompanying notes.
       Actual results could differ from those estimates. Material estimates that
       are particularly susceptible to significant change in the near term
       relate to the determination of the allowance for loan losses, fair value
       of financial instruments and deferred tax assets. Certain amounts
       previously reported have been reclassified to conform to the current year
       financial statement presentation. Such reclassifications did not affect
       net income or stockholders' equity.

       Cash Equivalents. Cash equivalents include cash on hand and in banks,
       interest-earning deposits and federal funds sold. Interest-earning
       deposits mature within one year and are carried at cost. Net cash flows
       are reported for loan and deposit transactions.

       Restrictions on Cash. Cash on hand or on deposit with the Federal Reserve
       Bank of approximately $612,000 was required to meet regulatory reserve
       and clearing requirements at December 31, 2003 and 2002. Such balances do
       not earn interest.

       Securities. Securities include investments primarily in bonds and notes
       and are classified as either available for sale or held to maturity at
       the time of purchase based on management's intent. Such intent includes
       consideration of the interest rate environment, prepayment risk, credit
       risk, maturity and repricing characteristics, liquidity considerations,
       investment and asset liability management policies and other pertinent
       factors. Securities for which the Corporation has the positive intent and
       ability to hold to maturity are classified as held to maturity and are
       reported at cost, adjusted for premiums and discounts. Available for sale
       securities consist of securities that are not classified as held to
       maturity. Unrealized holding gains and losses, net of applicable income
       taxes, on available for sale securities are reported as accumulated other
       comprehensive income until realized.

       Purchase premiums and discounts on securities are recognized in interest
       income using the interest method over the term of the securities.
       Declines in the fair value of securities below their cost that are other
       than temporary result in the security being written down to fair value on
       an individual basis. Any related write-downs are included in operations.
       Gains and losses on the sale of securities are recorded on the trade date
       and are determined using the specific identification method and are
       included in operations in the period sold.

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    29                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------


1.     Summary of Significant Accounting Policies (continued)

       Loans Held for Sale. Loans originated and intended for sale in the
       secondary market are carried at the lower of cost or estimated fair value
       in the aggregate. At December 31, 2003 and 2002, the Corporation had no
       loans held for sale.

       Loans Receivable. Loans that management has the intent and ability to
       hold for the foreseeable future or until maturity or net pay-off
       generally are reported at their outstanding unpaid principal balances
       adjusted for charge-offs, the allowance for loan losses, and any deferred
       fees or costs on originated loans or premiums or discounts on purchased
       loans. Interest income is accrued on the unpaid principal balance. Loan
       origination fees, net of certain direct origination costs, and premiums
       and discounts are deferred and recognized as an adjustment of the related
       loan yield using the interest method.

       The accrual of interest on loans is typically discontinued at the time
       the loan is 90 days or more delinquent unless the credit is well secured
       and in the process of collection. Loans are placed on nonaccrual or
       charged off at an earlier date if collection of principal or interest is
       considered doubtful. All interest accrued but not collected for loans
       that are placed on nonaccrual status or charged off is reversed against
       interest income. The interest on these loans is accounted for on the
       cash-basis or cost-recovery method, until qualifying for return to
       accrual. Loans are returned to accrual status when all principal and
       interest amounts contractually due are brought current and future
       payments are reasonably ensured.

       Allowance for Loan Losses. The allowance for loan losses is established
       for probable incurred credit losses through a provision for loan losses
       charged to earnings. Loan losses are charged against the allowance when
       management believes the uncollectibility of a loan balance is confirmed.
       Subsequent recoveries, if any, are credited to the allowance.

       The allowance for loan losses is evaluated on a regular basis by
       management and is based upon management's periodic review of the
       collectibility of loans in light of historic experience, the nature and
       volume of the loan portfolio, adverse situations that may affect the
       borrower's ability to repay, estimated value of any underlying collateral
       and prevailing economic conditions. This evaluation is inherently
       subjective as it requires estimates that are susceptible to significant
       revision as more information becomes available.

       A loan is considered impaired when, based on current information and
       events, it is probable that the Corporation will be unable to collect the
       scheduled payments of principal or interest when due according to the
       contractual terms of the loan agreement. Factors considered by management
       in determining impairment include payment status, collateral value, and
       the probability of collecting scheduled principal and interest payments
       when due. Loans that experience insignificant payment delays and payment
       shortfalls generally are not classified as impaired. Management
       determines the significance of payment delays and payment shortfalls on a
       case-by-case basis, taking into consideration all the circumstances
       surrounding the loan and the borrower, including the length of the delay,
       the reasons for the delay, the borrower's prior payment record, and the
       amount of the shortfall in relation to the principal and interest owed.
       Impairment is measured on a loan-by-loan basis for commercial loans by
       either the present value of expected future cash flows discounted at the
       loans effective interest rate, the loan's obtainable market price, or the
       fair value of the underlying collateral, if the loan is collateral
       dependent. Large groups of homogeneous loans are evaluated collectively
       for impairment. Accordingly, the Corporation does not identify individual
       consumer and residential mortgage loans for impairment disclosures.

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    30                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------


1.     Summary of Significant Accounting Policies (continued)

       Allowance for Unfunded Loan Commitments and Letters of Credit. The
       allowance for unfunded loan commitments and letters of credit is
       maintained at a level believed by management to be sufficient to absorb
       estimated losses related to these unfunded credit facilities. The
       determination of the adequacy of the allowance is based on periodic
       evaluations of the unfunded credit facilities including an assessment of
       the probability of commitment usage, credit risk factors for loans
       outstanding to these same customers and the terms and expiration dates of
       the unfunded credit facilities.

       Bank-Owned Life Insurance (BOLI). The Bank purchased life insurance
       policies on certain key employees and directors. BOLI is recorded at its
       cash surrender value, or the amount that can be realized.

       Premises and Equipment. Land is carried at cost. Premises, furniture and
       equipment, and leasehold improvements are carried at cost less
       accumulated depreciation or amortization. Depreciation is calculated on a
       straight-line basis over the estimated useful lives of the related
       assets, which are twenty-five to fifty years for buildings and three to
       ten years for furniture and equipment. Amortization of leasehold
       improvements is computed using the straight-line method over the term of
       the related lease. Premises and equipment are reviewed for impairment
       when events indicate their carrying amount may not be recoverable from
       future undiscounted cash flows. If impaired, assets are recorded at fair
       value.

       Servicing Assets. Servicing assets represent purchased rights and the
       allocated value of retained servicing rights on loans sold. Servicing
       assets are expensed in proportion to, and over the period of, estimated
       net servicing revenues. Impairment is evaluated based on the fair value
       of the assets, using groupings of the underlying loans as to interest
       rates. Fair value is determined using prices for similar assets with
       similar characteristics, when available, or based upon discounted cash
       flows using market-based assumptions. Any impairment of a grouping is
       reported as a valuation allowance.

       Foreclosed Assets. Assets acquired through, or in lieu of, loan
       foreclosure are held for sale and are initially recorded at fair value,
       net of disposal costs, at the date of foreclosure, establishing a new
       cost basis. Subsequent to foreclosure, valuations are periodically
       performed by management and the assets are carried at the lower of
       carrying amount or fair value less cost to sell. Revenue and expenses
       from operations and changes in the valuation allowance are included in
       other noninterest expense.

       Advertising. Advertising costs are generally expensed as incurred.

       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, deferred tax assets
       and liabilities are adjusted through the provision for income taxes.

       Comprehensive Income. Comprehensive income includes net income from
       operating results and the net change in accumulated other comprehensive
       income. Accumulated other comprehensive income is comprised exclusively
       of unrealized holding gains and losses on securities available for sale.
       The effects of other comprehensive income are presented as part of the
       consolidated statement of changes in stockholders' equity.


