Financial Highlights

|                                 |  | 2002 |             | 2001 |   | Percent Change |  
|-------------------------------- |  | ---- | ----------- | ---- | - | -------------- | -
|FOR THE YEAR                     |  |      |             |      |   |                |  
|Net Interest Income              |  | $    | 16,720,130  |      | $ | 15,767,523     |  
|Net Income                       |  |      | 4,465,602   |      |   | 5,205,462      |  
|Cash Dividends Declared and Paid |  |      | 2,452,661   |      |   | 2,256,336      |  
|PER SHARE DATA (1)               |  |      |             |      |   |                |  
|Net Income  Basic               |  | $    | 1.46        |      | $ | 1.67           |  
|Net Income  Diluted             |  |      | 1.43        |      |   | 1.66           |  
|Cash Dividends Declared and Paid |  |      | 0.80        |      |   | 0.72           |  
|AT YEAR END                      |  |      |             |      |   |                |  
|Assets                           |  | $    | 510,448,272 |      | $ | 479,269,794    |  
|Loans (5)                        |  |      | 333,491,878 |      |   | 321,409,102    |  
|Investment Securities            |  |      | 128,200,176 |      |   | 117,098,802    |  
|Deposits                         |  |      | 369,199,144 |      |   | 340,983,291    |  
|Shareholders Equity             |  |      | 38,822,256  |      |   | 36,673,164     |  
|PERFORMANCE RATIOS               |  |      |             |      |   |                |  
|Return on Assets (2)             |  |      | 0.92        | %    |   | 1.15           | %
|Return on Equity (3)             |  |      | 12.56       | %    |   | 15.34          | %
|Net Interest Margin (4)          |  |      | 3.74        | %    |   | 3.76           | %
|                                 |  |      |             |      |   |                |  
|CAPITAL RATIOS                   |  |      |             |      |   |                |  
|Equity to Assets                 |  |      | 7.61        | %    |   | 7.65           | %
|Tier 1 Leverage                  |  |      | 7.47        | %    |   | 7.89           | %

---

(1)  Adjusted for a 5% stock dividend declared April 23, 2002. (2)  The return on assets is calculated by dividing net after tax earnings by average assets. (3)  The return on equity is
calculated by dividing net after tax earnings by average equity. (4)  Tax equivalent basis. (5)  Net of deferred fees and unearned income.

1



---

NSDBancorp

Dear Shareholder:

The past year has been a time in
which your company experienced a great deal of excitement as we successfully expanded our franchise, introduced several new product offerings and improved customer service while working diligently to diversify revenue streams. For the year ended
December 31, 2002, reported net income was $4,466,000, or $1.43 per diluted share compared to $5,205,000 or $1.66 per diluted share for 2001. Earnings for 2002 were affected by a $1,793,000 loss, in excess of specific loss reserves, resulting from a
suspected fraud which was identified in October of 2002 and recognized prospectively in third quarter results of operations. Excluding the impact of this loss, however, net income for 2002 would have been $5,649,000 or $1.81 per diluted share, a
9.0% increase over 2001 results.

The stimulus for your companys success over the past several years has been the ability to effectively grow interest earning assets, principally within the
loan portfolio. During 2002, your company experienced another very active and successful year in several key lending arenas. As the result of a very effective campaign to promote our business banking products and our customer oriented focus on
business banking, commercial loans increased $21,003,000 or 20.0% over 2001 totals. At year-end 2002, commercial loans outstanding stood at $126,279,000. The commercial lending function has been upgraded to assure that the highest standard of
efficiency and responsiveness to the customer is maintained. New credit quality administration software is also in the process of implementation. Together, these will assure that an ongoing system is in place to effectively monitor credit quality as
the commercial portfolio continues to grow. The company experienced equally impressive results with a record year of production in its indirect automobile lending business. As a result, installment loans outstanding increased $12,700,000 or 9.4% to
$147,834,000 as of year-end 2002.

A significant change in our approach to the residential mortgage lending business over the past year has been part of the companys efforts to diversify its
income sources while providing better service at more attractive prices. We now participate in the national mortgage market, which permits us to offer very competitive interest rates for both new and refinanced mortgages. A majority of loans
originated are sold providing an immediate source of income to the company. The impact in 2002 was a contribution of $319,800 in additional non-interest revenue. Many of the initiatives, currently in process, are similarly aimed at improving the
companys competitive advantage in the local marketplace and enhancing overall performance in the form of value to our shareholders.

In September of 2002, our branch network was extended to
the Fox Chapel community with the opening of our twelfth branch. The office, located in the center of the business district, serves a market with excellent potential for consumer deposits and loans. In the first three months of operation, deposits
at the office exceeded $12 million. The office is ideally situated to provide NorthSide Bank with access to the broad base of business and commercial firms in that area.

In addition to expanding
the branch network, we continue to evaluate and offer new products that meet the customer needs and contribute to the profitability of the company. In 2002, the Courtesy Overdraft Program was introduced and offered to certain checking customers. We
now pay overdrafts, up to a modest limit, when customers in the program overdraw their accounts. The customer avoids the embarrassment of returned checks and the additional fees often charged by merchants. The company benefits from additional fee
income generated when customers access the service.

We are also realizing many of the benefits of our investment in technological program. Internet Banking, which was introduced just over one year
ago, is an ideal example. To date, 15% of our checking customers have signed up for the service. Monthly usage now exceeds 11,000 transactions and continues to grow by approximately 5% per month. Technology will play an on-going role in meeting the
banking needs of the consumer as well as in increasing efficiency and profitability at the Bank.

2



---

Throughout 2002, our associates, members of the Board of Directors and the company actively supported a wide range of programs that are important to the vitality of the
communities we serve. Special mortgage programs that we offer encourage the revitalization of older neighborhoods in the City of Pittsburgh. We sponsored or contributed to numerous youth programs, the performing arts and community food banks. We
were especially pleased to be recognized as Best of Class among Banks, signifying the highest per capita level of giving during our 2002 United Way Campaign.

We thank you, our shareholders,
customers and friends for your support of our commitment to building shareholder value as an independent, community-oriented company.

Sincerely,

|/s/ LAWRENCE R. GAUS                  | 
|------------------------------------- | 
|                                      | 
|Lawrence R. GausChairman of the Board | 
|                                      | 
|/s/ LLOYD G. GIBSON                   | 
|                                      | 
|Lloyd G. GibsonPresident and CEO      | 

[PHOTO APPEARS HERE]

Lawrence R. Gaus,
Chairman of the Board (standing) and Lloyd G. Gibson, President and Chief Executive Officer (seated)

3



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NSDBancorp

## Consolidated Balance Sheets

|                                     |                                                                                                                                                                                              | December 31, |  
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | -
|                                     |                                                                                                                                                                                              |              |  
|                                     |                                                                                                                                                                                              | 2002         |  
|                                     |                                                                                                                                                                                              |              |  
|ASSETS                               |                                                                                                                                                                                              |              |  
|                                     | Cash and Due From Banks                                                                                                                                                                      |              | $
|                                     | Federal Funds Sold                                                                                                                                                                           |              |  
|                                     | Investment Securities Available for Sale at Market Value (Amortized Cost of $124,477,248 at December 31, 2002 and
$115,597,738 at December 31, 2001)                                         |              |  
|                                     | Loans Held for Sale, Net of Reserve for Loan Losses of $0 and $48,968, Respectively                                                                                                          |              |  
|                                     | Loans, Net of Deferred Fees                                                                                                                                                                  |              |  
|                                     | Unearned Income                                                                                                                                                                              |              |  
|                                     | Reserve for Loan Losses                                                                                                                                                                      |              |  
|                                     |                                                                                                                                                                                              |              |  
|                                     | Loans, Net                                                                                                                                                                                   |              |  
|                                     | Premises and Equipment, Net                                                                                                                                                                  |              |  
|                                     | Accrued Interest Receivable                                                                                                                                                                  |              |  
|                                     | Other Real Estate Owned and Assets Held for Sale                                                                                                                                             |              |  
|                                     | Other Assets, Net of Reserve of $0 and $200,000, Respectively                                                                                                                                |              |  
|                                     |                                                                                                                                                                                              |              |  
|                                     | Total Assets                                                                                                                                                                                 |              | $
|                                     |                                                                                                                                                                                              |              |  
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                                                                                              |              |  
|                                     | Deposits:                                                                                                                                                                                    |              |  
|                                     | Noninterest Bearing                                                                                                                                                                          |              | $
|                                     | Interest Bearing                                                                                                                                                                             |              |  
|                                     |                                                                                                                                                                                              |              |  
|                                     | Total Deposits                                                                                                                                                                               |              |  
|                                     | Borrowed Funds:                                                                                                                                                                              |              |  
|                                     | Advances from Federal Home Loan Bank and Other Borrowings                                                                                                                                    |              |  
|                                     |                                                                                                                                                                                              |              |  
|                                     | Total Borrowed Funds                                                                                                                                                                         |              |  
|                                     | Accrued Interest Payable                                                                                                                                                                     |              |  
|                                     | Reserve for Unfunded Loan Commitments                                                                                                                                                        |              |  
|                                     | Other Liabilities                                                                                                                                                                            |              |  
|                                     |                                                                                                                                                                                              |              |  
|                                     | Total Liabilities                                                                                                                                                                            |              |  
|                                     | Common Stock $1 Par Value; 10,000,000 shares authorized, 3,334,720 issued and 3,038,922 outstanding at December 31,
2002 and 3,328,802 issued and 3,091,528 outstanding at December 31, 2001 |              |  
|                                     | Treasury Stock at cost, 295,798 shares at December 31, 2002 and  225,976 shares at December
31, 2001                                                                                         |              |  
|                                     | Capital Surplus                                                                                                                                                                              |              |  
|                                     | Accumulated Other Comprehensive Income                                                                                                                                                       |              |  
|                                     | Retained Earnings                                                                                                                                                                            |              |  
|                                     |                                                                                                                                                                                              |              |  
|                                     | Total Shareholders Equity                                                                                                                                                                   |              |  
|                                     |                                                                                                                                                                                              |              |  
|                                     | Total Liabilities and Shareholders Equity                                                                                                                                                   |              | $
|                                     |                                                                                                                                                                                              |              |  
|                                     |                                                                                                                                                                                              |              |  

See notes to consolidated financial statements.

4



---

Consolidated Statements of Income

|                                              |                                                     | For the Years Ended December 31, |          
|--------------------------------------------- | --------------------------------------------------- | -------------------------------- | ---------
|                                              |                                                     |                                  |          
|                                              |                                                     | 2002                             |          
|                                              |                                                     |                                  |          
|INTEREST INCOME                               |                                                     |                                  |          
|                                              | Loans, Including Fees                               |                                  | $        
|                                              | Investment Securities                               |                                  |          
|                                              | Taxable                                             |                                  |          
|                                              | Tax-exempt                                          |                                  |          
|                                              | Dividends                                           |                                  |          
|                                              | Interest Bearing Deposits                           |                                  |          
|                                              | Federal Funds Sold                                  |                                  |          
|                                              |                                                     |                                  |          
|                                              | Total Interest Income                               |                                  |          
|INTEREST EXPENSE                              |                                                     |                                  |          
|                                              | Deposits                                            |                                  |          
|                                              | Federal Funds Purchased and Repurchase Agreements   |                                  |          
|                                              | FHLB Advances and Other Borrowings                  |                                  |          
|                                              |                                                     |                                  |          
|                                              | Total Interest Expense                              |                                  |          
|                                              | Net Interest Income                                 |                                  |          
|                                              | Provision for Loan Losses                           |                                  |          
|                                              |                                                     |                                  |          
|                                              | Net Interest Income After Provision for Loan Losses |                                  |          
|                                              |                                                     |                                  |          
|OTHER INCOME                                  |                                                     |                                  |          
|                                              | Net Investment Securities Gains                     |                                  |          
|                                              | Service Fees                                        |                                  |          
|                                              | Other Operating Income                              |                                  |          
|                                              |                                                     |                                  |          
|                                              | Total Other Income                                  |                                  |          
|OTHER EXPENSES                                |                                                     |                                  |          
|                                              | Salaries and Employee Benefits                      |                                  |          
|                                              | Occupancy Expense                                   |                                  |          
|                                              | Equipment and Supplies                              |                                  |          
|                                              | Data Processing                                     |                                  |          
|                                              | FDIC Insurance                                      |                                  |          
|                                              | Advertising                                         |                                  |          
|                                              | Other Operating Expenses                            |                                  |          
|                                              |                                                     |                                  |          
|                                              | Total Other Expenses                                |                                  |          
|                                              | Income Before Income Taxes                          |                                  |          
|                                              | Provision for Income Taxes                          |                                  |          
|                                              |                                                     |                                  |          
|NET INCOME                                    |                                                     | $                                | 4,465,602
|                                              |                                                     |                                  |          
|NET INCOME PER COMMON SHARE (1)               |                                                     |                                  |          
|Net Income  Basic                            |                                                     | $                                | 1.46     
|Net Income  Diluted                          |                                                     | $                                | 1.43     
|Common Dividends Declared and Paid Per Share  |                                                     | $                                | 0.80     
|Weighted Average Shares Outstanding  Basic   |                                                     |                                  | 3,066,027
|Weighted Average Shares Outstanding  Diluted |                                                     |                                  | 3,112,517
|                                              |                                                     |                                  |          

---

(1) Adjusted for a 5% stock dividend declared April 23, 2002 and a 5% stock dividend declared April 24,
2001.

See notes to consolidated financial statements.

5



---

NSDBancorp

Consolidated Statements of Comprehensive Income

|                                                                  |  | For the Years Ended December 31, |          
|----------------------------------------------------------------- |  | -------------------------------- | ---------
|                                                                  |  |                                  |          
|                                                                  |  | 2002                             |          
|                                                                  |  |                                  |          
|Net Income                                                        |  | $                                | 4,465,602
|Net unrealized gains on securities:                               |  |                                  |          
|Net unrealized holding gains arising during the period            |  |                                  | 2,667,393
|Less: reclassification adjustment for gain realized in net income |  |                                  | 445,529  
|                                                                  |  |                                  |          
|Net unrealized gains                                              |  |                                  | 2,221,864
|                                                                  |  |                                  |          
|Other Comprehensive Income                                        |  |                                  | 2,221,864
|Tax Expense at 34%                                                |  |                                  | 755,445  
|                                                                  |  |                                  |          
|Other Comprehensive Income, Net of Tax                            |  |                                  | 1,466,419
|                                                                  |  |                                  |          
|Comprehensive Income                                              |  | $                                | 5,932,021
|                                                                  |  |                                  |          

See notes to consolidated financial statements.