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    31                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------


1.     Summary of Significant Accounting Policies (continued)

       Earnings Per Common Share. Basic earnings per share represents income
       available to common stockholders divided by the weighted-average number
       of common shares outstanding during the period. Diluted earnings per
       share reflects additional common shares that would have been outstanding
       if dilutive potential common shares had been issued, as well as any
       adjustment to income that would result from the assumed issuance.
       Potential common shares that may be issued by the Corporation relate
       solely to outstanding stock options, and are determined using the
       treasury stock method. The following table sets forth the computation of
       basic and diluted earnings per share for the years ended December 31:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
(Dollar amounts in thousands, except per share data)      2003        2002        2001
---------------------------------------------------------------------------------------
<S>                                                  <C>        <C>         <C>
Basic earnings per share:
   Net income                                           $2,739      $4,466      $5,205
   Weighted average shares outstanding               3,196,171   3,219,328   3,272,008

   Earnings per share                                    $0.86       $1.39       $1.59
                                                     ========== =========== ===========

Diluted earnings per share
   Net income                                           $2,739      $4,466      $5,205
   Weighted average shares outstanding               3,196,171   3,219,328   3,272,008
   Dilutive effect of employee stock options            55,338      48,815      25,817
                                                     ---------- ----------- -----------
   Total diluted weighted average shares outstanding 3,251,509   3,268,143   3,297,825

   Earnings per share                                    $0.84       $1.37       $1.58
                                                     ========== =========== ===========
---------------------------------------------------------------------------------------
</TABLE>


       Operating Segments. Operations are managed and financial performance is
       evaluated on a corporate-wide basis. Accordingly, all financial services
       operations are considered by management to be aggregated in one
       reportable operating segment.

       Stock Compensation Plans. Statement of Financial Accounting Standards
       (SFAS) No. 123, Accounting for Stock-Based Compensation, encourages all
       companies to adopt a fair value based method of accounting for employee
       stock compensation plans, whereby compensation cost is measured at the
       grant date based on the value of the award and is recognized over the
       service period, which is usually the vesting period. However, it also
       allows a company to continue to measure compensation cost for those plans
       using the intrinsic value based method of accounting prescribed by
       Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
       Issued to Employees, whereby compensation cost is the excess, if any, of
       the quoted market price of the stock at the grant date (or other
       measurement date) over the amount an employee must pay to acquire the
       stock. Stock options issued under the Corporation's stock option plans
       have no intrinsic value at the grant date, and under APB Opinion No. 25
       no compensation cost is recognized for them. The Corporation has elected
       to continue with the accounting methodology in APB Opinion No. 25 and, as
       a result, has provided pro forma disclosures of net income and earnings
       per share and other disclosures, as if the fair value based method of
       accounting had been applied. In December 2002, the Financial Accounting
       Standards Board (FASB) issued Statement No. 148, Accounting for
       Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 did
       not amend SFAS No. 123 to require companies to account for employee
       stock-based compensation using the fair value method but required all
       companies with stock-based compensation to provide additional
       disclosures, regardless of whether they account for the compensation
       using the fair value method under SFAS 123 or the intrinsic value method
       under APB Opinion No. 25. The Corporation has also adopted the disclosure
       requirements of SFAS No. 148, Accounting for Stock-Based Compensation -
       Transition and Disclosure.


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    32                     2003 Annual Report

<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------


1.     Summary of Significant Accounting Policies (continued)

       Stock Compensation Plans (continued)

       The fair value of option grants is estimated on the date of grant using
       the Black-Scholes option-pricing model with the following
       weighted-average assumptions:



-------------------------------------------------------------------
                                     2003         2002        2001
                                ----------  -----------   ---------
Dividend yield                       3.45%        3.53%       4.50%
Expected life                      7 years      7 years     7 years
Expected volatility                 70.00%       66.70%      69.91%
Risk-free interest rate              3.50%        4.83%       5.16%

-------------------------------------------------------------------

       Had compensation cost for the Corporation's stock option plans been
       determined based on the fair value at the grant dates for awards under
       the plans consistent with the method prescribed by SFAS No. 123, the
       Corporation's net income and earnings per share would have been adjusted
       to the pro forma amounts indicated below for the years ended December 31:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
(In thousands, except per share
 data)                                                                  2003       2002       2001
                                                                    ---------  ---------  ---------
<S>                                         <C>                     <C>        <C>        <C>
Net income as reported                                                $2,739     $4,466     $5,205
Less pro forma expense related to options                                340        311        203
                                                                    ---------  ---------  ---------
Pro forma net income                                                  $2,399     $4,155     $5,002
                                                                    =========  =========  =========

Earnings per share                          As reported                $0.86      $1.39      $1.59
                                            Pro forma                  $0.75      $1.29      $1.53

Earnings per share                          As reported
 -                                                                     $0.84      $1.37      $1.58
  assuming dilution                         Pro forma                  $0.74      $1.27      $1.52

---------------------------------------------------------------------------------------------------
</TABLE>



       Transfers of Financial Assets. Transfers of financial assets are
       accounted for as sales when control over the assets has been surrendered.
       Control over transferred assets is deemed to be surrendered when (1) the
       assets have been isolated from the Corporation, (2) the transferee
       obtains the right (free of conditions that constrain it from taking
       advantage of that right) to pledge or exchange the transferred assets,
       and (3) the Corporation does not maintain effective control over the
       transferred assets through an agreement to repurchase them before their
       maturity.

       Off-Balance Sheet Financial Instruments. In the ordinary course of
       business, the Corporation has entered into off-balance sheet financial
       instruments, consisting of commitments to extend credit, commitments
       under line of credit lending arrangements and letters of credit. Such
       financial instruments are recorded in the financial statements when they
       are funded or related fees are received.

       Fair Value of Financial Instruments. Fair values of financial instruments
       are estimated using relevant market information and other assumptions, as
       more fully disclosed in a separate note. Fair value estimates involve
       uncertainties and matters of significant judgment regarding interest
       rates, credit risk, prepayments, and other factors, especially in the
       absence of broad markets for particular items. Changes in assumptions or
       in market conditions could significantly affect the estimates.


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    33                     2003 Annual Report

<PAGE>


Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

2.     Securities

       The following table summarizes the Corporation's securities available for
       sale as of December 31:


----------------------------------------------------------------------
(In thousands)               Amortized Unrealized Unrealized   Fair
                               cost      gains      losses     value
----------------------------------------------------------------------

2003:
----------------------------
  U.S. Government agencies    $48,845       $150      $(116)  $48,879
  Mortgage-backed securities   51,353        404       (244)   51,513
  Municipal securities         22,959        520        (24)   23,455
  Corporate securities         21,634      1,330       (191)   22,773
  U.S. Treasury Securities      1,607         75          -     1,682
  Equity securities               516      2,323          -     2,839
                             --------- ---------- ---------- ---------
                             $146,914     $4,802      $(575) $151,141
                             ========= ========== ========== =========
2002:
----------------------------
  U.S. Government agencies    $16,964       $260         $-   $17,224
  Mortgage-backed securities   54,078        924        (67)   54,935
  Municipal securities         21,274        417        (23)   21,668
  Corporate securities         25,026        933       (646)   25,313
  U.S. Treasury Securities      1,633         92          -     1,725
  Equity securities               528      1,839         (6)    2,361
                             --------- ---------- ---------- ---------
                             $119,503     $4,465      $(742) $123,226
                             ========= ========== ========== =========

----------------------------------------------------------------------


       The following table summarizes scheduled maturities of the Corporation's
       securities as of December 31, 2003:



-----------------------------------------------------------------------
(In thousands)                                Available for sale
                                       --------------------------------
                                         Amortized           Fair
                                            cost             value
-----------------------------------------------------------------------

Due in one year or less                         $250              $257
Due after one year through five years         13,789            14,046
Due after five years through ten years        56,069            57,314
Due after ten years                           76,290            76,685
No scheduled maturity                            516             2,839
                                       --------------   ---------------
                                            $146,914          $151,141
                                       ==============   ==============


-----------------------------------------------------------------------

       Expected maturities may differ from contractual maturities because
       issuers may have the right to call or prepay obligations with or without
       call or prepayment penalties.

       Securities with carrying values of $2.1 million and $2.5 million as of
       December 31, 2003 and 2002, respectively, were pledged to secure public
       deposits and for other purposes required or permitted by law.


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    34                     2003 Annual Report

<PAGE>


Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

2.     Securities (continued)

       For the years ended December 31, 2003, 2002 and 2001, proceeds from sales
       of securities available for sale amounted to $13.3 million, $22.3 million
       and $24.5 million, respectively. Gross realized gains amounted to
       $441,000, $582,000 and $250,000, respectively. Gross realized losses
       amounted to $77,000, $136,000 and $45,000, respectively. The tax
       provision applicable to these net realized gains and losses amounted to
       $124,000, $152,000 and $70,000, respectively.

       The following table shows the Corporation'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.

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------
(In thousands)             Less than Twelve Months Twelve Months or Greater           Total
                           ----------------------- ------------------------ --------------------------
                                         Gross                   Gross                       Gross
                              Fair     Unrealized     Fair     Unrealized       Fair      Unrealized
                              Value      Losses       Value      Losses        Value        Losses
                           ----------- ----------  ----------- ----------   ------------ -------------
<S>                        <C>          <C>        <C>          <C>         <C>          <C>
U.S. Government agencies      $10,792       $116           $-         $-        $10,792          $116
Mortgage-backed securities     28,810        244            -          -         28,810           244
Municipal securities              527         17          950          7          1,477            24
Corporate securities                -          -        4,703        191          4,703           191
                           ----------- ----------  ----------- ----------   ------------ -------------
Total debt securities         $40,129       $377       $5,653       $198        $45,782          $575
                           =========== ==========  =========== ==========   ============ =============
</TABLE>

       The Corporation's investment securities portfolio contains unrealized
       losses of debt obligations of the U.S. Government, including
       mortgage-related instruments issued or backed by the full faith and
       credit of the United States government or are generally viewed as having
       the implied guarantee of the U.S. government, and debt obligations of a
       U.S. state, political subdivision or corporate entity.

       On a monthly basis, the Corporation evaluates the severity and duration
       of impairment for its investment securities portfolio unless the
       Corporation 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 for a
       certain period of time.

       The Corporation 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.

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    35                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

3.     Loans Receivable

       The following table summarizes the Corporation's loans receivable as of
December 31:



----------------------------------------------------------------------

(In thousands)                                         2003      2002
----------------------------------------------------------------------

Consumer loans to individuals                      $142,686  $147,834
Mortgage:
     Nonresidential                                  89,624    89,292
     Residential                                     24,436    41,668
Commercial, financial and agricultural               31,730    36,987
Lines of credit                                       8,362     7,680
Lease financing                                       8,548    10,850
Nonaccrual loans                                      8,415       890
                                                   --------- ---------
Total loans                                         313,801   335,201

Deferred fees, net                                     (329)     (392)
                                                   --------- ---------

Total loans, net of deferred fees                   313,472   334,809

Unearned income                                        (964)   (1,317)
                                                   --------- ---------

Total loans, net of unearned income and fees        312,508   333,492

Allowance for loan losses                            (6,882)   (4,212)
                                                   --------- ---------

Net loans                                          $305,626  $329,280
                                                   ========= =========
----------------------------------------------------------------------


       Following is an analysis of the changes in the allowance for loan losses
for the years ended December 31:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------
(In thousands)                                           2003         2002         2001
-----------------------------------------------------------------------------------------
<S>                                                  <C>          <C>          <C>
Balance at the beginning of the year                    $4,212       $4,140       $3,365

Provision for loan losses                                3,465          960        1,200
Loans charged-off                                         (838)        (902)        (500)
Recoveries                                                  43           93           75
Transfer to reserve for unfunded loan commitments            -          (79)           -
                                                     ----------   ----------   ----------

Balance at the end of the year                          $6,882       $4,212       $4,140
                                                     ==========   ==========   ==========

-----------------------------------------------------------------------------------------
</TABLE>

       Nonperforming loans, which include primarily nonaccrual loans, were $8.4
       million and $890,000 at December 31, 2003 and 2002, respectively. The
       Corporation did not record interest on any nonaccrual loans during 2003
       or 2002. If interest on nonaccrual loans had been recognized, such income
       would have approximated $275,000, $93,000 and $43,000 for 2003, 2002 and
       2001, respectively.

       At December 31, 2003 and 2002, the Corporation had $1.2 million in loans
       that were 90 days or more past due, but were still accruing interest.

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    36                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

3.     Loans Receivable (continued)

       At December 31, 2003, the Corporation had total impaired loans of $7.5
       million. The valuation allowance associated with these impaired loans was
       $2.8 million. During 2003, the average investment in impaired loans was
       approximately $7.7 million and no interest income was recognized on
       impaired loans. No additional funds are committed to be advanced in
       connection with impaired loans.

       The Corporation's primary business activity is with customers located
       within its local area. Generally, the Corporation grants commercial,
       residential and personal loans. The Corporation also selectively funds
       and purchases commercial and residential loans outside of its local area
       provided such loans meet the Corporation's credit policy guidelines.
       Although the Corporation has a diversified loan portfolio at December 31,
       2003 and 2002, loans outstanding to individuals and businesses are
       dependent upon the local economic conditions in its immediate area.

       Following is an analysis of the changes in the allowance for unfunded
       loan commitments for the years ended December 31:


--------------------------------------------------------------------------

(In thousands)                                         2003          2002
--------------------------------------------------------------------------

Balance at the beginning of the year                    $79            $-
Provision for losses                                     59             -
Transfer from the allowance for loan losses               -            79
                                                 -----------   -----------
Balance at the end of the year                         $138           $79
                                                 ===========   ===========

--------------------------------------------------------------------------


4.     Servicing

       Loans serviced for others are not included in the accompanying
       consolidated balance sheets. The unpaid principal balances of whole
       residential mortgage loans serviced for others totaled $311,000 and
       $603,000 at December 31, 2003 and 2002, respectively. The Corporation has
       sold participation interests in certain commercial mortgage loans. The
       unpaid principal portion of participation loans serviced for others
       totaled $3.6 million and $4.8 million at December 31, 2003 and 2002,
       respectively. A servicing fee ranging from 0.125% to 0.387% is retained
       and recorded in other noninterest income for whole and participation loan
       servicing.

5.     Federal Home Loan Bank stock

       The Bank is a member of the Federal Home Loan Bank of Pittsburgh (FHLB).
       As a member, the Bank maintains an investment in the capital stock of the
       regional bank, at cost. This stock is purchased and redeemed at par as
       directed by the FHLB, and levels maintained are based primarily on
       borrowing and other correspondent relationships. The Bank's investment in
       FHLB stock was $5.0 million at December 31, 2003 and 2002.


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    37                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------


6.     Premises and Equipment

       Premises and equipment at December 31 are summarized by major
       classification as follows:


--------------------------------------------------------------------------

(In thousands)                                               2003    2002
--------------------------------------------------------------------------

Land                                                         $473    $473
Buildings and improvements                                  1,953   1,944
Leasehold improvements                                      2,401   2,155
Furniture, fixtures and equipment                           3,991   3,909
                                                           ------- -------

                                                            8,818   8,481
Less accumulated depreciation and amortization              5,492   4,867
                                                           ------- -------

                                                           $3,326  $3,614
                                                           ======= =======

--------------------------------------------------------------------------

                                                            3,326   3,614


       Depreciation and amortization expense for the years December 31, 2003,
       2002 and 2001 were $634,000, $571,000 and $680,000, respectively.