6



---

Consolidated Statements of Changes in Shareholders Equity

For the Years Ended December 31, 2002, 2001 and
2000

|                                                                               |  | Common Stock Shares Outstanding |           | Common Stock |   | Treasury Stock |  | Capital Surplus |            | Accumulated Other Comprehensive Income (Loss) |   | Retained Earnings | 
|------------------------------------------------------------------------------ |  | ------------------------------- | --------- | ------------ | - | -------------- |  | --------------- | ---------- | --------------------------------------------- | - | ----------------- | 
|                                                                               |  |                                 |           |              |   |                |  |                 |            |                                               |   |                   | 
|Balance at December 31, 1999                                                   |  |                                 | 2,873,405 |              | $ | 2,873,405      |  | $               | (1,879,310 | )                                             | $ | 13,625,727        | 
|Net Income                                                                     |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|Stock Dividend                                                                 |  |                                 | 143,513   |              |   | 143,513        |  |                 |           |                                               |   | 2,119,136         | 
|Cash Paid in Lieu of Fractional Shares                                         |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|Cash Dividends Declared ($.68 per share) (1)                                   |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|Treasury Stock Purchased (72,639 shares)                                       |  |                                 |          |              |   |               |  |                 | (1,055,757 | )                                             |   |                  | 
|Change in Unrealized Appreciation in Securities Available for Sale, Net of Tax |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|                                                                               |  |                                 |           |              |   |                |  |                 |            |                                               |   |                   | 
|Balance at December 31, 2000                                                   |  |                                 | 3,016,918 |              |   | 3,016,918      |  |                 | (2,935,067 | )                                             |   | 15,744,863        | 
|Net Income                                                                     |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|Stock Dividend                                                                 |  |                                 | 141,839   |              |   | 141,839        |  |                 |           |                                               |   | 2,340,344         | 
|Cash Paid in Lieu of Fractional Shares                                         |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|Cash Dividends Declared ($.72 per share) (1)                                   |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|Stock Options Exercised, Net of Tax Benefit                                    |  |                                 | 11,531    |              |   | 11,531         |  |                 |           |                                               |   | 301,525           | 
|Treasury Stock Purchased (68,029 shares)                                       |  |                                 |          |              |   |               |  |                 | (1,212,725 | )                                             |   |                  | 
|Change in Unrealized Appreciation in Securities Available for Sale, Net of Tax |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|                                                                               |  |                                 |           |              |   |                |  |                 |            |                                               |   |                   | 
|Balance at December 31, 2001                                                   |  |                                 | 3,170,288 |              |   | 3,170,288      |  |                 | (4,147,792 | )                                             |   | 18,386,732        | 
|Net Income                                                                     |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|Stock Dividend                                                                 |  |                                 | 146,585   |              |   | 146,585        |  |                 |           |                                               |   | 2,947,824         | 
|Cash Paid in Lieu of Fractional Shares                                         |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|Cash Dividends Declared ($.80 per share) (1)                                   |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|Stock Options Exercised, Net of Tax Benefit                                    |  |                                 | 17,847    |              |   | 17,847         |  |                 |           |                                               |   | 218,914           | 
|Treasury Stock Purchased (69,822 shares)                                       |  |                                 |          |              |   |               |  |                 | (1,562,618 | )                                             |   |                  | 
|Change in Unrealized Appreciation in Securities Available for Sale, Net of Tax |  |                                 |          |              |   |               |  |                 |           |                                               |   |                  | 
|                                                                               |  |                                 |           |              |   |                |  |                 |            |                                               |   |                   | 
|Balance at December 31, 2002                                                   |  |                                 | 3,334,720 |              | $ | 3,334,720      |  | $               | (5,710,410 | )                                             | $ | 21,553,470        | 
|                                                                               |  |                                 |           |              |   |                |  |                 |            |                                               |   |                   | 

---

(1) Adjusted for a 5% stock dividend
declared April 23, 2002 and a 5% stock dividend declared April 24, 2001.

See notes to consolidated financial statements.

7



---

NSDBancorp

Consolidated Statements of Cash Flows

|                                               |                                                                                     | For the Years Ended December 31, |            
|---------------------------------------------- | ----------------------------------------------------------------------------------- | -------------------------------- | -----------
|                                               |                                                                                     |                                  |            
|                                               |                                                                                     | 2002                             |            
|                                               |                                                                                     |                                  |            
|CASH FLOWS FROM OPERATING ACTIVITIES           |                                                                                     |                                  |            
|Net Income                                     |                                                                                     | $                                | 4,465,602  
|Adjustments to Net Income:                     |                                                                                     |                                  |            
|                                               | Provision for Loan Losses                                                           |                                  |            
|                                               | Net Gain on Sale/Call of Investment Securities Available for Sale                   |                                  |            
|                                               | Loss (Gain) on Sale of Other Assets                                                 |                                  |            
|                                               | Gain on Loan Sales                                                                  |                                  |            
|                                               | Depreciation and Amortization                                                       |                                  |            
|                                               | Net Premium Amortization                                                            |                                  |            
|                                               | (Increase) Decrease in Accrued Interest Receivable                                  |                                  |            
|                                               | Increase (Decrease) in Accrued Interest Payable                                     |                                  |            
|                                               | Increase in Cash Surrender Value of Bank-Owned Life Insurance                       |                                  |            
|                                               | Benefit from Bank-Owned Life Insurance                                              |                                  |            
|                                               | Decrease (Increase) in Other Assets                                                 |                                  |            
|                                               | Deferred Loan Fees, Net                                                             |                                  |            
|                                               | Increase (Decrease) in Other Liabilities                                            |                                  |            
|                                               |                                                                                     |                                  |            
|Net Cash Provided by Operating Activities      |                                                                                     |                                  | 8,672,434  
|                                               |                                                                                     |                                  |            
|CASH FLOWS FROM INVESTING ACTIVITIES           |                                                                                     |                                  |            
|                                               | Proceeds from Sale of Investment Securities Available for Sale                      |                                  |            
|                                               | Proceeds from Repayments and Maturities of Investment Securities Available for Sale |                                  |            
|                                               | Purchases of Investment Securities                                                  |                                  |            
|                                               | Purchase of Bank-Owned Life Insurance                                               |                                  |            
|                                               | Proceeds from Bank-Owned Life Insurance                                             |                                  |            
|                                               | Proceeds from Sales of Other Real Estate Owned                                      |                                  |            
|                                               | Net Increase in Loans                                                               |                                  |            
|                                               | Proceeds from Loan Sales                                                            |                                  |            
|                                               | Purchases of Premises and Equipment                                                 |                                  |            
|                                               |                                                                                     |                                  |            
|Net Cash Used by Investing Activities          |                                                                                     |                                  | (26,183,596
|                                               |                                                                                     |                                  |            
|CASH FLOWS FROM FINANCING ACTIVITIES           |                                                                                     |                                  |            
|                                               | Net (Decrease) Increase in Demand and Savings Accounts                              |                                  |            
|                                               | Net Increase in Certificates of Deposit                                             |                                  |            
|                                               | Net Decrease in Federal Funds Purchased and Repurchase Agreements                   |                                  |            
|                                               | Proceeds from Borrowings                                                            |                                  |            
|                                               | Repayments of Borrowings                                                            |                                  |            
|                                               | Proceeds from the Exercise of Common Stock Options                                  |                                  |            
|                                               | Cash Dividends Paid in Lieu of Fractional Shares                                    |                                  |            
|                                               | Treasury Stock Purchased                                                            |                                  |            
|                                               | Cash Dividends Paid                                                                 |                                  |            
|                                               |                                                                                     |                                  |            
|Net Cash Provided by Financing Activities      |                                                                                     |                                  | 24,432,923 
|                                               |                                                                                     |                                  |            
|Increase in Cash and Cash Equivalents          |                                                                                     |                                  | 6,921,761  
|Cash and Cash Equivalents at Beginning of Year |                                                                                     |                                  | 26,703,917 
|                                               |                                                                                     |                                  |            
|Cash and Cash Equivalents at End of Year       |                                                                                     | $                                | 33,625,678 
|                                               |                                                                                     |                                  |            

For the years ended December 31, 2002, 2001 and 2000, the Corporation paid interest of
$13,446,682, $16,022,457 and $13,388,469 and income taxes of $1,928,967, $2,300,000 and $2,436,000, respectively.  Noncash investing activity consisted of transfers of loans in liquidation to foreclosed assets of approximately $407,000,
$482,000 and $339,000 during 2002, 2001 and 2000, respectively.

See notes to consolidated financial statements.

8



---

Notes to Consolidated Financial Statements Years Ended December 31, 2002, 2001 and 2000

NOTE 1 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

| | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The consolidated financial statements of NSD Bancorp, Inc. (the Corporation) include the accounts of the Corporation and its wholly owned subsidiary, NorthSide Bank
(the Bank), a community bank operating twelve branch offices located in western Pennsylvania, and NorthSide Banks wholly owned subsidiary, NSB Financial Services, LLC.  NSB Financial Services, LLC is a limited liability
corporation which operates as a licensed title insurance agency providing title searches and other real estate settlement services to the general public.  Material intercompany accounts and transactions have been eliminated.                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Use of Estimates in the Preparation of Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 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 that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting
period.  Actual results could differ materially from those estimates.                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Investment Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The investment securities portfolio consists of securities and short-term investments which are purchased by the Corporation to enhance the overall yield on earning assets and
to contribute to the management of interest rate risk and liquidity.  Investments in debt and equity securities are classified into three categories: securities held to maturity, securities available for sale and trading securities.                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The Corporation classifies securities as held to maturity when it has both the ability and positive intent to hold securities to maturity.  Securities held to maturity are
stated at cost adjusted for amortization of premium and accretion of discount, computed primarily under the interest method.                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Securities not classified as held to maturity are designated as available for sale.  These securities may be sold in response to changes in market interest rates, changes
in prepayment or extension risk, asset-liability management decisions, income tax considerations or other circumstances identified by management.  Securities available for sale are recorded at estimated market value, with the aggregate
unrealized holding gains and losses reported, net of tax effect, as a separate component of shareholders equity.                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The Corporations investment policy specifically prohibits the existence of a trading account portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | On a periodic basis, management evaluates each security where amortized cost exceeds realizable value.  If the decline is judged to be other than temporary, the cost of the
security is written down to estimated net realizable value with the write-down included in net securities gains (losses).  Realized gains and losses are computed principally under the specific identification method.                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Loans Held for Sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | There were no loans held for sale at December 31, 2002.  The loans available for sale at December 31, 2001 were entirely comprised of Small Business Administration (SBA)
loans.  These loans are carried at the lower of cost or market value obtained through secondary market bid quotations, net of any reserve for loan losses.  Any realized gains and losses on these loans are included in other operating
income.                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Loans and Reserve for Loan Losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Loans are stated at face value, net of unearned income and deferred fees.  Lease unearned income is recognized over the loan term using the interest method.  Interest
on all other loans is recognized based on the outstanding principal balance of the loans.  The accrual of interest is discontinued when, in managements judgment, it is determined that the collectibility of interest, but not necessarily
principal, is doubtful.  When a loan is classified as nonaccrual, all previously accrued and unpaid interest is reversed.  Interest receipts on nonaccrual loans are applied to principal.  Net loan fees are deferred and amortized over
the term of the related loan using the interest method.

9



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NSD Bancorp

| | The reserve for loan losses is maintained at a level considered adequate by management to provide for loan losses.  The reserve is increased by provisions charged to
expense and reduced by loan losses net of recoveries. Management considers historical data concerning actual losses and loans classified by specific loan credit evaluation in determining the adequacy of the reserve for loan losses.  Also
considered in this process are loan delinquency trends, prevailing and anticipated economic conditions and uncertainties in estimating losses, all of which may be susceptible to significant change.  This evaluation is inherently subjective as
it requires material estimates concerning future losses for each type of loan in the portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Within the context of Statement of Financial Accounting Standards (SFAS) No. 114,  Accounting by Creditors for Impairment of a Loan, a loan is considered to be
impaired when, based upon current information and events, it is probable that the Corporation will be unable to collect all amounts due for principal and interest according to the contractual terms of the loan agreement.  Impairment is measured
based on the present value of expected future cash flows discounted at a loans effective interest rate, or as a practical expedient, the observable market price or, if the loan is collateral dependent, the fair value of the underlying
collateral. When the measurement of an impaired loan is less than the recorded investment in the loan, the impairment is recorded in a specific valuation allowance through a charge to provision for loan losses.  This specific valuation
allowance is periodically adjusted for significant changes in the amount or timing of expected future cash flows, observable market price or fair value of the collateral.  The valuation allowance, or reserve for impaired loan losses, is part of
the total reserve for loan losses.  Upon disposition of an impaired loan, any related allowance is reversed through a charge to the impaired reserve for loan losses.  Cash payments received on impaired loans are recorded as a direct
reduction of the loan principal.  Subsequent amounts collected are recognized as interest income.  Impaired loans are not returned to accruing status until all amounts due, both principal and interest are current and there has been a
demonstrated, sustained payment history.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The Corporation collectively reviews leases and consumer loans under $50,000, and residential and commercial real estate under $250,000 for impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | In determining the adequacy of the reserve for loan losses, the Corporation establishes specific reserves for potential problem loans as determined by its loan review
program.  The specific reserves on these loans are determined in accordance with SFAS No. 114 and SFAS No. 118, Accounting by Creditors for Impairment of a Loan Income Recognition and Disclosures taking into account the
credits current operating status, pledged collateral and plans of action for resolving any deficiencies. The loss factors used in calculating reserves for loans classified as substandard, doubtful and loss credits are based upon historical
loss trends and managements judgment of inherent risks associated within these loan classifications.  Specific reserves are usually only considered for the Corporations commercial loan portfolio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The Corporation maintains general reserves for all loans not considered by the specific reserve method.  General reserves are calculated for each pool of homogeneous loans
based on each loan type and corresponding risk rating, delinquency status and the historical charge-off experience pertaining to each loan pool.  Other relevant factors may include, among others, actual versus estimated losses, regional and
national economic conditions, business segment and portfolio concentrations, industry competition and consolidation and the impact of government regulations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | While the Corporations specific and general reserve methodologies attempt to consider all relevant risk factors, they are subject to other elements of risk, but not limited
to, potential estimation or judgmental errors.  Unallocated reserves have been established to provide for such risks.  Unallocated reserves also provide for risks associated with factors which may not be directly measured in the
determination of specific or general reserves.  These factors include the impact of general economic and business conditions on the Corporations lending activity, credit quality trends, duration of the current economic or business cycle,
and the impact of government regulations and other factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Reserve 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