       Rent expense under non-cancelable operating lease agreements for the
       years ended December 31, 2003, 2002, and 2001 was $444,000, $407,000 and
       $352,000, respectively. Rent commitments under non-cancelable long-term
       operating lease agreements for certain branch offices for the years ended
       December 31 are as follows before considering renewal options that are
       generally present (in thousands):



                                       2004     $446
                                       2005      359
                                       2006      174
                                       2007      118
                                       2008       70
                                  Thereafter      96
                                              -------
                                              $1,263
                                              =======


       The Corporation has a multi-year commitment with a third-party
       information systems service provider. Under the terms of the contract,
       monthly payments consist of a base fee with additional charges related to
       usage. If the Corporation terminates this agreement, the Corporation
       would be required to pay an amount equal to seventy-five percent of the
       average of the last three monthly fees for the remainder of the contract.
       The total annual minimum commitment is $435,000 through December 2008.

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    38                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

7.     Related Party Balances and Transactions

       In the ordinary course of business, the Bank maintains loan and deposit
       relationships with employees, principal officers and directors. The Bank
       has granted loans to principal officers and directors and their
       affiliates amounting to $6.9 million at December 31, 2003 and $8.7
       million at December 31, 2002. During 2003, total principal additions and
       total principal repayments associated with these loans were $864,000 and
       $2.7 million, respectively.

8.     Deposits

       The following table summarizes the Corporation's deposits as of December
       31:


<TABLE>
<CAPTION>

Deposit summary:

------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)
                                                       2003                              2002
                                    ----------------------------------- ------------------------------

                                     Weighted                            Weighted
                                      average                             average
         Type of accounts              rate        Amount        %         rate       Amount      %
------------------------------------------------------------------------------------------------------
<S>                                  <C>        <C>          <C>           <C>      <C>        <C>
Non-interest-bearing deposits                -      $75,724       20.7%          -    $71,383    19.3%
Interest-bearing demand deposits          1.00%     160,878       44.0%       1.59%   152,380    41.3%
Time deposits                             3.85%     129,437       35.5%       4.81%   145,436    39.4%
                                                ------------ ----------             ---------- -------

                                          1.80%    $366,039      100.0%       2.55%  $369,199   100.0%
                                                ============ ==========             ========== =======
</TABLE>

       Time deposits mature as follows for the year ended December 31:


                    2004          $70,872          19.4%
                    2005           27,871           7.6%
                    2006           14,118           3.9%
                    2007            6,005           1.6%
                    2008            8,466           2.3%
                    Thereafter      2,105           0.7%
                               ----------- -------------
                                 $129,437          35.5%
                               =========== =============

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    39                     2003 Annual Report

<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------



9.     Borrowed Funds

       The following table summarizes the Corporation's borrowed funds as of
       December 31:


----------------------------------------------------------------------
(Dollar amounts in thousands)               Interest
                                              Rate      2003     2002
------------------------------------------------------------- --------

FHLB Convertible Select Advances mature as
 follows:

   May 17, 2004                                5.27%  $5,000   $5,000
   January 20, 2008                            4.63%   2,000    2,000
   July 17, 2008                               5.58%   2,000    2,000
   January 20, 2009                            4.90%   5,000    5,000
   October 29, 2009                            5.75%   5,000    5,000
   January 27, 2010                            5.95%   5,000    5,000
   February 8, 2010                            6.10%   5,000    5,000
   March 15, 2010                              6.04%   5,000    5,000
   March 17, 2010                              6.05%   5,000    5,000
   April 7, 2010                               6.20%   5,000    5,000
   June 23, 2010                               6.18%   5,000    5,000
   June 23, 2010                               6.37%   5,000    5,000
   July 6, 2010                                5.89%   5,000    5,000
   July 6, 2010                                5.96%   5,000    5,000
   July 12, 2010                               6.11%   5,000    5,000
   August 10, 2010                             5.83%   3,000    3,000
   August 16, 2010                             5.99%   5,000    5,000
   October 4, 2010                             5.76%   5,000    5,000
   December 13, 2010                           5.19%   5,000    5,000
   January 3, 2011                             4.89%   2,000    2,000
   March 2, 2011                               4.26%   5,000    5,000
                                                     -------- --------
                                                     $94,000  $94,000
                                                     ======== ========

----------------------------------------------------------------------

       FHLB Convertible Select Advances are long-term borrowings with terms of
       up to ten years and have a fixed rate for the first three months to five
       years of the term. After the fixed rate term expires, the FHLB may
       convert, on a quarterly basis, the advance to an adjustable rate advance
       at their option depending on the then current interest rate environment.
       If the advance is converted to an adjustable rate advance, the Bank has
       the option at the conversion date, and quarterly thereafter, to prepay
       the advance with no prepayment fee.

       Advances from the FHLB are collateralized by qualifying securities and
       loans. Qualifying collateral includes U.S. Treasury, government agency
       and mortgage-backed securities and real estate loans based upon the
       amount of outstanding advances. These advances are subject to
       restrictions or penalties related to prepayments.

       At December 31, 2003, the Corporation had approximately $41.3 million in
       available credit under its collateralized borrowing agreement with the
       FHLB.

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    40                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------


9.     Borrowed Funds (continued)

       Contractual maturities of long-term debt at December 31, 2003, were as
       follows (in thousands):


                              2004       $5,000
                              2005            -
                              2006            -
                              2007            -
                              2008        4,000
                         Thereafter      85,000
                                      ----------
                                        $94,000
                                      ==========


10.    Insurance of Accounts and Regulatory Matters

       Insurance of Accounts

       The Federal Deposit Insurance Corporation (FDIC) insures deposits of
       account holders up to $100,000 per insured depositor. To provide this
       insurance, the Bank must pay an annual premium. In connection with the
       insurance of deposits, the Bank is required to maintain certain minimum
       levels of regulatory capital as outlined below.

       Restrictions on Dividends, Loans and Advances

       The Pennsylvania Banking Code restricts the availability of capital funds
       for payment of dividends by all state-chartered banks to the additional
       paid-in-capital of the Bank. Accordingly, the Bank is limited in the
       amount of dividends that can be paid to the Corporation. At December 31,
       2003, the Bank had $3.2 million unavailable for dividends. This
       restriction has not had, and is not expected to have, a significant
       impact on the Corporation's ability to meet its cash obligations.

       Loans or advances from the Bank to the Corporation are limited to 10
       percent of the Bank's capital stock, additional paid-in-capital and
       retained earnings on a secured basis. Funds available for loans or
       advances by the Bank to the Corporation amounted to approximately $1.0
       million.

       Minimum Regulatory Capital Requirements

       The Corporation (on a consolidated basis) and the Bank are subject to
       various regulatory capital requirements administered by the federal
       banking agencies. Failure to meet minimum capital requirements can
       initiate certain mandatory and possibly additional discretionary actions
       by regulators that, if undertaken, could have a direct material effect on
       the Corporation's and the Bank's financial statements. Under capital
       adequacy guidelines and the regulatory framework for prompt corrective
       action, the Corporation and the Bank must meet specific capital
       guidelines that involve quantitative measures of assets, liabilities and
       certain off-balance-sheet items as calculated under regulatory accounting
       practices. The capital amounts and classification are also subject to
       qualitative judgments by the regulators about components, risk
       weightings, and other factors. Prompt corrective action provisions are
       not applicable to bank holding companies.

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    41                     2003 Annual Report
<PAGE>


Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

10.    Insurance of Accounts and Regulatory Matters (continued)

       Minimum Regulatory Capital Requirements (continued)

       Quantitative measures established by regulation to ensure capital
       adequacy require the Corporation and the Bank to maintain minimum amounts
       and ratios (set forth in the following table) of total and Tier 1 capital
       (as defined in the regulations) to risk-weighted assets (as defined) and
       of Tier 1 capital (as defined) to average assets (as defined). As of
       December 31, 2003 and 2002, the Corporation and the Bank met all capital
       adequacy requirements to which they are subject.

       As of December 31, 2003, the most recent notification from the FDIC
       categorized the Bank as well capitalized under the regulatory framework
       for prompt corrective action. To be categorized as well capitalized, an
       institution must maintain minimum total risk-based, Tier 1 risk-based and
       Tier 1 leverage ratios as set forth in the following table. There are no
       conditions or events since the notification that management believes have
       changed the Bank's category.