10



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| | 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.  Net adjustments to the allowance for unfunded loan commitments and letters of credit are included in the provision for loan losses.                                                                                                                                                                                                                                                                                                                                    
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Premises and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Premises and equipment are carried at original cost less accumulated depreciation.  Premises and equipment are depreciated over their useful lives using either the
straight-line or an accelerated method.  Leasehold improvements are amortized over the terms of the respective lease or the estimated useful lives of the improvements, whichever is shorter.  Costs for maintenance and repairs are expensed
currently.  Major improvements are capitalized.  When premises and equipment are disposed of, the accounts are relieved of the cost and accumulated depreciation or amortization, and any resulting gains or losses are credited to or charged
against income.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Bank-Owned Life Insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | During 2000 and again during 2002, the Corporation purchased insurance on the lives of a certain group of employees and directors.  The policies accumulate asset values to
meet future liabilities including the payment of employee benefits such as health care.  Premiums of $5,000,000 and $2,985,876 are shown in the Consolidated Statements of Cash Flows for 2000 and 2002, respectively.  Increases in the cash
surrender value and proceeds are recorded as other income in the Consolidated Statements of Income.  The cash surrender value of bank-owned life insurance is reflected in other assets on the Consolidated Balance Sheets.                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Foreclosed Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Foreclosed assets are comprised of other real estate owned and repossessed collateral, which are carried at the lower of the outstanding loan balance or estimated fair value
less estimated costs to sell at the time of acquisition.  Expenses related to holding the property, net of rental income, are generally charged against earnings in the current period.                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Deferred income taxes result from temporary differences between financial and tax reporting.  Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are measured using the statutory tax rates. Deferred tax assets are reduced, if necessary, by the amount of such benefits that are not expected to be realized based upon
available evidence.                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Included in other assets at December 31, 2000 is a deposit premium of approximately $176,601, net of accumulated amortization.  At December 31, 2001, the deposit premium was
fully amortized.  The premium was amortized using the straight-line method over a five year period.                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The Corporation has defined cash equivalents as cash and due from banks and short-term federal funds sold.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The Corporation accounts for earnings per share in accordance with SFAS No. 128.  This statement requires the disclosure of basic and diluted earnings per share and revised
the method required to calculate these amounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Basic earnings per common share is calculated by dividing net income by the sum of the weighted average number of shares of common stock outstanding during each period. 
Diluted earnings per common share is calculated by dividing net income by the sum of the weighted average number of shares of common stock outstanding and the number of net shares of common stock which would be issued assuming the exercise of stock
options during each period using the treasury stock method.                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Basic and diluted earnings per share calculations include the retroactive effect of a 5% stock dividend declared on April 23, 2002 and a 5% stock dividend declared April 24,
2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

11



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NSDBancorp

| | On January 1, 1996, the Corporation adopted SFAS No. 123, Accounting for Stock Based Compensation.  As permitted by SFAS No. 123, the Corporation has chosen to
apply Accounting Pronouncements Bulletin (APB) No. 25, Accounting for Stock Issued to Employees and related interpretations in accounting for its plans.  Accordingly, no compensation cost has been recognized for options granted
under either Plan.  Had compensation expense included stock option plan costs, determined based on the fair value at the grant date for options granted under these plans consistent with SFAS No. 123, proforma net income and earnings per share
would have been as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                           |      | Reported |   | Proforma  | 
|-------------------------- | ---- | -------- | - | --------- | 
|                           |      |          |   |           | 
|Net Income                 |      |          |   |           | 
|                           | 2002 |          | $ | 4,465,602 | 
|                           | 2001 |          |   | 5,205,462 | 
|                           | 2000 |          |   | 4,931,329 | 
|Basic Earnings Per Share   |      |          |   |           | 
|                           | 2002 |          | $ | 1.46      | 
|                           | 2001 |          |   | 1.67      | 
|                           | 2000 |          |   | 1.54      | 
|Diluted Earnings Per Share |      |          |   |           | 
|                           | 2002 |          | $ | 1.43      | 
|                           | 2001 |          |   | 1.66      | 
|                           | 2000 |          |   | 1.53      | 
|                           |      |          |   |           | 



| | For purposes of computing proforma results as if the above plans were accounted for under the fair value method, the Corporation estimated the fair value of stock options using
the Black-Scholes options pricing model with dividends paid every quarter at the current rate at the date of the grant.  The following assumptions were used:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                        |  | 2002     |         | 2001     |  | 2000     |  
|----------------------- |  | -------- | ------- | -------- |  | -------- | -
|                        |  |          |         |          |  |          |  
|                        |  | Employee |         | Director |  | Employee |  
|                        |  |          |         |          |  |          |  
|Risk Free Interest Rate |  |          | 4.83    | %        |  | 4.83     | %
|Volatility              |  |          | 66.72   | %        |  | 66.72    | %
|Expected Lives          |  |          | 7 Years |          |  | 7 Years  |  
|                        |  |          |         |          |  |          |  



| | Loan Fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Loan origination and commitment fees, net of associated direct costs, are deferred and the net amount is amortized as an adjustment to the related loan yield using the interest
method, generally over the contractual life of the related loans or commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Accounting for the Impairment of Long-Lived Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The Corporation reviews long-lived assets, such as premises and equipment and intangibles, for impairment whenever events or changes in circumstances, such as a significant
decrease in the market value of an asset or the extent or manner in which an asset is used, indicate that the carrying amount of an asset may not be recoverable.  If there is an indication that the carrying amount of an asset may not be
recoverable, future discounted cash flows expected to result from the use of the asset are estimated.  If the sum of the expected cash flows is less than the carrying value of the asset, a loss is recognized for the difference between the
carrying value and fair market value of the asset.  There were no long-lived assets that were considered impaired at December 31, 2002.

12



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| | Comprehensive Income Disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | For all periods presented, other comprehensive income (comprehensive income excluding net income) includes only one component, which is the change in unrealized
holding gains and losses on available for sale securities, net of related tax effects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In July 2001, the Financial Accounting Standards Board (the FASB) issued SFAS No. 141, Business Combinations.  SFAS No. 141 requires the purchase
method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. SFAS No. 141 also specifies the types of acquired intangible assets that are required to be recognized and reported
separately from goodwill and those acquired intangible assets that are required to be included in goodwill. Additional provisions of SFAS No. 141 include the reclassification of certain existing recognized intangibles to goodwill and
reclassification of certain intangibles out of previously reported goodwill upon adoption. Implementation of SFAS No. 141 did not have a material impact on the Corporations financial condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which is effective for fiscal years beginning after December 15, 2001. SFAS No. 142
requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives
of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the testing for impairment of existing goodwill and other intangibles. Adoption of SFAS No. 142 did not have a material impact on the
Corporations financial condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which is effective for financial statements issued for
fiscal years beginning after December 15, 2001, including interim periods.  This statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the accounting
and reporting provisions of APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. 
SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances, such as a significant decrease in the market value of an asset or the extent or manner in which an asset is used indicate that the
carrying amount of an asset may not be recoverable.  If there is an indication that the carrying amount of an asset may not be recoverable, future undiscounted cash flows expected to result from the use and disposition of the asset are
estimated.  If the sum of the expected cash flows is less than the carrying value of the asset, a loss is recognized for the difference between the carrying value and the market value of the asset.  This statement also requires measurement
of long-lived assets classified as held for sale at the lower of their carrying amount or fair value less cost to sell and to cease depreciation or amortization on these assets.  Implementation of SFAS No. 144 did not have a material impact on
the Corporations financial condition or results of operations.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which replace Emerging Issues Task Force 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).  SFAS No. 146 addresses the accounting and reporting for one-time employee
termination benefits, certain contract termination costs, and other costs associated with exit or disposal activities such as facility closings or consolidations and employee relocations.  The standard is effective for exit or disposal
activities initiated after December 31, 2002. Implementation of SFAS No. 146 is not expected to have a material impact on the Corporations financial condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions, which is effective for acquisitions that occurred on or after October
1, 2002.  This statement addresses financial accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises, and amends SFAS No. 72, Accounting for
Certain Acquisitions of Banking or Thrift Institutions, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and FASB Interpretation No. 9, Applying                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

13



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NSDBancorp

| | APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution is Acquired in a Business Combination Accounted for by the Purchase Method. 
Implementation of SFAS No. 147 did not have a material impact on the Corporations financial condition or results of oplerations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In November 2002, the FASB issued FASB Interpretation No. (FIN) 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.  FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit and indemnifications.  It also clarifies that at the
time a company issues a guarantee, the company must recognize an initial liability for the fair or market value of the obligations it assumes under that guarantee and must disclose that information in its interim and annual financial
statements.  The provisions related to recognizing a liability at inception of the guarantee for the fair value of the guarantors obligations would not apply to guarantees accounted for as derivatives.  The initial recognition and
measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002.  See Note 12 Commitments, Contingent Liabilities, Guarantees and Financial Instruments with Off-Balance Sheet Risk for the disclosures
currently required under FIN 45. Implementation of FIN 45 is not expected to have a material impact on the Corporations financial condition or results of operations.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransaction and Disclosure.  This statement amends SFAS No. 123, to
provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.  In addition, this statement amends the disclosure requirements of SFAS No. 123 to require
disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  Please see Note 10 Stock Option Plans for additional
information.  Management has not made a determination regarding adoption of SFAS No. 148.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities.  The objective of this interpretation is to provide guidance on how to
identify a variable interest entity (VIE) and determine when the assets, liabilities, noncontrolling interest, and results of operations of a VIE need to be included in a companys consolidated financial statements.  A company that holds
variable interest in an entity will need to consolidate the entity if the companys interest in the VIE is such that the company will absorb a majority of the VIEs expected losses and/or receive a majority of the entitys expected
residual returns, if they occur.  FIN 4 also requires additional disclosures by primary beneficiaries and other significant variable interest holders.  The provisions of this interpretation became effective upon issuance.  The
Corporation is currently assessing the impact, if any, the interpretation will have on results of operations, financial position, or liquidity.                                                                                                                                                                                                                                                                           

14



---

|                                                       | Reclassifications                                                                                                                                                     
|------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                       |                                                                                                                                                                       
|                                                       | For comparative purposes, reclassifications have been made to certain amounts previously reported in the Consolidated Financial Statements.                           
|                                                       |                                                                                                                                                                       
|NOTE 2  SUPPLEMENTAL COMPREHENSIVE INCOME DISCLOSURES
|                                                       |                                                                                                                                                                       
|                                                       | The following table identifies the related tax effects allocated to each component of other comprehensive income in the Statements of Changes in Shareholders
Equity:



|                                                                  |  | December 31, 2002 |           | December 31, 2001 |  
|----------------------------------------------------------------- |  | ----------------- | --------- | ----------------- | -
|                                                                  |  |                   |           |                   |  
|                                                                  |  | Pre-Tax Amount    |           | Tax Expense       |  
|                                                                  |  |                   |           |                   |  
|Unrealized gains on securities:                                   |  |                   |           |                   |  
|Unrealized holding gains arising during the period                |  | $                 | 2,667,393 |                   | $
|Less: reclassification adjustment for gain realized in net income |  |                   | 445,529   |                   |  
|                                                                  |  |                   |           |                   |  
|Net unrealized gains                                              |  |                   | 2,221,864 |                   |  
|                                                                  |  |                   |           |                   |  
|Other Comprehensive Income                                        |  | $                 | 2,221,864 |                   | $
|                                                                  |  |                   |           |                   |  



|                                                                  |  | December 31, 2000 |          
|----------------------------------------------------------------- |  | ----------------- | ---------
|                                                                  |  |                   |          
|                                                                  |  | Pre-Tax Amount    |          
|                                                                  |  |                   |          
|Unrealized gains on securities:                                   |  |                   |          
|Unrealized holding gains arising during the period                |  | $                 | 2,422,658
|Less: reclassification adjustment for gain realized in net income |  |                   | 9,249    
|                                                                  |  |                   |          
|Net unrealized gains                                              |  |                   | 2,413,409
|                                                                  |  |                   |          
|Other Comprehensive Income                                        |  | $                 | 2,413,409
|                                                                  |  |                   |          

NOTE 3  INVESTMENT SECURITIES

| | A summary of investment securities available for sale is as follows:
| | --------------------------------------------------------------------



|                                                |                                                | December 31, 2002 |           
|----------------------------------------------- | ---------------------------------------------- | ----------------- | ----------
|                                                |                                                |                   |           
|                                                |                                                |                   |           
|                                                |                                                |                   |           
|                                                |                                                | Amortized Cost    |           
|                                                |                                                |                   |           
|U.S. Treasury Securities                        |                                                | $                 | 1,633,478 
|Obligations of U.S. Government Agencies         |                                                |                   | 16,963,956
|Mortgage-Backed Securities                      |                                                |                   | 54,077,641
|Obligations of State and Political Subdivisions |                                                |                   | 21,274,317
|Other Bonds                                     |                                                |                   | 25,025,818
|Marketable Equity Securities                    |                                                |                   | 5,502,038 
|                                                |                                                |                   |           
|                                                | Total Investment Securities Available for Sale |                   | $         
|                                                |                                                |                   |           
|                                                |                                                |                   |           
|                                                |                                                | December 31, 2001 |           
|                                                |                                                |                   |           
|                                                |                                                |                   |           
|                                                |                                                |                   |           
|                                                |                                                | Amortized Cost    |           
|                                                |                                                |                   |           
|U.S. Treasury Securities                        |                                                | $                 | 1,658,992 
|Obligations of U.S. Government Agencies         |                                                |                   | 6,553,153 
|Mortgage-Backed Securities                      |                                                |                   | 66,223,953
|Obligations of State and Political Subdivisions |                                                |                   | 14,722,070
|Other Bonds                                     |                                                |                   | 21,181,632
|Marketable Equity Securities                    |                                                |                   | 5,257,938 
|                                                |                                                |                   |           
|                                                | Total Investment Securities Available for Sale |                   | $         
|                                                |                                                |                   |           



| | The amortized cost and estimated market value of the investment portfolio available for sale at December 31, 2002, by contractual maturity, is shown below.  Mortgage-backed
securities are presented in the schedule below at contractual maturity without consideration given to scheduled repayments or accelerated prepayments.  Expected maturities will differ from contractual maturities because borrowers have the right
to call or prepay obligations with or without call or prepayment penalties.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15



---

NSDBancorp

| | The contractual maturity of the investment portfolio available for sale is as follows:
| | --------------------------------------------------------------------------------------



|                                   |  | December 31, 2002 |            
|---------------------------------- |  | ----------------- | -----------
|                                   |  |                   |            
|                                   |  | Amortized Cost    |            
|                                   |  |                   |            
|Within one year                    |  | $                 | 15,000     
|After one year, within five years  |  |                   | 1,917,729  
|After five years, within ten years |  |                   | 37,220,078 
|After ten years                    |  |                   | 85,324,441 
|                                   |  |                   |            
|                                   |  | $                 | 124,477,248
|                                   |  |                   |            



|               | The fair value of securities is based on quoted market prices or bid quotations received from securities dealers.  Proceeds from the sale of available for sale securities
during 2002, 2001 and 2000 were $22,309,248, $24,465,453 and $6,822,727, respectively.  Gross gains of $581,057, $251,724 and $20,706 and gross losses of $135,484, $46,300 and $12,223 were realized on sales of available for sale securities in
2002, 2001 and 2000, respectively.  Gross gains of $819 in 2000 and gross losses of $44 and $53 in 2002 and 2000, respectively, were realized on calls of investment securities.  There were no gross gains realized on calls of investment
securities during 2002 and 2001, and there were no gross losses realized on calls of investment securities during 2001.  Investment securities with a total par value of $2,536,620 and $7,088,234 at December 31, 2002 and 2001, respectively, were
pledged as collateral for public and trust funds and long-term borrowings.
|-------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|               | As a member of the Federal Home Loan Bank of Pittsburgh (FHLB), the Corporation is required to maintain a minimum investment in FHLB stock.  The minimum amount is
calculated based on the level of assets, residential real estate loans and outstanding FHLB advances.  At December 31, 2002 and 2001, the Corporation held $4,974,100 and $4,700,000, respectively, of FHLB stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|NOTE 4  Loans
|               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|               | Loans are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



|                                       |                                   | December 31, |            
|-------------------------------------- | --------------------------------- | ------------ | -----------
|                                       |                                   |              |            
|                                       |                                   | 2002         |            
|                                       |                                   |              |            
|Consumer Loans to Individuals          |                                   | $            | 147,834,041
|Mortgage                               |                                   |              |            
|                                       | Nonresidential                    |              |            
|                                       | Residential                       |              |            
|Commercial, Financial and Agricultural |                                   |              | 36,986,968 
|Lines of Credit                        |                                   |              | 7,680,211  
|Lease Financing                        |                                   |              | 10,850,490 
|Nonaccrual Loans                       |                                   |              | 889,842    
|                                       |                                   |              |            
|Total Loans                            |                                   |              | 335,201,231
|Deferred Fees                          |                                   |              | (392,070   
|                                       |                                   |              |            
|                                       | Total Loans, Net of Deferred Fees |              | $          
|                                       |                                   |              |            



| | At December 31, 2002 and 2001, the Corporation had $1,171,436 and $1,150,634, respectively, in loans which were 90 days or more past due, but were still accruing interest. 
If interest on loans classified as nonaccrual had been recognized, such income would have approximated $93,200, $42,653 and $51,058 for the years ended 2002, 2001 and 2000, respectively.  The Corporation did not record interest on any
nonaccrual loans during 2002, 2001 or 2000.                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The Corporation collectively reviews leases and consumer loans under $50,000 and residential real estate and commercial real estate loans under $250,000.  The Corporation
had no recorded investment in loans for which impairment has been recognized in accordance with SFAS No. 114 as of December 31, 2002 or 2001.  There were no loans considered impaired and, consequently, no recorded investment in impaired loans
at any time during 2002 or 2001.  The Corporation did not recognize any interest on impaired loans during 2002 or 2001.

16



---

NOTE 5  RESERVE FOR LOAN LOSSES, UNFUNDED LOAN COMMITMENTS AND LETTERS OF CREDIT

| | The following is a summary of activity in the reserve for loan losses encompassing both reserves attributable to loans held for investment and also loans held for
sale:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                  |  | December 31, |          
|------------------------------------------------- |  | ------------ | ---------
|                                                  |  |              |          
|                                                  |  | 2002         |          
|                                                  |  |              |          
|Balance at Beginning of Year                      |  | $            | 4,139,476
|Provision for Loan Losses                         |  |              | 960,000  
|Losses Charged Against Reserve                    |  |              | (902,025 
|Recoveries on Loans Previously Charged-Off        |  |              | 93,656   
|Transfer to Reserve for Unfunded Loan Commitments |  |              | (78,882  
|                                                  |  |              |          
|Balance at End of Year                            |  |              | 4,212,225
|                                                  |  |              |          
|Reserve for Loan Losses to Total Loans, net       |  |              | 1.26     



| | The following is a summary of changes in the reserve for unfunded loan commitments and letters of credit:
| | ---------------------------------------------------------------------------------------------------------



|                                               |  | 2002 |       
|---------------------------------------------- |  | ---- | ------
|                                               |  |      |       
|Reserve at January 1                           |  | $    | 0     
|Net Change in Reserve for Unfunded Commitments |  |      | 78,882
|                                               |  |      |       
|Reserve at December 31                         |  | $    | 78,882
|                                               |  |      |       

NOTE 6  PREMISES AND EQUIPMENT

| | Premises and equipment, at cost, consist of the following:
| | ----------------------------------------------------------



|                            |  | December 31, |           
|--------------------------- |  | ------------ | ----------
|                            |  |              |           
|                            |  | 2002         |           
|                            |  |              |           
|Land                        |  | $            | 472,801   
|Buildings                   |  |              | 1,943,873 
|Equipment                   |  |              | 3,908,773 
|Leasehold Improvements      |  |              | 2,155,501 
|                            |  |              |           
|                            |  |              | 8,480,948 
|Accumulated Depreciation    |  |              | (4,866,820
|                            |  |              |           
|Premises and Equipment, Net |  | $            | 3,614,128 
|                            |  |              |           



| | There were no significant gains or losses on disposals of premises and equipment during 2002 or 2001. Depreciation expense, principally calculated using a straight-line method,
was $571,089, $503,118 and $528,116 in 2002, 2001 and 2000, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 7  MATERIAL CONTRACTS

| | The Corporation leases certain offices under various operating leases. These leases contain various renewal option periods extending through May 2012. Certain leases require
adjustment of the rent based on cost escalations. The following is a summary of the future minimum lease payments under these operating leases:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For the Year Ending December 31, |                   |   |           |        
|-------------------------------- | ----------------- | - | --------- | -------
|                                 |                   |   |           |        
|                                 | 2003              |   | $         | 368,563
|                                 | 2004              |   |           | 344,480
|                                 | 2005              |   |           | 207,221
|                                 | 2006              |   |           | 132,845
|                                 | 2007 through 2012 |   |           | 201,717
|                                 |                   |   |           |        
|                                 |                   | $ | 1,254,826 |        
|                                 |                   |   |           |        

17



---

NSDBancorp

| | Rental expense under all operating leases was $406,618, $351,611 and $304,652 for the years ended December 31, 2002, 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | During 2002, the Corporation entered into a six 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 $347,412 through December 2008.

NOTE 8  INCOME TAXES

| | The provision for income taxes is comprised of the following:
| | -------------------------------------------------------------



|         |         | For the Years Ended December 31, |          
|-------- | ------- | -------------------------------- | ---------
|         |         |                                  |          
|         |         | 2002                             |          
|         |         |                                  |          
|Current  |         |                                  |          
|         | Federal |                                  | $        
|         | State   |                                  |          
|Deferred |         |                                  | 137,194  
|         |         |                                  |          
|         |         | $                                | 1,689,377
|         |         |                                  |          



| | Reconciliations of the federal statutory and effective tax rates are as follows:
| | --------------------------------------------------------------------------------



|                            |  | For the Years Ended December 31, |          
|--------------------------- |  | -------------------------------- | ---------
|                            |  |                                  |          
|                            |  | 2002                             |          
|                            |  |                                  |          
|                            |  | Amount                           |          
|                            |  |                                  |          
|Federal Statutory Tax Rate  |  | $                                | 2,094,105
|Tax-exempt Interest Income  |  |                                  | (279,874 
|Interest Expense Disallowed |  |                                  | 34,585   
|State Income Taxes          |  |                                  | 22,525   
|Bank-Owned Life Insurance   |  |                                  | (125,579 
|Other, Net                  |  |                                  | (56,385  
|                            |  |                                  |          
|                            |  | $                                | 1,689,377
|                            |  |                                  |          



| | The tax effects of deductible and taxable differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities, respectively, are as
follows:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                          |                                                               | December 31, |  
|------------------------- | ------------------------------------------------------------- | ------------ | -
|                          |                                                               |              |  
|                          |                                                               | 2002         |  
|                          |                                                               |              |  
|Deferred Tax Assets:      |                                                               |              |  
|                          | Provision for Loan Losses                                     |              | $
|                          | Loan Origination Fees/Costs                                   |              |  
|                          | Other                                                         |              |  
|                          |                                                               |              |  
|                          | Gross Deferred Tax Assets                                     |              |  
|Deferred Tax Liabilities: |                                                               |              |  
|                          | Net Unrealized Holding Gains on Securities Available for Sale |              |  
|                          | Bond Discount Accretion                                       |              |  
|                          | Depreciation                                                  |              |  
|                          |                                                               |              |  
|                          | Gross Deferred Tax Liabilities                                |              |  
|                          |                                                               |              |  
|                          | Net Deferred Tax Assets (Liabilities)                         |              | $
|                          |                                                               |              |  
|                          |                                                               |              |  



| | Net deferred tax assets are classified as other assets and net deferred tax liabilities are classified as other liabilities on the Consolidated Balance Sheets.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



18



---

NOTE 9  EMPLOYEE BENEFITS

| | 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 $134,100 in 2002, $156,300 in 2001 and $150,000 in 2000. During 2002, 2001 and 2000, respectively, the Corporation expensed $76,602, $80,229 and $66,664 related to 401(k) plan matching contributions.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                   
| | Profit sharing assets are primarily invested in mutual funds which are selected at the discretion of the employee.  The plan was also invested in 8,428 shares of NSD
Bancorp, Inc. common stock with a market value of $219,128 at December 31, 2002.  Total cash dividends received from plan investments in common stock of the Corporation were $6,766 in 2002.                               

NOTE 10  STOCK OPTION PLANS

| | The Corporation has two fixed option plans.  Under the 1994 Employee Stock Option Plan, the Corporation may grant options to its employees for up to 246,386 shares of common
stock.  Under the 1994 Non-employee Director Stock Option Plan, the Corporation may grant options to its non-employee directors for up to 82,129 shares of common stock.  Under both plans, the exercise price of each option is equal to the
fair market price of the Corporations stock on the date of grant with each option having a maximum term of 10 years.  The total shares reserved for issuance, options granted and the option exercise price per share have been adjusted for
the five percent stock dividend declared April 23, 2002 for holders of record on May 1, 2002, the five percent stock dividend declared April 24, 2001 for holders of record on May 1, 2001 and the five percent stock dividend declared April 25, 2000
for holders of record on May 1, 2000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | A summary of the status of the Corporations two fixed stock option plans as of December 31, 2002, 2001 and 2000 and changes during the years ending on those dates is
presented below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



|                                                               |  | 2002   |         | 2001                             |   | 2000   | 
|-------------------------------------------------------------- |  | ------ | ------- | -------------------------------- | - | ------ | 
|                                                               |  |        |         |                                  |   |        | 
|Fixed Options                                                  |  | Shares |         | Weighted- Average Exercise Price |   | Shares | 
|                                                               |  |        |         |                                  |   |        | 
|Outstanding at Beginning of Year                               |  |        | 173,845 |                                  | $ | 15.94  | 
|Granted                                                        |  |        | 33,071  |                                  |   | 20.95  | 
|Exercised                                                      |  |        | 17,709  |                                  |   | 13.10  | 
|Forfeited                                                      |  |        | 2,208   |                                  |   | 20.68  | 
|                                                               |  |        |         |                                  |   |        | 
|Outstanding at End of Year                                     |  |        | 186,999 |                                  | $ | 17.04  | 
|Options Exercisable at Year-end                                |  |        | 186,999 |                                  |   |        | 
|Weighted-Average Fair Value of Options Granted During the Year |  |        |         |                                  | $ | 14.22  | 
|                                                               |  |        |         |                                  |   |        | 



| | The following table summarizes information about fixed stock options outstanding at December 31, 2002:
| | ------------------------------------------------------------------------------------------------------



|Options Outstanding and Exercisable |      
|----------------------------------- | -----
|                                    |      
|Range of Exercise Prices            |      
|                                    |      
|$                                   | 10.81
|                                    | 13.53
|                                    | 19.16
|                                    | 27.26
|                                    |      
|$                                   | 10.81
|                                    |      
|                                    |      

19



---

NSDBancorp

NOTE 11  TRANSACTIONS WITH RELATED PARTIES

| | In the ordinary course of business, the Corporation has transactions, including loans, with the Corporations employees, principal officers and directors and their related
interests.  Approximately 90% of related party loans are with three Board members.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                               
| | A summary of loan activity for directors, executive officers and their associates with loan balances in excess of $60,000 is as follows:                                                                                                                      



|                     |  | 2002 |            | 2001 |  
|-------------------- |  | ---- | ---------- | ---- | -
|                     |  |      |            |      |  
|Balance, January 1   |  | $    | 9,313,242  |      | $
|New Loans            |  |      | 1,720,033  |      |  
|Repayments           |  |      | (2,346,432 | )    |  
|                     |  |      |            |      |  
|Balance, December 31 |  | $    | 8,686,843  |      | $
|                     |  |      |            |      |  



|NOTE 12  | COMMITMENTS, CONTINGENT LIABILITIES, GUARANTEES AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|          | The Corporation incurs off-balance sheet risk in the normal course of business in order to meet financing needs of its customers.  These financial instruments
include commitments to extend credit and standby letters of credit which involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                 
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|          | At December 31, 2002, there are various outstanding commitments to extend credit of approximately $36,538,933 and standby letters of credit of approximately
$850,071.  The majority of standby letters of credit expire within the next fifteen months.  Commitments to extend credit are commitments to lend to a customer as long as there is no violation of any condition established in the loan
agreement.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.  The Corporation evaluates each customers creditworthiness on a case-by-case basis.
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|          | Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party.  Those guarantees
are primarily issued to support public and private borrowing arrangements within normal business activities.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. 
The Corporation requires collateral supporting those commitments as deemed necessary. Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future
payments required under the corresponding guarantees.                                                                       
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|          | The Corporations exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those instruments.  The Corporation uses the same credit and collateral policies in making commitments and conditional obligations as for all other lending.  Collateral
for these types of commitments is similar to collateral obtained on other commercial loans.                                                                                                                                                                                                                                                                                     
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|          | Additionally, the Corporation is subject to certain asserted and unasserted potential claims encountered in the normal course of business.  In the opinion of
management, neither the resolution of these claims nor the funding of those credit commitments will have a material adverse effect on the Corporations consolidated financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                 
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|          | Indemnifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|          | In the ordinary course of business, the Corporation enters into contracts with third parties pursuant to which the third parties provide services on behalf of the
Corporation. In many of these contracts, the Corporation agrees to indemnify the third party service provider under certain circumstances.  The terms of the indemnity vary from contract to contract and it is not possible to quantify the
aggregate exposure to the Corporation resulting from these indemnification provisions.                                                                                                                                                                                                                                                                                      
|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