       The following table sets forth certain information concerning regulatory
       capital of the consolidated Corporation and the Bank as of the dates
       presented:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
(Dollar amounts in thousands)              December 31, 2003                 December 31, 2002
                                    -------------------------------- ----------------------------------
                                     Consolidated        Bank          Consolidated         Bank
                                    -------------- ----------------- ---------------- -----------------
                                     Amount Ratio   Amount    Ratio   Amount   Ratio   Amount   Ratio
------------------------------------------------------------ ---------------- ---------------- --------
<S>                                 <C>     <C>     <C>       <C>    <C>       <C>    <C>        <C>
Total capital to risk-weighted
 assets:
 Actual                             $41,790 11.31%  $43,437   11.69% $41,402   10.78% $43,102    11.17%
 For capital adequacy purposes       29,564  8.00%   29,719    8.00%  30,724    8.00%  30,861     8.00%
 To be well capitalized                              37,149   10.00%                   38,577    10.00%
Tier 1 capital to risk-weighted
 assets:
 Actual                             $36,098  9.77%  $38,639   10.40% $36,365    9.47% $38,797    10.06%
 For capital adequacy purposes       14,782  4.00%   14,860    4.00%  15,362    4.00%  15,431     4.00%
 To be well capitalized                              22,289    6.00%                   23,146     6.00%
Tier 1 capital to average assets:
 Actual                             $36,098  7.06%  $38,639    7.56% $36,365    7.47% $38,797     7.94%
 For capital adequacy purposes       20,465  4.00%   20,438    4.00%  19,474    4.00%  19,548     4.00%
 To be well capitalized                              25,548    5.00%                   24,435     5.00%
-------------------------------------------------------------------------------------------------------
</TABLE>


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    42                     2003 Annual Report


<PAGE>
Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

11.    Income Taxes

       The Corporation and the Bank file a consolidated federal income tax
       return. The provision for income taxes for the years ended December 31 is
       comprised of the following:

----------------------------------------------------------------------------
(In thousands)                      2003              2002             2001
----------------------------------------------------------------------------

  Current                         $1,761            $1,552           $2,468
  Deferred                        (1,265)              137             (382)
                             ------------    --------------    -------------

                                    $496            $1,689           $2,086
                             ============    ==============    =============


       A reconciliation between the provision for income taxes and the amount
       computed by multiplying operating results before income taxes by the
       statutory federal income tax rate of 34% for the years ended December 31
       is as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------

(Dollars in thousands)                           2003                2002                 2001
                                          -------------------- ------------------  -------------------
                                                    % Pre-tax          % Pre-tax            % Pre-tax
                                            Amount    Income    Amount   Income     Amount    Income
------------------------------------------------------------------------------------------------------
<S>                                      <C>          <C>       <C>     <C>         <C>        <C>
Provision at statutory tax rate              $1,100      34.0%  $2,094      34.0%    $2,479      34.0%
Increase (decrease) resulting from:
  Tax free interest, net of disallowance       (336)   (10.4%)    (245)    (3.9%)      (188)    (2.6%)
  Earnings on bank-owned life insurance        (129)    (4.0%)    (126)    (2.0%)      (288)    (4.0%)
  Other, net                                   (139)    (4.3%)     (34)    (0.5%)        83       1.1%
                                          -------------------- ------------------  -------------------

Reported rate                                  $496      15.3%  $1,689      27.6%    $2,086      28.7%
                                          ==================== ==================  ===================
</TABLE>

       The tax effects of temporary differences between the financial reporting
       basis and income tax basis of assets and liabilities that are included in
       the net deferred tax asset as of December 31 relate to the following:


-----------------------------------------------------------------
(In thousands)                                    2003      2002
-----------------------------------------------------------------

Deferred tax assets:

  Provision for loan losses                     $2,340    $1,217
  Other                                            202       163
                                                -------  --------
  Gross deferred tax assets                      2,542     1,380
                                                -------  --------

Deferred tax liabilities:
                                                     -
  Net unrealized gain on securities              1,438     1,171
  Depreciation                                     149        63
  Bond discount accretion                           33       222
                                                -------  --------
  Gross deferred tax liabilities                 1,620     1,456
                                                -------  --------

  Net deferred tax assets (liabilities)           $922      $(76)
                                                =======  ========


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    43                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

11.    Income Taxes (continued)

       The Corporation determined that it was not required to establish a
       valuation allowance for deferred tax assets in accordance with SFAS No.
       109, Accounting for Income Taxes, since it is more likely than not that
       the deferred tax asset will be realized through carry-back to taxable
       income in prior years, future reversals of existing taxable temporary
       differences, and, to a lesser extent, future taxable income.

12.    Commitments and Legal Contingencies

       In the ordinary course of business, the Corporation has various
       outstanding commitments and contingent liabilities that are not reflected
       in the accompanying consolidated financial statements. In addition, the
       Corporation is involved in certain claims and legal actions arising in
       the ordinary course of business. The outcome of these claims and actions
       are not presently determinable; however, in the opinion of the
       Corporation's management, after consulting legal counsel, the ultimate
       disposition of these matters will not have a material adverse effect on
       the consolidated financial statements.

13.    Employee Benefit Plans

       Defined Contribution Plan

       The Corporation has a 401(k) plan whereby substantially all eligible
       full-time employees participate in the plan. Employees may contribute up
       to 100% of their compensation subject to certain limits based on federal
       tax laws. The Corporation makes matching contributions equal to 50% of
       the first 6% of an employee's compensation contributed to the plan.
       Matching contributions vest to the employee 33% after one year, 66% after
       the second year and 100% thereafter. For the years ended December 31,
       2003, 2002 and 2001, expense attributable to the plan amounted to
       $85,000, $77,000 and $80,000, respectively.

       Profit Sharing Plan

       The Corporation maintains a profit sharing retirement plan, which covers
       substantially all employees meeting minimum age and service requirements.
       Expense for the profit sharing plan was $131,000, $134,000 and $156,000
       in 2003, 2002 and 2001, respectively. Profit sharing assets are primarily
       invested in mutual funds, which are selected at the discretion of the
       employee. The plan was also invested in 8,578 and 8,849 shares of the
       Corporation's common stock with a market value of $219,000 at December
       31, 2003 and 2002. Total cash dividends received from plan investments in
       common stock of the Corporation were $7,000, $7,000 and $9,000 in 2003,
       2002 and 2001, respectively.

       Stock Compensation Plans

       The Corporation has two fixed stock option plans. The Corporation may
       grant options to its employees for up to 246,386 shares of common stock.
       The Corporation may grant options to its non-employee directors for up to
       82,129 shares of common stock. Both incentive stock options and
       non-qualified stock options may be granted under the plans. The exercise
       price of each option equals the market price of the Corporation's stock
       on the date of grant with each option having a maximum term of 10 years.

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    44                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------


13.    Employee Benefit Plans (continued)

       Stock Compensation Plans (continued)

       A summary of the status of the Corporation's two fixed stock option plans
       as of December 31, 2003, 2002 and 2001 and changes during the years
       ending on those dates is presented below:

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------
                                        2003                    2002                    2001
                                    -----------------------------------------------------------------------

                                                  Weighted-              Weighted-               Weighted-
                                                 Average                 Average                  Average
Fixed Options                        Shares      Exercise    Shares      Exercise     Shares      Exercise
                                                   Price                   Price                   Price
<S>                                 <C>        <C>         <C>          <C>          <C>       <C>
Outstanding at beginning of year     197,693    $ 16.23      183,819    $ 15.18      164,112    $    14.82
Granted                               38,616      26.40       34,697      19.95       32,774         15.62
Exercised                             43,497      14.95       18,586      12.48       12,704         11.74
Forfeited                              1,730      20.62        2,237      19.70          363         13.82
                                    -----------------------------------------------------------------------
Outstanding at end of year           191,082    $ 18.57      197,693    $ 16.23      183,819    $    15.18


Options exerciseable at year-end     191,082                 197,693                 183,819

Weighted-average fair value of
 options

 Granted during the year                        $ 13.33                 $ 13.54                 $     9.74
                                    =======================================================================
</TABLE>

       The following table summarizes information about fixed stock options
       outstanding at December 31, 2003:



----------------------------------------------------------------------
                          Number     Weighted-Average
                         Outstanding     Remaining       Weighted-
    Range of                and       Contractual Life    Average
  Exercise Prices       Exerciseable    (in Years)     Exercise Price
----------------------------------------------------------------------

 $10.29  -  $ 11.44          33,029            1.8     $        10.81
  12.89  -    16.45          53,837            5.8              14.39
  18.25  -    19.99          46,878            7.1              19.28
  25.96  -    26.43          57,338            7.7              26.38
----------------------------------------------------------------------
 $10.29  -  $ 26.43         191,082            6.0     $        18.57
====================   =============  =============    ===============

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    45                     2003 Annual Report


<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------


14.    Financial Instruments

       Fair Value of Financial Instruments

       The following table sets forth the carrying amount and fair value of the
       Corporation's financial instruments included in the consolidated balance
       sheet as of December 31:

----------------------------------------------------------------------
(In thousands)                        2003                2002
                               ------------------- -------------------
                               Carrying    Fair    Carrying    Fair
                                amount     value    amount     value
----------------------------------------------------------------------

Financial assets:
  Cash equivalents              $24,240   $24,240   $33,626   $33,626
  Securities                    151,141   151,141   123,226   123,226
  Loans receivable              305,626   312,174   329,280   346,175
  Federal Home Loan Bank stock    4,961     4,961     4,974     4,974
  Bank-owned life insurance       8,537     8,537     8,159     8,159
  Accrued interest receivable     2,580     2,580     2,530     2,530

Financial liabilities:
  Deposits                     $366,039  $366,851  $369,199  $373,089
  Borrowed funds                 94,000   105,290    94,000   108,376
  Accrued interest payable        4,870     4,870     6,406     6,406

----------------------------------------------------------------------

       The methods and assumptions used to estimate fair value are described as
       follows.

       Carrying amount is the estimated fair value for cash and cash
       equivalents, short-term borrowings, FHLB stock, BOLI, accrued interest
       receivable and payable, demand deposits, short-term debt, and variable
       rate loans or deposits that reprice frequently and fully. Security fair
       values are based on market prices or dealer quotes, and if no such
       information is available, on the rate and term of the security and
       information about the issuer. For fixed rate loans or deposits and for
       variable rate loans or deposits with infrequent repricing or repricing
       limits, fair value is based on discounted cash flows using current market
       rates applied to the estimated life and credit risk. Fair values for
       impaired loans are estimated using discounted cash flow analysis or
       underlying collateral values. Fair value of debt is based on current
       rates for similar financing. The fair value of off-balance-sheet items is
       based on the current fees or cost that would be charged to enter into or
       terminate such arrangements.

       Off-Balance-Sheet Financial Instruments

       The Corporation is party to credit-related financial instruments with
       off-balance-sheet risk in the normal course of business to meet the
       financing needs of its customers. These financial instruments include
       commitments to extend credit and commercial letters of credit.
       Commitments to extend credit involve, to a varying degree, elements of
       credit and interest rate risk in excess of amounts recognized in the
       consolidated statement of financial condition. The Corporation's exposure
       to credit loss in the event of non-performance by the other party for
       commitments to extend credit is represented by the contractual amount of
       these commitments, less any collateral value obtained. The Corporation
       uses the same credit policies in making commitments as for
       on-balance-sheet instruments. The Corporation's distribution of
       commitments to extend credit approximates the distribution of loans
       receivable outstanding.

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    46                     2003 Annual Report


<PAGE>
Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------


14.    Financial Instruments (continued)

       The following table presents the notional amount of the Corporation's
       off-balance-sheet commitment financial instruments as of December 31:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
(In thousands)                             2003                            2002
                                  Fixed Rate     Variable Rate   Fixed Rate     Variable Rate
-------------------------------------------------------------- ------------------------------
<S>                               <C>            <C>           <C>            <C>
Commitments to make loans            $5,490               $-        $6,844                $-
Unused lines of credit                    -           34,208             -            35,459
Standby letters of credit                 -              700             -               850
---------------------------------------------------------------------------------------------
</TABLE>

       Commitments to make loans are generally made for periods of 30 days or
       less. The fixed rate loan commitments have interest rates ranging from
       4.0% to 10.0% and maturities ranging from five to thirty years at both
       year-end dates. Commitments to extend credit include agreements to lend
       to a customer as long as there is no violation of any condition
       established in the contract. These commitments generally have fixed
       expiration dates or other termination clauses and may require payment of
       a fee. Commitments to extend credit also include unfunded commitments
       under commercial and consumer lines-of-credit, revolving credit lines and
       overdraft protection agreements. These lines-of-credit may be
       collateralized and usually do not contain a specified maturity date and
       may be drawn upon to the total extent to which the Corporation is
       committed.

       Standby letters of credit are conditional commitments issued by the
       Corporation usually for commercial customers to guarantee the performance
       of a customer to a third party. Essentially all letters of credit issued
       have expiration dates within one year. The credit risk involved in
       issuing letters of credit is essentially the same as that involved in
       extending loan facilities to customers. Fees earned from the issuance of
       these letters are recognized at the expiration of the coverage period.
       For secured letters of credit, the collateral is typically Bank deposit
       instruments.


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    47                     2003 Annual Report


<PAGE>


Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

15.  NSD Bancorp, Inc. - Condensed Financial Statements, Parent Corporation Only

     Following are condensed financial statements for the parent company as of
     and for the years ended December 31:



--------------------------------------------------------------------------------
Condensed Balance Sheets                                As of December 31,
(In thousands)                                           2003              2002
--------------------------------------------------------------------------------

Assets:
 Cash in banks                                           $275               $35
 Securities available for sale                          2,470             2,068
 Equity in net assets of subsidiary                    40,082            39,996
 Other assets                                              10                10
                                                  ------------     -------------

  Total assets                                        $42,837           $42,109
                                                  ============     =============

Liabilities and stockholders' equity:
 Accounts payable to subsidiary                        $2,229            $1,894
 Loan payable to subsidiary                             1,000             1,000
 Deferred tax liability                                   717               390
 Other liabilities                                          4                 3
                                                  ------------     -------------
  Total liabilities                                     3,950             3,287
 Stockholders' equity                                  38,887            38,822
                                                  ------------     -------------

  Total liabilities and stockholders'
   equity                                             $42,837           $42,109
                                                  ============     =============

--------------------------------------------------------------------------------



-----------------------------------------------------------------------------
Condensed Income Statements                 For the years ended December 31,
(In thousands)                                  2003       2002         2001
-----------------------------------------------------------------------------

Income:
 Dividends from subsidiary                    $2,780     $2,453       $2,961
 Dividends from securities available for
  sale                                            72         78           80
 Net investment securities gains                 156        393           25
                                            ---------  ---------   ----------

  Total income                                 3,008      2,924        3,066

Expense:
 Interest expense                                 52         58           81
 Other expenses                                   56         83           37
                                            ---------  ---------   ----------

  Total expense                                  108        141          118
                                            ---------  ---------   ----------

 Income before income taxes and equity in
  undistributed
  operating results of subsidiary              2,900      2,783        2,948

 Equity in net income of subsidiary               26      1,683        2,257
                                            ---------  ---------   ----------

 Income before income taxes                    2,926      4,466        5,205

 Provision for income taxes                      187          -            -
                                            ---------  ---------   ----------

Net income                                    $2,739     $4,466       $5,205
                                            =========  =========   ==========
-----------------------------------------------------------------------------

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    48                     2003 Annual Report

<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

15. NSD Bancorp, Inc. - Condensed Financial Statements, Parent Corporation Only
    (continued)

-----------------------------------------------------------------------------
Condensed Statements of Cash Flows          For the years ended December 31,
(In thousands)                                  2003       2002         2001
-----------------------------------------------------------------------------