20



---

| | Pursuant to its bylaws, the Corporation provides indemnification to its directors and officers against certain liabilities incurred as a result of their services on behalf of
the Corporation.  In connection with this indemnification obligation, the Corporation advances on behalf of covered individuals costs incurred in defending against certain claims subject to written undertakings by the individual to repay all
amounts so advanced if it is ultimately determined that the individual is not entitled to indemnification.  There were no such advances during 2002 as there were no pending litigation or investigations during the year.  It is not possible
to determine the aggregate potential exposure to the Corporation resulting from its obligation to provide this indemnity or to advance such costs.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE
13  CONCENTRATIONS OF CREDIT

| | The Corporation grants commercial, residential and consumer loans primarily to customers in the Western Pennsylvania area.  The Corporation has a diversified loan portfolio
which is not dependent upon any particular economic sector.  Substantially all of the Corporations investments in municipal securities are obligations of state or political subdivisions located within Pennsylvania.  As a whole, the
Corporations loan and investment portfolios could be affected by the general economic conditions of Pennsylvania.  In addition, at December 31, 2002, a significant portion of the Corporations cash and due from banks and
federal funds sold is maintained with a large financial institution located in southwestern Pennsylvania.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 14  FAIR VALUE OF FINANCIAL
INSTRUMENTS

| | The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that value:                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Cash and Federal Funds Sold                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | For those short-term instruments, the carrying amount is a reasonable estimate of fair value.                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Investment Securities                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The estimated fair value of securities and marketable equity securities is based on quoted market prices or dealer quotes.  If a quoted market price is not available, fair
value is estimated using quoted market prices for similar securities.                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Loan Receivables                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Fair values were estimated for loan portfolios with similar financial characteristics by discounting contractual cash flows considering prepayments, credit risk, overhead and
other factors.                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Assumptions regarding credit risk, cash flows and discount rates were judgmentally determined using available market and internal information which management believes to be
reasonable.  However, because there are no active markets for many loan types, the Corporation has no basis to determine whether the estimated fair value presented would be indicative of the value negotiated in an actual sale.
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Loans Held for Sale                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Loans available for sale are carried at the lower of cost or market value obtained through secondary market bid quotations, net of any reserve for loan losses.  Therefore,
the carrying amount is a reasonable estimate of fair value.                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Other Earning Assets                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Other earning assets are comprised primarily of Bank-Owned Life Insurance and outstanding Cashflow Maximizer receivables purchased.  Bank-Owned Life Insurance fair value is
based on the cash surrender value of premiums.  Due to the short-term nature of Cashflow Maximizer receivables, the carrying amount is a reasonable estimate of fair value.                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Deposit Liabilities                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                 
| | The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand as of December 31, 2002.  The fair value of the
fixed-maturity certificates of deposit is estimated using the                                                                                                                                                                             

21



---

NSD Bancorp

| | rates currently offered as of December 31, 2002 for deposits of similar maturities.  Fair value estimates do not include the value of depositor relationships or the value of
the low-cost funding provided by deposits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Federal Home Loan Bank Borrowings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The fair value is estimated using the rates currently offered for borrowings with similar terms and remaining maturities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The fair value of commitments is estimated using fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of guarantees and letters of
credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.  The fair value estimate also considers the allowance
for unfunded commitments and letters of credit. The fair value of commitments, guarantees and letters of credit is insignificant after considering the aforementioned factors.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | The carrying amount represents accruals or deferred fees arising from the unrecognized financial instrument.  The carrying amount to determine the creditworthiness of the
counter parties includes the established allowance for unfunded commitments and letters of credit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



22



---

| | The estimated fair values of the Corporations financial instruments are as follows (in thousands):
| | ---------------------------------------------------------------------------------------------------



|                                                                  |                                        | December 31,    |        
|----------------------------------------------------------------- | -------------------------------------- | --------------- | -------
|                                                                  |                                        |                 |        
|                                                                  |                                        | 2002            |        
|                                                                  |                                        |                 |        
|                                                                  |                                        | Carrying Amount |        
|                                                                  |                                        |                 |        
|Financial Assets:                                                 |                                        |                 |        
|                                                                  | Cash and Federal Funds Sold            |                 | $      
|                                                                  | Investment Securities                  |                 |        
|                                                                  | Loans                                  |                 |        
|                                                                  | Less: Reserve for Loan Losses          |                 |        
|                                                                  | Less: Reserve for Unfunded Commitments |                 |        
|                                                                  | Loans Held for Sale, Net               |                 |        
|                                                                  | Other Earning Assets                   |                 |        
|                                                                  |                                        |                 |        
|                                                                  |                                        | $               | 495,617
|                                                                  |                                        |                 |        
|Financial Liabilities:                                            |                                        |                 |        
|                                                                  | Deposits                               |                 | $      
|                                                                  | Federal Home Loan Bank Borrowings      |                 |        
|                                                                  |                                        |                 |        
|                                                                  |                                        | $               | 463,199
|                                                                  |                                        |                 |        
|Off-Balance Sheet Financial Instruments:                          |                                        |                 |        
|Commitments to Extend Credit, Including Standby Letters of Credit |                                        | $               | 37,389 
|                                                                  |                                        |                 |        
|                                                                  |                                        |                 |        

NOTE 15  REGULATORY RESTRICTIONS

| | The Corporation and the Bank are subject to the regulations of certain federal and state agencies and undergo periodic examinations by such regulatory authorities.  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 Banks financial
statements.  Neither the Corporation nor the Bank are subject to written regulatory agreements.                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Under capital adequacy regulatory guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital requirements taking into
consideration quantitative measures of assets, liabilities and certain off-balance sheet items.  Such measures are subject to qualitative judgments by the regulators with regard to composition, risk weightings and other factors.                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Minimum regulatory risk-based capital ratios for tier I, total capital and leverage are 4%, 8% and 4%, respectively.  Failure to meet minimum capital requirements can
initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on both the Corporation and the Bank financial statements.  Management believes, as of December 31,
2002, that the Corporation and the Bank meet all capital adequacy requirements to which it is subject.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | The Bank is considered to be well capitalized under the regulatory framework for prompt corrective action.  To be considered well capitalized, an institution must maintain
risk-based capital ratios for tier I, total capital and leverage ratios of at least 6%, 10% and 5%, respectively.                                                                                                                                                                                                                                    

23



---

NSDBancorp

| | The following represents tier I, total risk-based capital and leverage ratios for the Corporation and its subsidiary, NorthSide Bank, as of December 31, 2002 and
2001:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                         |                                          | Actual |   | For Capital Adequacy Purposes |  | To Be Well Capitalized Under Prompt Corrective Action Provisions |      
|------------------------ | ---------------------------------------- | ------ | - | ----------------------------- |  | ---------------------------------------------------------------- | -----
|                         |                                          |        |   |                               |  |                                                                  |      
|                         |                                          | Amount |   | Ratio                         |  | Amount                                                           |      
|                         |                                          |        |   |                               |  |                                                                  |      
|AS OF DECEMBER 31, 2002: |                                          |        |   |                               |  |                                                                  |      
|                         | NSD Bancorp, Inc.                        |        |   |                               |  |                                                                  |      
|                         | Total Capital (to Risk Weighted Assets)  |        | $ | 41,402,390                    |  |                                                                  | 10.78
|                         | Tier I Capital (to Risk Weighted Assets) |        |   | 36,365,134                    |  |                                                                  | 9.47 
|                         | Tier I Capital (to Average Assets)       |        |   | 36,365,134                    |  |                                                                  | 7.47 
|                         | NorthSide Bank                           |        |   |                               |  |                                                                  |      
|                         | Total Capital (to Risk Weighted Assets)  |        |   | 43,101,919                    |  |                                                                  | 11.17
|                         | Tier I Capital (to Risk Weighted Assets) |        |   | 38,796,828                    |  |                                                                  | 10.06
|                         | Tier I Capital (to Average Assets)       |        |   | 38,796,828                    |  |                                                                  | 7.94 
|AS OF DECEMBER 31, 2001: |                                          |        |   |                               |  |                                                                  |      
|                         | NSD Bancorp, Inc.                        |        |   |                               |  |                                                                  |      
|                         | Total Capital (to Risk Weighted Assets)  |        | $ | 40,714,364                    |  |                                                                  | 11.52
|                         | Tier I Capital (to Risk Weighted Assets) |        |   | 35,682,461                    |  |                                                                  | 10.09
|                         | Tier I Capital (to Average Assets)       |        |   | 35,682,461                    |  |                                                                  | 7.89 
|                         | NorthSide Bank                           |        |   |                               |  |                                                                  |      
|                         | Total Capital (to Risk Weighted Assets)  |        |   | 41,366,995                    |  |                                                                  | 11.68
|                         | Tier I Capital (to Risk Weighted Assets) |        |   | 37,093,613                    |  |                                                                  | 10.47
|                         | Tier I Capital (to Average Assets)       |        |   | 37,093,613                    |  |                                                                  | 8.18 
|                         |                                          |        |   |                               |  |                                                                  |      



| | Under regulations of the Federal Reserve, the Bank is required to maintain certain average reserve balances, which include both cash on hand, and deposits with the Federal
Reserve.  These deposits are included in cash and due from banks in the accompanying consolidated balance sheet.  At December 31, 2002, the Corporation was required to maintain $493,000 of such balances.                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Dividends and loans to the Corporation from NorthSide Bank are subject to regulatory limitations.  Dividends are limited to retained earnings of NorthSide Bank.  Loans
must be collateralized by specific obligations and cannot exceed 10% of NorthSide Banks capital.  The maximum amount available to the Corporation at December 31, 2002 from NorthSide Bank in the form of dividends and loans, individually,
was approximately $33.9 million and $4.0 million, respectively.

NOTE 16  STOCK DIVIDENDS AND STOCK SPLITS

| | On April 23, 2002, the Corporations Board of Directors declared a 5% stock dividend payable on May 31, 2002 to shareholders of record at May 1, 2002.                                            
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                   
| | On April 24, 2001, the Corporations Board of Directors declared a 5% stock dividend payable on May 31, 2001 to shareholders of record at May 1, 2001.                                            
| |                                                                                                                                                                                                   
| | On April 25, 2000, the Corporations Board of Directors declared a 5% stock dividend payable on May 31, 2000 to shareholders of record at May 1, 2000.                                            
| |                                                                                                                                                                                                   
| | Earnings per share and dividends per share amounts appearing in these consolidated financial statements have been restated to reflect all of the above described stock dividends
and stock splits.

NOTE 17  TREASURY STOCK

| | In September of 1998, the Corporations Board of Directors authorized the repurchase of up to 4.9% of the outstanding common stock of the Corporation, to be made available
for issuance pursuant to stock option plans and for general corporate purposes.  During 2000, the Corporation completed the repurchase of 4.9% of shares outstanding.  In September of 2000, the Corporations Board of Directors
authorized the repurchase of up to an additional 4.9% of the outstanding common stock of the Corporation.  In October of 2002, the Corporations Board
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24



---

| | of Directors authorized the repurchase of up to an additional 4.9% of the outstanding common stock of the Corporation.  As of December 31,2002, total treasury stock
repurchased represented 9.7% of shares outstanding.  There were 69,822 and 68,029 shares repurchased during 2002 and 2001, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 18  BORROWED
FUNDS

| | Borrowed funds at December 31, 2002 and 2001 were as follows:
| | -------------------------------------------------------------



|                 |      | 2002    |            | 2001                  | 
|---------------- | ---- | ------- | ---------- | --------------------- | 
|                 |      |         |            |                       | 
|                 |      | Balance |            | Weighted Average Rate | 
|                 |      |         |            |                       | 
|Advances Due In: | 2004 |         | $          | 5,000,000             | 
|                 | 2008 |         |            | 4,000,000             | 
|                 | 2009 |         |            | 10,000,000            | 
|                 | 2010 |         |            | 68,000,000            | 
|                 | 2011 |         |            | 7,000,000             | 
|                 |      |         |            |                       | 
|Total            |      | $       | 94,000,000 |                       | 
|                 |      |         |            |                       | 



| | Advances from the Federal Home Loan Bank (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, 2002, the Corporation had approximately $54.8 million in available credit under its collateralized borrowing agreement with the Federal Home Loan
Bank.                                                                                                                                                                                     

NOTE 19  CONDENSED FINANCIAL INFORMATION OF NSD BANCORP, INC. (PARENT COMPANY ONLY)

| | Balance Sheets
| | --------------



|            |                                                                                                                                   | December 31, |  
|----------- | --------------------------------------------------------------------------------------------------------------------------------- | ------------ | -
|            |                                                                                                                                   |              |  
|            |                                                                                                                                   | 2002         |  
|            |                                                                                                                                   |              |  
|ASSETS      |                                                                                                                                   |              |  
|            | Cash                                                                                                                              |              | $
|            | Securities Available for Sale at Market Value (Amortized Cost of $441,383 at December 31, 2002 and
$471,333 at December 31, 2001) |              |  
|            | Investment in Bank Subsidiary                                                                                                     |              |  
|            | Other Assets                                                                                                                      |              |  
|            |                                                                                                                                   |              |  
|            | Total Assets                                                                                                                      |              | $
|            |                                                                                                                                   |              |  
|LIABILITIES |                                                                                                                                   |              |  
|            | Accounts Payable                                                                                                                  |              | $
|            | Loan Payable                                                                                                                      |              |  
|            | Deferred Tax Liability                                                                                                            |              |  
|            | Other Liabilities                                                                                                                 |              |  
|            |                                                                                                                                   |              |  
|            | Total Liabilities                                                                                                                 |              |  
|            | Shareholders Equity                                                                                                              |              |  
|            |                                                                                                                                   |              |  
|            | Total Liabilities and Shareholders Equity                                                                                        |              | $
|            |                                                                                                                                   |              |  
|            |                                                                                                                                   |              |  

25



---

NSD Bancorp

| | Statements of Income
| | --------------------



|                                                                              |            | For the Years Ended December 31, |          
|----------------------------------------------------------------------------- | ---------- | -------------------------------- | ---------
|                                                                              |            |                                  |          
|                                                                              |            | 2002                             |          
|                                                                              |            |                                  |          
|Cash Dividends from Bank Subsidiary                                           |            | $                                | 2,452,661
|Dividends from Securities Available for Sale                                  |            |                                  | 77,853   
|Net Investment Securities Gains                                               |            |                                  | 393,000  
|Other Income                                                                  |            |                                  | 60       
|Other Expenses                                                                |            |                                  | 107,759  
|                                                                              |            |                                  |          
|Income Before Taxes and Equity in Undistributed Net Income of Bank Subsidiary |            |                                  | 2,815,815
|Provision for Income Taxes                                                    |            |                                  | 32,967   
|                                                                              |            |                                  |          
|Income Before Equity in Undistributed Net Income of Bank Subsidiary           |            |                                  | 2,782,848
|Equity in Undistributed Net Income of Bank Subsidiary                         |            |                                  | 1,682,754
|                                                                              |            |                                  |          
|                                                                              | Net Income |                                  | $        
|                                                                              |            |                                  |          



| | Statements of Cash Flows
| | ------------------------



|                                                               |                                                  | For the Years Ended December 31, |           
|-------------------------------------------------------------- | ------------------------------------------------ | -------------------------------- | ----------
|                                                               |                                                  |                                  |           
|                                                               |                                                  | 2002                             |           
|                                                               |                                                  |                                  |           
|CASH FLOWS FROM OPERATING ACTIVITIES                           |                                                  |                                  |           
|Net Income                                                     |                                                  | $                                | 4,465,602 
|Adjustments to Net Income:                                     |                                                  |                                  |           
|                                                               | Equity in Undistributed Net Income of Subsidiary |                                  |           
|                                                               | Decrease (Increase) in Other Assets              |                                  |           
|                                                               | Gains on Investment Securities                   |                                  |           
|                                                               | Increase (Decrease) in Other Liabilities         |                                  |           
|                                                               |                                                  |                                  |           
|                                                               | Net Cash Provided by Operating Activities        |                                  |           
|                                                               |                                                  |                                  |           
|CASH FLOWS PROVIDED BY INVESTING ACTIVITIES                    |                                                  |                                  |           
|Purchases of Investment Securities Available for Sale          |                                                  |                                  |          
|Proceeds from Sale of Investment Securities Available for Sale |                                                  |                                  | 423,000   
|                                                               | Net Cash Provided (Used) by Investing Activities |                                  |           
|CASH FLOWS FROM FINANCING ACTIVITIES                           |                                                  |                                  |           
|Proceeds from Short-Term Borrowings                            |                                                  |                                  |          
|Proceeds from the Issuance of Common Stock                     |                                                  |                                  | 236,760   
|Cash Dividends Paid                                            |                                                  |                                  | (2,452,661
|Treasury Stock Purchased                                       |                                                  |                                  | (1,562,617
|Cash Dividends Paid in Lieu of Fractional Shares               |                                                  |                                  | (4,411    
|                                                               |                                                  |                                  |           
|                                                               | Net Cash Used by Financing Activities            |                                  |           
|                                                               |                                                  |                                  |           
|Net (Decrease) Increase in Cash                                |                                                  |                                  | (44,143   
|Cash at Beginning of Year                                      |                                                  |                                  | 78,807    
|                                                               |                                                  |                                  |           
|                                                               | Cash at End of Year                              |                                  | $         
|                                                               |                                                  |                                  |           
|                                                               |                                                  |                                  |           

26



---

NOTE 20  EARNINGS PER SHARE

| | Income and shares in thousands:
| | -------------------------------



|                              |                                  | For the Years Ended December 31, |  
|----------------------------- | -------------------------------- | -------------------------------- | -
|                              |                                  |                                  |  
|                              |                                  | 2002                             |  
|                              |                                  |                                  |  
|                              |                                  | Income                           |  
|                              |                                  |                                  |  
|Basic earnings per share:     |                                  |                                  |  
|                              | Income available to shareholders |                                  | $
|Effect of dilutive securites: |                                  |                                  |  
|                              | Stock options                    |                                  |  
|                              |                                  |                                  |  
|Diluted earnings per share:   |                                  |                                  |  
|                              | Income Available to shareholders |                                  | $
|                              |                                  |                                  |  



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | (1) Adjusted for a 5% stock dividend declared April 24, 2002 and a 5% stock dividend declared April 24, 2001.

27



---

NSDBancorp

NOTE 21  QUARTERLY EARNINGS SUMMARY (UNAUDITED)

| | Quarterly earnings for the years ended December 31, 2002 and 2001 are as follows (in thousands):
| | ------------------------------------------------------------------------------------------------



|                                                    |  | 2002     |          
|--------------------------------------------------- |  | -------- | ---------
|                                                    |  |          |          
|                                                    |  | March 31 |          
|                                                    |  |          |          
|Interest Income                                     |  | $        | 7,667    
|Interest Expense                                    |  |          | 3,532    
|                                                    |  |          |          
|Net Interest Income                                 |  |          | 4,135    
|Provision for Loan Losses                           |  |          | 240      
|                                                    |  |          |          
|Net Interest Income After Provision for Loan Losses |  |          | 3,895    
|Other Income                                        |  |          | 656      
|Other Expenses                                      |  |          | 2,636    
|                                                    |  |          |          
|Income Before Taxes                                 |  |          | 1,915    
|Income Taxes                                        |  |          | 585      
|                                                    |  |          |          
|Net Income                                          |  | $        | 1,330    
|                                                    |  |          |          
|Per Share: (1)                                      |  |          |          
|Net Income (Basic)                                  |  | $        | 0.43     
|Dividends                                           |  | $        | 0.19     
|Weighted Average Shares Outstanding (Basic)         |  |          | 3,082,487
|                                                    |  |          |          



|                                                    |  | 2001     |          
|--------------------------------------------------- |  | -------- | ---------
|                                                    |  |          |          
|                                                    |  | March 31 |          
|                                                    |  |          |          
|Interest Income                                     |  | $        | 7,964    
|Interest Expense                                    |  |          | 4,031    
|                                                    |  |          |          
|Net Interest Income                                 |  |          | 3,933    
|Provision for Loan Losses                           |  |          | 225      
|                                                    |  |          |          
|Net Interest Income After Provision for Loan Losses |  |          | 3,708    
|Other Income                                        |  |          | 698      
|Other Expenses                                      |  |          | 2,549    
|                                                    |  |          |          
|Income Before Taxes                                 |  |          | 1,857    
|Income Taxes                                        |  |          | 622      
|                                                    |  |          |          
|Net Income                                          |  | $        | 1,235    
|                                                    |  |          |          
|Per Share: (1)                                      |  |          |          
|Net Income (Basic)                                  |  | $        | 0.39     
|Dividends                                           |  | $        | 0.17     
|Weighted Average Shares Outstanding (Basic)         |  |          | 3,145,776
|                                                    |  |          |          



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | (1) Adjusted for a 5% stock dividend declared April 23, 2002 and a 5% stock dividend declared April 24, 2001.

28



---

Comparative Financial Data

|                                                  |  | For the Years Ended December 31, |            
|------------------------------------------------- |  | -------------------------------- | -----------
|                                                  |  |                                  |            
|                                                  |  | 2002                             |            
|                                                  |  |                                  |            
|EARNINGS                                          |  |                                  |            
|Interest Income                                   |  | $                                | 30,803,431 
|Interest Expense                                  |  |                                  | 14,083,301 
|                                                  |  |                                  |            
|Net Interest Income                               |  |                                  | 16,720,130 
|Provision for Loan Losses                         |  |                                  | 960,000    
|Other Income                                      |  |                                  | 3,492,497  
|Other Expense                                     |  |                                  | 13,133,025 
|                                                  |  |                                  |            
|Income Before Taxes                               |  |                                  | 6,119,602  
|Income Taxes                                      |  |                                  | 1,654,000  
|                                                  |  |                                  |            
|Net Income                                        |  | $                                | 4,465,602  
|                                                  |  |                                  |            
|YEAR END BALANCES                                 |  |                                  |            
|Assets                                            |  | $                                | 510,448,272
|Loans                                             |  |                                  | 333,491,878
|Investment Securities                             |  |                                  | 128,200,176
|Deposits                                          |  |                                  | 369,199,144
|Repurchase Agreements and Federal Funds Purchased |  |                                  |           
|FHLB Advances and Other Borrowings                |  |                                  | 94,000,000 
|Shareholders Equity                              |  |                                  | 38,822,256 
|Number of Shareholders                            |  |                                  | 386        
|AVERAGE BALANCES                                  |  |                                  |            
|Assets                                            |  | $                                | 486,847,825
|Loans                                             |  |                                  | 336,810,075
|Investment Securities                             |  |                                  | 109,710,422
|Deposits                                          |  |                                  | 283,187,334
|Repurchase Agreements and Federal Funds Purchased |  |                                  |           
|FHLB Advances and Other Borrowings                |  |                                  | 94,897,124 
|Shareholders Equity                              |  |                                  | 35,566,713 
|PER SHARE DATA (1)                                |  |                                  |            
|Basic Earnings Per Share                          |  | $                                | 1.46       
|Basic Weighted Average Shares Outstanding         |  |                                  | 3,066,027  
|Diluted Earnings Per Share                        |  | $                                | 1.43       
|Diluted Weighted Average Shares Outstanding       |  |                                  | 3,112,517  
|Dividends                                         |  | $                                | 0.80       
|Book Value                                        |  | $                                | 12.77      
|RATIOS                                            |  |                                  |            
|Return on Average Assets                          |  |                                  | 0.92       
|Return on Average Equity                          |  |                                  | 12.56      
|Net Interest Margin (2)                           |  |                                  | 3.74       
|Equity to Assets                                  |  |                                  | 7.61       
|Dividend Payout Ratio                             |  |                                  | 54.92      

---

|(1) | Adjusted for a 5% stock dividend declared April 23, 2002, a 5% stock dividend declared April 24, 2001, a 5% stock dividend declared April 25, 2000 and a 10% stock dividend
declared January 26, 1999.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Tax equivalent basis.                                                                                                                                                                                 

29



---

NSDBancorp

Independent Auditors Report

To the
Board of Directors and Shareholders of NSD Bancorp, Inc. Pittsburgh, Pennsylvania

We have audited the accompanying consolidated balance sheets of NSD Bancorp, Inc. and subsidiary (the
Corporation) as of December 31, 2002 and 2001, and the related consolidated statements of income, comprehensive income, changes in shareholders equity and cash flows for each of the three years in the period ended December 31,
2002.  These financial statements are the responsibility of the Corporations management.  Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion such consolidated financial statements present fairly, in all material respects, the financial position of NSD Bancorp, Inc. and subsidiary at December 31, 2002 and 2001, and the results of their operations and
cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

|/s/ DELOITTE & TOUCHE LLP                                       | 
|--------------------------------------------------------------- | 
|                                                                | 
|DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania January 31, 2003 | 

30



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

The following discussion is an analysis of NSD Bancorp, Inc.s (the Corporations) financial condition and results of operations and should be read in conjunction with the
Consolidated Financial Statements.

Results of Operations for the Year

Net income for the year ended
December 31, 2002 was $4,465,602 or  $1.43 per fully diluted share compared to $5,205,462 or $1.66 in 2001 and $4,931,329 or $1.53 in 2000. The decline in earnings in 2002 was primarily due to the charge-off of $1,793,205, in excess of specific
loss reserves, resulting from an apparent external fraud which was identified and recognized as other expense in third quarter 2002 results of operations.  The suspected fraud was isolated to accounts receivable purchased from one customer
under the Companys Cashflow Maximizer program.  Subsequently, management initiated the process of terminating this product.  Excluding the impact of this loss, however, net income for the year ended December 31, 2002 would have been
$5,649,117 or $1.81 per diluted share. Total interest income decreased by $903,484 to $30,803,431 in 2002, from $31,706,915 for 2001, while total interest expense and the provision for loan losses decreased $1,856,091 and $240,000,
respectively.  The result was an increase in net interest income after provision for loan losses of $1,192,607 in 2002 compared to 2001 results.  Offsetting this increase in net interest income were increases in salaries and employee
benefits, occupancy expenses, equipment and supplies, data processing costs, and other operating expenses of $413,347, $79,573, $133,607, $49,867, and $1,815,516, respectively.

Reconciliation Schedule of Full Year Normalized Earnings NSD Bancorp, Inc. Unaudited

|                                                                          |  | 2002           |           | 2001        |  
|------------------------------------------------------------------------- |  | -------------- | --------- | ----------- | -
|                                                                          |  |                |           |             |  
|                                                                          |  | Pre-tax Impact |           | Net  Income |  
|                                                                          |  |                |           |             |  
|Results from continuing operations as reported on a GAAP basis            |  |                |          |             | $
|Cashflow Maximizer loss, in excess of specific reserves                   |  | $              | 1,793,205 |             |  
|                                                                          |  |                |           |             |  
|Results excluding Cashflow Maximizer loss, in excess of specific reserves |  | $              | 1,793,205 |             | $
|                                                                          |  |                |           |             |  

Contributing to the increase in 2001 net income over 2000 were
increases in total interest income, total other income and service fees of $1,099,159, $1,472,607, and $283,634, respectively, and a decline in the provision for income taxes of $207,026.  These contributions to the overall net income increase
were offset by increases in the provision for loan losses of $375,000, salaries and employee benefits of $202,955, occupancy expenses of $99,548, equipment and supplies of $11,457, data processing costs of $59,575, advertising of $72,015 and other
operating expenses of $452,396.