Operating activities:
 Net income                                   $2,739     $4,466       $5,205
 Adjustments to reconcile net income to net cash
  provided
  by operating activities:
   Equity in net assets of subsidiary            (26)    (1,683)      (2,257)
   Gains on investment securities               (156)      (393)         (25)
   Other, net                                    522        926          442
                                            ---------  ---------   ----------
    Net cash from operating activities         3,079      3,316        3,365
                                            ---------  ---------   ----------

Investing activities:
   Proceeds from sale of securities
    available for sale                           167        423           28
                                            ---------  ---------   ----------
    Net cash from investing activities           167        423           28
                                            ---------  ---------   ----------

Financing activities:
   Dividends paid                             (2,780)    (2,453)      (2,256)
   Payments to acquire treasury stock           (915)    (1,563)      (1,213)
   Proceeds from exercise of common stock
    options                                      695        237          149
   Cash dividends paid in lieu of fractional
    common shares                                 (6)        (4)          (4)
                                            ---------  ---------   ----------
    Net cash from financing activities        (3,006)    (3,783)      (3,324)
                                            ---------  ---------   ----------

Net change in cash equivalents                   240        (44)          69
Cash equivalents at beginning of period           35         79           10
                                            ---------  ---------   ----------

Cash equivalents at end of period               $275        $35          $79
                                            =========  =========   ==========


16.    Other Noninterest Expenses

       The following summarizes the Corporation's other noninterest expenses for
the years ended December 31:

----------------------------------------------------------------------------
(In thousands)                              2003          2002         2001
----------------------------------------------------------------------------

Professional fees                           $824          $371         $225
Pennsylvania bank shares tax                 371           338          295
Postage                                      315           285          258
Stationary and supplies                      303           308          288
Telephone                                    287           273          244
Advertising                                  222           255          283
Other                                      1,437         1,362        1,418
                                       ----------   -----------   ----------

                                           3,759         3,192        3,011

Discontinued product                        (109)        1,980          329
                                       ----------   -----------   ----------

                                          $3,650        $5,172       $3,340
                                       ==========   ===========   ==========
----------------------------------------------------------------------------

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    49                     2003 Annual Report

<PAGE>

Notes to Consolidated Financial Statements (continued)
--------------------------------------------------------------------------------

17.    Quarterly Financial Data (unaudited)

       The following is a summary of selected quarterly data for the years ended
December 31:


<TABLE>
<CAPTION>

---------------------------------------------------------------------------------
(Dollar amounts in thousands,              First     Second    Third     Fourth
 except share data)                       Quarter   Quarter   Quarter    Quarter
---------------------------------------------------------------------------------
<S>                                        <C>       <C>       <C>        <C>
2003:
------
 Interest income                           $7,255    $7,038    $6,773     $6,643
 Interest expense                           3,314     3,180     3,018      2,830
                                          --------  --------  --------  ---------
 Net interest income                        3,941     3,858     3,755      3,813
 Provision for loan losses                    255     2,715       240        255
                                          --------  --------  --------  ---------
 Net interest income after provision for
  loan losses                               3,686     1,143     3,515      3,558
 Noninterest income                           944     1,067     1,106        672
 Noninterest expense                        2,811     3,057     3,378      3,210
                                          --------  --------  --------  ---------
 Net income (loss) before income taxes      1,819      (847)    1,243      1,020
 Provision for (benefit from) income
  taxes                                       480      (418)      296        138
                                          --------  --------  --------  ---------

 Net income (loss)                         $1,339     $(429)     $947       $882
                                          ========  ========  ========  =========

 Net income (loss) per share, basic         $0.42    ($0.13)    $0.30      $0.27
 Net income (loss) per share, diluted       $0.41    ($0.13)    $0.29      $0.27

2002:
------
 Interest income                           $7,667    $7,789    $7,753     $7,594
 Interest expense                           3,532     3,492     3,539      3,520
                                          --------  --------  --------  ---------
 Net interest income                        4,135     4,297     4,214      4,074
 Provision for loan losses                    240       240       240        240
                                          --------  --------  --------  ---------
 Net interest income after provision for
  loan losses                               3,895     4,057     3,974      3,834
 Noninterest income                           656       666     1,215        956
 Noninterest expense                        2,627     2,950     4,611      2,910
                                          --------  --------  --------  ---------
 Net income before income taxes             1,924     1,773       578      1,880
 Provision for income taxes                   594       502       102        491
                                          --------  --------  --------  ---------

 Net income                                $1,330    $1,271      $476     $1,389
                                          ========  ========  ========  =========

 Net income per share, basic                $0.41     $0.39     $0.15      $0.44
 Net income per share, diluted              $0.41     $0.39     $0.14      $0.43

</TABLE>

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    50                     2003 Annual Report


<PAGE>



Report of Independent Auditors
--------------------------------------------------------------------------------





The Board of Directors and Stockholders
NSD Bancorp, Inc.

We have audited the accompanying consolidated balance sheet of NSD Bancorp, Inc.
and subsidiary as of December 31, 2003, and the related consolidated statements
of income, comprehensive income, changes in stockholders' equity, and cash flows
for the year 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 audit. The consolidated balance sheet as of
December 31, 2002, and the related consolidated statements of income,
comprehensive income, changes in stockholders' equity, and cash flows for each
of the two years in the period ended December 31, 2002, were audited by other
auditors whose report dated January 31, 2003, expressed an unqualified opinion
on those statements.

We conducted our audit 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NSD
Bancorp, Inc. and subsidiary as of December 31, 2003, and the results of their
consolidated operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.


/S/  S.R. Snodgrass, A.C.

S.R. Snodgrass, A.C.
Wexford, Pennsylvania

March 5, 2004


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    51                     2003 Annual Report


<PAGE>


Stock and Dividend Information
--------------------------------------------------------------------------------

Listings and Markets

NSD Bancorp,  Inc.  common stock is traded on the NASDAQ  National Market System
under the symbol "NSDB." The listed market makers for the  Corporation's  common
stock include:

<TABLE>
<CAPTION>

<S>                              <C>                        <C>                           <C>
F.J. Morrissey & Co., Inc.       Ferris, Baker Watts, Inc.  Hill Thompson Magid, L.P.     Knight Equity Markets, L.P.
Four Tower Bridge                100 Light Street           15 Exchange Place             Newport Tower
200 Barr Harbor Drive Suite 300  Eighth Floor               Suite 800                     525 Washington Boulevard
West Conshohocken, PA 19428      Baltimore, MD 21202        Jersey City, NJ 07302         Jersey City, NJ 07310
(800) 842-8928                   (800) 436-2000             (201) 434-6900                (201) 222-9400

Parker/Hunter Inc.               Ryan Beck & Co., Inc.      Schwab Capital Markets, L.P.  Susquehanna Capital Group
600 Grant Street                 220 South Orange Avenue    111 Pavonia Avenue            401 City Lane Avenue, Suite 220
Pittsburgh, PA 15219             Livingston, NJ 07039       East Jersey City, NJ 07310    Bala-Cynwyd, PA 19004
(412) 562-8000                   (973) 597-6000             (201) 963-9100                (610) 617-2600

</TABLE>


Stock Price and Cash Dividend Information

The bid and ask price of the Corporation's common stock were $24.96 and $25.48,
respectively, as of February 25, 2004. The Corporation traditionally has paid
regular quarterly cash dividends.