Return on average assets (ROA) was 0.92% for 2002 compared to 1.15% for 2001 and 1.20% for 2000.  The decrease in ROA from 2001
to 2002 was primarily due to the charge-off of $1,793,205 in excess of specific loss reserves, resulting from an apparent fraud involving one Cashflow Maximizer customer.  Also contributing to the decline in ROA from 2001 to 2002 was a decline
in net interest margin from 3.76% in 2001 to 3.74% in 2002.  The decrease from 2000 to 2001 reflects the impact of a decline in net interest margin from 4.14% in 2000 to 3.76% in 2001. Return on average equity (ROE) was 12.56% for 2002 compared
to 15.34% for 2001 and 16.70% for 2000.  The decrease in 2002 ROE compared to 2001 largely relates to the net income decrease and an increase in accumulated other comprehensive income offset by the effect of treasury stock purchases.  The
decrease in 2001 ROE compared to 2000 largely relates to an increase in accumulated other comprehensive income offset by the effect of treasury stock purchases and net income increase.

Net
Interest Income

The primary component of the Corporations earnings is net interest income, which is the difference between interest earned on loans,
investments and other earning assets and the interest expense on deposits and other interest bearing liabilities which fund those assets.  Tax-exempt securities and loans carry pre-tax yields lower than comparable taxable assets. 
Therefore, it is more meaningful to analyze net interest income on a tax-equivalent basis.

31



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NSDBancorp

Total tax-equivalent interest income decreased $820,284 during 2002 due
to a decline in the average yield on earning assets from 7.48% in 2001 to 6.81% in 2002 offset by an increase in average earning assets of $30,436,437.  Interest expense decreased due to a decline in the average cost of deposit funding to 3.04%
in 2002 from 4.14% in 2001 offset by an increase in average outstanding interest bearing deposits of $28,650,223 in 2002.  In addition, interest expense on borrowings increased $45,173 as average outstanding balances increased $1,347,809 offset
by a decline in the average cost of borrowings to 5.78% in 2002 compared to 5.81% in 2001.

Total tax-equivalent interest income increased $1,247,038 during 2001 due
to an increase in average earning assets of $39,654,654 offset by a decline in the average yield on earning assets from 7.92% in 2000 to 7.48% in 2001.  Interest expense increased due to an increase in average outstanding interest bearing
deposits of $21,019,101 in 2001 offset by a decline in the average cost of deposit funding to 4.14% in 2001 from 4.28% in 2000.  In addition, interest expense on borrowings increased $904,760 as average outstanding balances increased
$16,477,392 offset by a decline in the average cost of borrowings to 5.81% in 2001 compared to 5.88% in 2000.

Net tax-equivalent interest income was
$17,130,764 at December 31, 2002, compared to $16,094,957 at December 31, 2001 and $16,081,352 at December 31, 2000.  This consistent improvement has been largely due to increases in average earning assets, which were $458,620,306 in 2002
compared to $428,183,869 and $388,529,215 in 2001 and 2000, respectively.

To provide a more in-depth analysis of net interest income, the following average
balance sheet and net interest income analysis details the contribution of earning assets to overall net interest income and the impact of cost of funds.  The rate/volume analysis shows the portions of the net change in interest income due to
changes in volume or rate on a tax equivalent basis using the statutory federal income tax rate of 34%.  Changes in net interest income due to both rate and volume in the accompanying rate and volume analysis have been allocated to changes due
to volume and rate in proportion to the absolute amount of the change in each.

Rate/Volume Analysis

|                                                  |                                              | From 2001 to 2002               |         | From 2000 to 2001 |  
|------------------------------------------------- | -------------------------------------------- | ------------------------------- | ------- | ----------------- | -
|                                                  |                                              |                                 |         |                   |  
|                                                  |                                              | Change in Income/Expense Due To |         | Total             |  
|                                                  |                                              |                                 |         |                   |  
|                                                  |                                              | Volume                          |         | Rate              |  
|                                                  |                                              |                                 |         |                   |  
|Interest Earning Assets                           |                                              |                                 |         |                   |  
|Loans (1)                                         |                                              |                                 |         |                   |  
|                                                  | Industrial Revenue and Tax-Exempt Financing  |                                 | $       | (60,641           | )
|                                                  | All Other Loans (2)                          |                                 |         | 1,926,621         |  
|                                                  |                                              |                                 |         |                   |  
|                                                  | Total Loans                                  |                                 |         | 1,865,980         |  
|Investment Securities                             |                                              |                                 |         |                   |  
|                                                  | Taxable                                      |                                 |         | 71,073            |  
|                                                  | Tax-Exempt (2)                               |                                 |         | 341,922           |  
|                                                  |                                              |                                 |         |                   |  
|                                                  | Total Investment Securities                  |                                 |         | 412,995           |  
|Due From Banks                                    |                                              |                                 | (4,991  | )                 |  
|Federal Funds Sold                                |                                              |                                 | 5,872   |                   |  
|                                                  |                                              |                                 |         |                   |  
|                                                  | Total Interest Earning Assets                |                                 |         | 2,279,856         |  
|Interest Bearing Liabilities                      |                                              |                                 |         |                   |  
|Interest Bearing Deposits                         |                                              |                                 |         |                   |  
|                                                  | Savings and Interest Bearing Demand Deposits |                                 |         | 331,260           |  
|                                                  | Time Deposits                                |                                 |         | 916,705           |  
|                                                  |                                              |                                 |         |                   |  
|                                                  | Total Interest Bearing Deposits              |                                 |         | 1,247,965         |  
|Federal Funds Purchased and Repurchase Agreements |                                              |                                 | 8,216   |                   |  
|FHLB Advances and Other Borrowings                |                                              |                                 | 78,021  |                   |  
|                                                  |                                              |                                 |         |                   |  
|                                                  | Total Interest Bearing Deposits              |                                 |         | 1,334,202         |  
|                                                  |                                              |                                 |         |                   |  
|Change in Net Interest Income                     |                                              | $                               | 945,654 |                   | $
|                                                  |                                              |                                 |         |                   |  
|                                                  |                                              |                                 |         |                   |  



|   
|---
|(1)
|   
|(2)

32



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Average Balance Sheet/Net Income Analysis

|                                                  |                                                                                                                                                                                                                                                 | For the Years Ended December 31, |            
|------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | -----------
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|                                                  |                                                                                                                                                                                                                                                 | 2002                             |            
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|                                                  |                                                                                                                                                                                                                                                 | Average Balance                  |            
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|ASSETS                                            |                                                                                                                                                                                                                                                 |                                  |            
|Loans                                             |                                                                                                                                                                                                                                                 |                                  |            
|                                                  | Industrial Revenue and Tax Exempt                                                                                                                                                                                                               |                                  | $          
|                                                  | All Other Loans                                                                                                                                                                                                                                 |                                  |            
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|                                                  | Total                                                                                                                                                                                                                                           |                                  |            
|Investment Securities                             |                                                                                                                                                                                                                                                 |                                  |            
|                                                  | Taxable                                                                                                                                                                                                                                         |                                  |            
|                                                  | Tax-Exempt                                                                                                                                                                                                                                      |                                  |            
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|                                                  | Total                                                                                                                                                                                                                                           |                                  |            
|Due from Banks, Interest Earning                  |                                                                                                                                                                                                                                                 |                                  | 1,231,316  
|Federal Funds Sold                                |                                                                                                                                                                                                                                                 |                                  | 10,868,493 
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|                                                  | Total Earning Assets                                                                                                                                                                                                                            |                                  |            
|Reserve for Loan Losses                           |                                                                                                                                                                                                                                                 |                                  | (4,325,136 
|Cash and Due From Banks                           |                                                                                                                                                                                                                                                 |                                  | 11,497,235 
|Premises and Equipment                            |                                                                                                                                                                                                                                                 |                                  | 3,014,251  
|Other Assets                                      |                                                                                                                                                                                                                                                 |                                  | 18,041,169 
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|TOTAL ASSETS                                      |                                                                                                                                                                                                                                                 | $                                | 486,847,825
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|LIABILITIES AND SHAREHOLDERS EQUITY              |                                                                                                                                                                                                                                                 |                                  |            
|Interest Bearing Deposits                         |                                                                                                                                                                                                                                                 |                                  |            
|                                                  | Savings Deposits                                                                                                                                                                                                                                |                                  | $          
|                                                  | Interest Checking and Money Market                                                                                                                                                                                                              |                                  |            
|                                                  | Time Deposits                                                                                                                                                                                                                                   |                                  |            
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|                                                  | Total Interest Bearing Deposits                                                                                                                                                                                                                 |                                  |            
|Federal Funds Purchased and Repurchase Agreements |                                                                                                                                                                                                                                                 |                                  | 423,288    
|FHLB Advances and Other Borrowings                |                                                                                                                                                                                                                                                 |                                  | 94,473,836 
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|                                                  | Total Interest Bearing Liabilities                                                                                                                                                                                                              |                                  |            
|Demand Deposits                                   |                                                                                                                                                                                                                                                 |                                  | 63,738,345 
|Other Liabilities                                 |                                                                                                                                                                                                                                                 |                                  | 9,458,309  
|                                                  | Shareholders Equity                                                                                                                                                                                                                            |                                  |            
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY        |                                                                                                                                                                                                                                                 | $                                | 486,847,825
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|Interest Spread                                   |                                                                                                                                                                                                                                                 |                                  |            
|Interest Margin                                   |                                                                                                                                                                                                                                                 |                                  |            
|                                                  |                                                                                                                                                                                                                                                 |                                  |            
|                                                 
|(1)                                               | Tax-exempt income on loans and investments and related yields are shown on a fully tax-equivalent basis computed using a statutory
rate of 34%.                                                                                                
|(2)                                               | For purposes of calculating loan yields, average loan balances include nonaccrual loans.  Average yields on available for sale
investment securities are calculated based on average estimated market values for the years 2002, 2001 and 2000.
|                                                  |                                                                                                                                                                                                                                                 |                                  |            

33



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Provision for Loan Losses

The Corporations provision for loan losses was
$960,000 in 2002, $1,200,000 in 2001 and $825,000 in 2000.  Net charge-offs for 2002 were $808,369, compared to $425,228 and $548,553 for 2001 and 2000, respectively.  During the second quarter of 2002, $756,743 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 $384,011 of the remaining term loan balance of $684,011 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.  There were no charge-offs to any individual borrower that represented more than 10% of the annual total chargeoffs in 2001 and
2000.  Provisions for loan losses are charged to income to maintain the reserve for loan losses at a level that management considers appropriate based on the factors discussed in the Reserve for Loan Losses section.  For additional
information, see the Reserve for Loan Losses and Non-Performing Assets sections of this discussion.

The provision for loan losses for the year ended December 31, 2002,
compared to the 2001 provision was affected by the following factors:

| | The overall increase in total loans outstanding.                                                                                                                                                                                                                                                                                                                                                                          
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Total loans delinquent 30 days or more declined to 1.50% of total outstanding loans at December 31, 2002 compared to 1.65% at December 31, 2001.  In addition, the
Corporation experienced a relatively minimal increase in loans 90 days past due and still accruing interest of $20,802 and a $255,183 increase in outstanding loans on non-accrual status.                                                             
| | The Corporations recent loan performance can be closely correlated to industry statistics, which indicate a trend toward rising loan delinquencies and bankruptcy filings
throughout the industry as a whole.                                                                                                                                                                                                            
| | Managements expectation that local and national economies will continue to exhibit characteristics of a recessionary trend impacting business growth and employment
projections.                                                                                                                                                                                                                                         
| | With the exception of the one significant commercial loan relationship, noted above, which was charged-off during 2002 due to isolated circumstances, the Corporation continues
to experience moderate loan losses in relation to average loans outstanding.  This historical experience further supported the use of existing individual loan portfolio loss factor assignments in calculating required formula
reserves.

The Corporation continues to consistently apply strict standards to the definitions of potential and well-defined weaknesses in the loan
portfolio and the ongoing loan review process.  The result of this process was a $1,597,843 reduction in loans classified as substandard, doubtful or loss.  Of this decrease, $1,726,072 can be attributed to three business banking
relationships which were previously classified as substandard at December 31, 2001 and have either been recovered or have exhibited substantial improvement in factors deemed critical to the underlying quality of the relationship at December 31,
2002.  Please refer to the Reserve for Loan Losses section for further discussion of changes in loan classifications and the impact to the Corporations calculation of corresponding loan loss reserves.

Other Income

Total other income increased $100,206 to $3,492,497 in 2002 from $3,392,291 in 2001. Net gains on sales and calls of
investment securities available for sale during 2002 increased $240,105 to $445,529 from $205,424 for 2001.  This increase was primarily due to the partial divestiture of equity holdings in one financial institution during 2002.  
Service fees increased to $1,197,947 in 2002, from $1,155,917 in 2001 principally due to a $64,315 increase in NSF charges collected in 2002 which was partially offset by a $22,341 decline in service charges collected on savings accounts compared to
2001.  Other operating income decreased to $1,849,021 in 2002, from $2,030,950 in 2001.  This decrease was largely due to the impact of $558,484 in non-recurring bank-owned life insurance income realized in 2001 resulting from a death
benefit claim related to one of the Corporations key managers. Also contributing to the decrease in other operating income was a $17,418 increase in net losses recognized on the sale of other assets during 2002 compared to 2001.  Service
fees collected from NorthSide Banks Cashflow Maximizer program also decreased  $152,764 as the corporation began eliminating this program during 2002.  Offsetting these decreases was a $235,095 increase in mortgage fees

34



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corresponding to a change in NorthSide Banks mortgage business to a primarily correspondent banking business during the fourth quarter of 2001.  Title insurance
premium income also increased $21,702 during 2002 due to an increase in policies provided through the corporations title agency.  Increases in electronic funds transfer fees, MasterCard/Visa commissions and checkbook commissions
contributed $37,418, $21,772 and $18,270, respectively, in additional income compared to 2001.  A $38,649 increase in investment services commissions also favorably impacted 2002 performance.

Total other income increased $1,472,607 to $3,392,291 in 2001 from $1,919,684 in 2000.  Sales and calls of investment securities available for sale during 2001 resulted in net gains of
$205,424 compared to net gains of $9,249 in 2000.  Service fees increased to $1,155,917 in 2001, from $872,283 in 2000 principally due to $220,289 more in NSF charges collected in 2001 and also due to increases in checking account fees and
savings account service charges of $24,380 and $35,865, respectively.  Other operating income increased $992,798 to $2,030,950 in 2001, from $1,038,152 in 2000.  Contributing to this improvement was $847,973 in income generated from
bank-owned life insurance, which was purchased in December 2000.  Of this increase, $558,484 was attributable to a death benefit claim related to one of the Banks key managers.  Higher average outstanding accounts receivable
balances, purchased through NorthSide Banks Cashflow Maximizer program, resulted in additional revenue of $27,234.  Increases in title insurance premiums and ATM fees contributed $61,094 and $46,396, respectively, in additional income
compared to 2000 due principally to increased transaction volume.  Also contributing to the overall increase was an $11,051 increase in gains realized on the sale of mortgage loans.  Offsetting these increases was a $17,259 increase in net
losses recognized on the sale of other assets and a decrease in checkbook commissions of $13,781 during 2001 compared to 2000.