The following table sets forth the high and low sale market prices of the
Corporation's common stock as well as cash and stock dividends for the quarterly
periods presented:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------
                                           Market Price                     Cash      Stock
                                  High          Low         Close         Dividend   Dividend
----------------------------------------------------------------------------------------------
<S>                             <C>           <C>          <C>          <C>          <C>
2003:
------------------
  Fourth quarter                $26.03        $24.00       $25.50       $ 0.22              -
  Third quarter                  27.29         23.83        26.46         0.22              -
  Second quarter                 27.69         24.37        26.14         0.22              5%
  First quarter                  26.33         22.57        25.34         0.21              -

2002:
------------------
  Fourth quarter                $26.10        $20.01       $23.93       $ 0.20              -
  Third quarter                  25.40         20.70        23.01         0.19              -
  Second quarter                 23.84         20.25        20.10         0.19              5%
  First quarter                  21.90         18.11        18.56         0.18              -
----------------------------------------------------------------------------------------------

</TABLE>


Number of Stockholders and Shares Outstanding

As of December 31, 2003, there were approximately 370 stockholders of record and
3,197,815 shares of common stock entitled to vote, receive dividends and
considered outstanding for financial reporting purposes. The number of
stockholders of record does not include the number of persons or entities who
hold their stock in nominee or "street" name.

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    52                     2003 Annual Report


<PAGE>


Corporate Information
--------------------------------------------------------------------------------

Corporate Headquarters

       NSD Bancorp, Inc.
       5004 McKnight Road
       Pittsburgh, Pennsylvania 15237
       Phone: 412 231-6900
       Website: www.nsdbancorp.com

Subsidiary Bank

       NorthSide Bank
       Website: www.northsidebank.com

Annual Meeting

       The annual meeting of the Corporation's stockholders will be held at 3:00
       p.m., on April 27, 2004, at Holiday Inn, 4895 McKnight Road, Pittsburgh,
       PA 15237.

Stockholder and Investor Information

       Copies of annual reports, quarterly reports and related stockholder
       literature are available upon written request without charge to
       stockholders. Requests should be addressed to William C. Marsh, Senior
       Vice President and Chief Financial Officer, NSD Bancorp, Inc., 5004
       McKnight Road, Pittsburgh, PA 15237.

       In addition, other public filings of the Corporation, including the
       Annual Report on Form 10K can be obtained on the Corporation's website:
       www.nsdbancorp.com.

Independent Accountants

       S. R. Snodgrass, A.C.
       1000 Stonewood Drive, Suite 200
       Wexford, PA 15090-8399

Registrar and Transfer Agent

       Registrar and Transfer Company
       10 Commerce Drive
       Cranford, NJ 07016
       Phone: 800 368-5948


--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    53                     2003 Annual Report

<PAGE>


Board of Directors and Officers
--------------------------------------------------------------------------------

NSD BANCORP, INC.
NORTHSIDE BANK


<TABLE>
<CAPTION>

Board of Directors
<S>                                            <C>                                        <C>
Lawrence R. Gaus                               William R. Baierl                          John C. Brown, Jr.
Chairman                                       Vice Chairman                              Retired Regional Executive
NSD Bancorp, Inc.                              NSD Bancorp, Inc.                          PNC Bank
NorthSide Bank                                 President-Baierl Chevrolet, Inc.
CPA-Gaus, Siegel, McMillen &
Davisson, LLC

Grant A. Colton, Jr.                           Nicholas C. Geanopulos                     Gus P. Georgiadis
Chairman of the Board                          President                                  President
GA Industries, Inc.                            N. C. Geanopulos, Inc.                     TRIAD USA
                                               Geanopulos Representations

Andrew W. Hasley                               Gerald B. Hindy                            Charles S. Lenzner
President                                      Vice Chairman                              President
NSD Bancorp, Inc.                              NSD Bancorp, Inc.                          Lenzner Tours
NorthSide Bank

David J. Malone                                Kenneth L. Rall                            Arthur J. Rooney, II
Chief Financial Officer                        President                                  President
Gateway Financial                              Renaissance Home Sales, Inc.               Pittsburgh Steelers

</TABLE>


Note: All directors of the  Corporation  and the Bank also serve as directors of
NSB Financial Services, LLC.


NSD BANCORP, INC.


<TABLE>
<CAPTION>

Executive Officers
<S>                                            <C>                                        <C>
Andrew W. Hasley                               William C. Marsh                           Gloria J. Bush
President                                      Treasurer                                  Corporate Secretary
Chief Operating Officer                        Chief Financial Officer

</TABLE>

                              Board and Officer listings as of February 20, 2004

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    54                     2003 Annual Report



<PAGE>



NORTHSIDE BANK


Executive Officers

Andrew W. Hasley                               William C. Marsh
President                                      Senior Vice President
Chief Operating Officer                        Chief Financial Officer

<TABLE>
<CAPTION>


Senior Officers
<S>                          <C>                                <C>                              <C>
Mark A. Allman               Rajendra K. Bagga                  William B. Breitinger            Gloria J. Bush
Vice President               Chief Auditor                      Vice President                   Human Resources Officer
Consumer Lending                                                Asset Recovery                   Corporate Secretary


Jacqueline M. Cortese        Debra S. Flinner                   Frank R. Krepp                   David J. Minesky
Vice President               Vice President                     Vice President                   Vice President
CRA Officer                  Commercial Loan Manager            Credit Administration            Residential Lending


James R. Schafer             John L. Schultz                    Jeffrey R. Uselman
Vice President               Vice President                     Senior Vice President
Security Officer             Marketing/Retail Banking           Chief Technology Officer

</TABLE>


NSB FINANCIAL SERVICES, LLC

<TABLE>
<CAPTION>

Executive Officers
<S>                                            <C>                                        <C>
Andrew W. Hasley                               William C. Marsh                           Gloria J. Bush
President                                      Treasurer                                  Corporate Secretary
Chief Operating Officer                        Chief Financial Officer


</TABLE>

                                        Officer listings as of February 20, 2004

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    55                     2003 Annual Report



<PAGE>



Office Locations and Branch Managers
--------------------------------------------------------------------------------

     Offices and Locations

     Retail Banking Offices                         Branch Manager/Telephone

     Pittsburgh North Side (Principal Office)       Beverly C. Young
     100 Federal Street                             Assistant Vice President
     Pittsburgh, PA 15212                           412 231-6900

     Allegheny Professional Building                Josephine N. Magill
     490 East North Avenue                          Community Banking Officer
     Pittsburgh, PA 15212                           412 231-3500

     Cranberry Township                             Helen M. Askin
     20100 Rt. 19                                   Assistant Vice President
     Cranberry Township, PA 16066                   724 776-6700

     Duncan Manor Shopping Center                   Theresa M. Downing
     1701 Duncan Avenue                             Assistant Vice President
     Allison Park, PA 15101                         412 369-5700

     Fox Chapel                                     Charlene G. Thunell
     1112 Freeport Road                             Assistant Vice President
     Pittsburgh, PA 15238                           412 963-8363

     Franklin Park                                  Andrew J. Mittelstaedt
     2000 Corporate Drive at Brandt School Road     Community Banking Officer
     Wexford, PA 15090                              724 940-6700

     Hampton Township                               Sandra L. McGowan
     4960 Route 8                                   Branch Manager
     Allison Park, PA 15101                         724 444-6700

     Pine Creek Shopping Center                     Kelly J. Schuring
     9805 McKnight Road                             Community Banking Officer
     Pittsburgh, PA 15237                           412 366-5266

     Pittsburgh Cultural District                   Michelle R. Sagnimeni
     701 Liberty Avenue                             Community Banking Officer
     Pittsburgh, PA 15222                           412 281-4360

     Ross Park                                      Kathleen A. Ayres
     5004 McKnight Road                             Assistant Vice President
     Pittsburgh, PA 15237                           412 369-0990

     Town of McCandless                             Ann P. Connolly
     9600 Perry Highway                             Assistant Vice President
     Pittsburgh, PA 15237                           412 366-6700

     West View                                      Cheryl A. Mildrich
     728 Center Avenue                              Assistant Vice President
     Pittsburgh, PA 15229                           412 931-2500


                                                Listings as of February 20, 2004

--------------------------------------------------------------------------------
NSD Bancorp. Inc.                    56                     2003 Annual Report


<PAGE>





                                NSD BANCORP, INC.
                               5004 McKnight Road
                         Pittsburgh, Pennsylvania 15237
                              Phone: (412) 231-6900