Other Expenses

Total other expenses for 2002 increased $2,464,673 to $13,133,025 from $10,668,352 in 2001.  Salaries and employee benefits increased $413,347 reflecting normal salary and benefit increases,
additional incentive compensation accruals and increased life and health insurance costs to the Corporation.  Also contributing to this increase were additional costs incurred to staff NorthSide Banks new Fox Chapel branch office, opened
during the third quarter of 2002 and also the Franklin Park branch, opened during the second quarter of 2001.  Occupancy expense increased $79,573 compared to the same period in 2001 principally due to a $55,007 increase in rent primarily
related to the new Fox Chapel branch opened in the third quarter of 2002 and also the new Franklin Park branch office, opened during the second quarter of 2001. Also contributing to the increase in occupancy expense was $32,741 increase in real
estate tax expense resulting from increased millage rates and also increased property assessment values.  Janitorial and building maintenance expenses also increased $12,586 and 11,398, respectively.  These increases were offset by a
$33,015 reduction in utilities principally due to re-negotiation of certain related contracts.  Equipment and supplies expense increased $133,607 due primarily to a $19,091 increase in maintenance contracts primarily resulting from new
contracts on technology upgrades. Also corresponding to these upgrades was a $60,693 increase in depreciation expenses.  Increases in office expense of $55,739 and $19,631 in stationery and supplies expense due to a timing difference in
supplies ordering compared to the prior year, also contributed to the increase in equipment and supplies expense.  A $19,745 decrease in expenses incurred for the repair of equipment partially offset these increases.  The $49,867 increase
in data processing was due to an increase in charges incurred for third party data processing.  Although total deposits increased significantly during 2002, FDIC insurance increased only $1,124 over the prior year reflecting a lower 2002
premium assessment rate.  Advertising expense decreased $28,361 corresponding 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 also the
Banks new business banking marketing campaign launched during 2001. The overall increase in other operating expenses of $1,815,516 can be attributed, in large part, to a $1,651,467 increase in Cashflow Maximizer expense.  The increase in
Cashflow Maximizer expense was related to a $1,793,205 charge-off in excess of specific loss reserves, resulting from an apparent external fraud, which was identified subsequent to September 30, 2002 and recognized in third quarter results of
operation.  A $211,000 additional reserve for Cashflow Maximizer losses was also recognized during the second quarter of 2002. Also contributing to this increase was an increase in legal expenses of $76,370 and financial services of $24,256
incurred during the process of reviewing corporate matters concerning compliance with the Sarbanes-Oxley Act and also in preparation of the

35



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preparation of the Corporations shareholders rights plan. Pennsylvania Shares tax increased $43,483 corresponding to overall company growth while telephone and
postage increased $26,532 and $29,105, respectively.  These increases were offset by a $176,601 reduction in deposit premium amortization corresponding to the completion of the amortization schedule in December of 2001. Asset recovery and
parking expenses also decreased $60,862 and $31,047, respectively, compared to 2001.  Protection expense declined by $36,050 due to the posting of additional security personnel at the Cranberry branch office during a lengthy 2001 renovation
project.  Education expense decreased $30,161 due to higher than normal expenses incurred in 2001 as part of a corporate-wide sales and service training program during that operating year.

Total other expenses increased $896,225 to $10,668,352 in 2001 from $9,772,127 in 2000.  Salaries and employee benefits increased $202,955 reflecting normal salary and benefit increases,
additional incentive compensation accruals and increased life insurance costs to the Corporation.  Also contributing to this increase were additional costs incurred to staff  NorthSide Banks new Franklin Park branch office, opened
during the second quarter of 2001.  Occupancy expense increased $99,548 in 2001, compared to the prior year, principally due to a $35,241 increase in rent related primarily to the new branch opening and a $47,642 increase in insurance expense
which were offset by a $13,346 reduction in building maintenance expense related to non-recurring charges incurred during 2000.  Equipment and supplies expense increased $11,457 due to $27,669 and $16,881 increases in stationery and supplies
and equipment maintenance contract expenses, respectively, partially offset by a $17,526 decrease in office expense compared to the prior year.  The $59,575 increase in data processing was due to $39,333 in additional expenses related to
increased automated teller machine transaction volume and also due to an expected $20,242 increase in charges incurred for third party data processing.  FDIC insurance declined slightly in 2001 compared to 2000 reflecting the impact of a
slightly lower premium assessment rate in 2001 partially offset by growth in the Banks BIF insured deposit base.  Advertising expense increased $72,015 corresponding to the Banks emphasis on promoting its new savings account product
during the first quarter of 2001, additional marketing related to the Franklin Park branch office opening and the Banks new business banking marketing campaign. Contributing to the $452,396 increase in other operating expenses was a $211,356
increase in Cashflow Maximizer expense as an additional loss reserve of $200,000 was established during 2001.  Title insurance related expenses increased $42,549 corresponding to higher transaction volumes, postage increased $26,342 due to the
pre-funding of a new postage delivery system and telephone expense increased $30,469 primarily due to an upgrade of data communication lines. Protection expense increased $38,656 due to enhanced security contracted during renovation of the Cranberry
Township branch facility and education expense increased $19,939 while implementing a bank-wide sales and service training program during 2001. An increase in asset recovery expenses of $56,752 is attributed to unforeseen costs associated with
maintaining and preparing certain other real estate owned for disposition.  Pennsylvania Shares tax increased $22,303 corresponding to overall company growth and state income tax increased due to the recording of a $42,311 tax refund in 2000
versus net taxes paid of $2,617 in 2001.  These increases were offset by decreases of $51,043, $12,230 and $27,358 in legal expense, audit expense and general losses, respectively, during 2001 compared to 2000.

Income Taxes

The Corporation recorded an income tax provision of $1,654,000, $2,086,000 and $2,293,026 in 2002, 2001 and 2000,
respectively.  For 2002, a reduction in tax provision was the result of a decline in net income and growth in tax-free revenue sources, principally from municipal bonds.  For 2001, a reduction in tax provision was the result of growth in
tax-free revenue sources, principally from municipal bonds and bank-owned life insurance.  A reduction in state corporate net income tax, compared to 2000 expense, also contributed to the overall reduction due to the application of prior year
tax credits to offset 2001 tax expenses. The effective tax rates for 2002, 2001 and 2000 were 27.0%, 28.6% and 31.7%, respectively.  These rates were below the 34% statutory tax rate primarily due to the tax benefits from tax-exempt interest
income.

Financial Condition

The Corporations total assets increased $31,178,478 from
$479,269,794 at December 31, 2001 to $510,448,272 at December 31, 2002.  Federal funds sold increased $7,300,000 and securities available for sale increased $11,101,374.  Loans held for sale decreased to $0 at December 31, 2002 from
$4,619,647 at December 31, 2001 as management adjusted its

36



---

strategy with regard to SBA loans previously held for sale.  As of December 31, 2002, management intends to hold all SBA loans, currently in the portfolio, until
maturity. Loans held for sale were entirely comprised of small business administration loans in 2001.  Net loans increased from $317,318,594 at December 31, 2001 to $329,279,653 at December 31, 2002.

Investment Securities

Investment securities available for sale increased $11,101,374 in 2002 to $128,200,176 from $117,098,802 in
2001.  An $11,571,239 decrease in mortgage-backed securities was due to reallocation of maturity and call proceeds to fund growth in the loan portfolio.  Increases in U.S. Treasury securities, obligations of U.S. Government agencies,
obligations of state and political subdivisions and corporate bonds of $113,910, $10,579,116, $6,995,973, and $4,889,283, respectively, were due to normal purchasing activity net of any sales, calls, maturities and changes in unrealized gains
(losses). During 2002, there were no investment securities classified as held to maturity.  The Corporation experienced a significant overall change in net, unrealized gains (losses) principally due to a significant positive shift in market
pricing related to fixed income investment securities during 2002. The fair value of marketable equity securities increased $94,331 during 2002 almost entirely due to the improvement in the valuation of bank stocks held within the portfolio. 
As a member of the Federal Home Loan Bank (FHLB), the Corporation is required to maintain a minimum investment in FHLB stock which is calculated based on the level of assets, residential real estate loans and outstanding FHLB advances.

The following summarizes the book value (excluding net unrealized holding gains) and weighted average yields of the Corporations securities available for sale
at December 31, 2002 by contractual maturity.  Mortgage backed securities are presented in the schedule below at contractual maturity without consideration given to scheduled repayments or accelerated prepayments.

|                                                |                                                | Within One Year |        | After One But Within Five Years |  | After Five But Within Ten Years |      | After Ten Years |          
|----------------------------------------------- | ---------------------------------------------- | --------------- | ------ | ------------------------------- |  | ------------------------------- | ---- | --------------- | ---------
|                                                |                                                |                 |        |                                 |  |                                 |      |                 |          
|                                                |                                                | Amount          |        | Yield                           |  | Amount                          |      | Yield           |          
|                                                |                                                |                 |        |                                 |  |                                 |      |                 |          
|U.S Treasury Securities                         |                                                |                 |       |                                 |  |                                |      | $               | 1,633,478
|Obligations of U.S. Government Agencies         |                                                |                 |       |                                 |  |                                |      |                 |         
|Mortgage-Backed Securities                      |                                                |                 |       |                                 |  |                                |      |                 |         
|Obligations of State and Political Subdivisions |                                                | $               | 15,000 |                                 |  | 6.20                            | %    |                 | 34,251   
|Other Bonds                                     |                                                |                 |       |                                 |  |                                |      |                 | 250,000  
|Marketable Equity Securities                    |                                                |                 |       |                                 |  |                                |      |                 |         
|                                                |                                                |                 |        |                                 |  |                                 |      |                 |          
|                                                | Total Investment Securities Available for Sale |                 | $      | 15,000                          |  |                                 | 6.20 | %               | $        
|                                                |                                                |                 |        |                                 |  |                                 |      |                 |          
|                                                |                                                |                 |        |                                 |  |                                 |      |                 |          

All yields represent weighted average yields computed on the basis of cost, adjusted for amortization of premium and accretion of
discount.  For purposes of calculating yields on obligations of state and political subdivisions and marketable equity securities, taxable equivalent adjustments were included to provide a basis for comparison.  The taxable equivalent
adjustments were calculated using the current statutory federal income tax rate of 34%.  For federal income tax purposes, corporations are allowed to exclude 70% of certain dividend income.

Loans

Loans net of deferred fees, increased $16,159,455 during 2002 from $318,649,706 at December 31, 2001 to $334,809,161 at
December 31, 2002.  Improved commercial loan development efforts resulted in a combined increase of $21,003,282 in nonresidential mortgage and commercial, financial and agricultural loans during 2002.  An increase of $12,725,439 in
consumer loans outstanding is partially due to expansion of the Banks automobile dealer network and most significantly, to an increase in existing indirect automobile lending.  A lease financing decline of $2,569,443 was due to lower new
business activity combined with the repayment of leases resulting from a shift in market demand toward more traditional commercial financing.  As the residential mortgage market has increasingly become a commodity business, the Corporation has
evaluated alternatives in an effort to improve both pricing and product delivery for its customers.  As a result, the Corporation began establishing correspondent relationships with other mortgage business to sell residential mortgages at the
time of funding.  Consequently, residential mortgages declined by $16,918,204 corresponding to an increase in the refinance activity and a change in business

37



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NSDBancorp

practice away from inventorying mortgage production.  Lines of credit increased by $1,651,225,
principally due to an increase in home equity line of credit usage and to a lesser degree, increases in new accounts opened.  Non-accrual loans increased by $255,183 primarily due to an increase in equipment leases placed on non-accrual status
during 2002.

|                                             |                                              | December 31, |            
|-------------------------------------------- | -------------------------------------------- | ------------ | -----------
|                                             |                                              |              |            
|                                             |                                              | 2002         |            
|                                             |                                              |              |            
|Residential Mortgage Loans                   |                                              | $            | 41,667,804 
|Nonresidential Mortgage Loans                |                                              |              | 89,291,875 
|Commercial, Financial and Agricultural Loans |                                              |              | 36,986,968 
|Consumer Loans to Individuals                |                                              |              | 147,834,041
|Lines of Credit                              |                                              |              | 7,680,211  
|Lease Financing                              |                                              |              | 10,850,490 
|Loans Held for Sale                          |                                              |              |           
|Nonaccrual Loans                             |                                              |              | 889,842    
|                                             |                                              |              |            
|                                             | Total Loans                                  |              |            
|Deferred Fees                                |                                              |              | (392,070   
|                                             |                                              |              |            
|                                             | Loans, Net of Deferred Fees                  |              |            
|Unearned Income                              |                                              |              | (1,317,283 
|                                             |                                              |              |            
|                                             | Total Loans, Net of Unearned Income and Fees |              |            
|Reserve for Loan Losses                      |                                              |              | (4,212,225 
|                                             |                                              |              |            
|Net Loans                                    |                                              | $            | 329,279,653
|                                             |                                              |              |            
|                                             |                                              |              |            

The following table shows the Corporations loan maturities as of December 31, 2002 (in thousands).

|                                                       |  | One Year and Less |        | After One Year To Five Years |   | After Five Years | 
|------------------------------------------------------ |  | ----------------- | ------ | ---------------------------- | - | ---------------- | 
|                                                       |  |                   |        |                              |   |                  | 
|Residential Mortgage Loans                             |  | $                 | 1,867  |                              | $ | 7,612            | 
|Nonresidential Mortgage Loans                          |  |                   | 11,013 |                              |   | 24,115           | 
|Commercial, Financial and Agricultural Loans           |  |                   | 25,766 |                              |   | 8,281            | 
|Consumer Loans to Individuals (net of unearned income) |  |                   | 36,949 |                              |   | 93,788           | 
|Lease Financing (net of unearned income)               |  |                   | 3,687  |                              |   | 5,334            | 

Non-Performing Assets

At December 31, 2002, nonaccrual loans were $889,842 compared to $634,659 in 2001.  The deterioration of one equipment leasing relationship contributed $167,353 to the $255,183 increase in
nonaccrual loans.  The remaining increase in nonaccrual loans was primarily due to an increase in installment loans placed on nonaccrual status.  Other real estate owned increased $6,364 to $82,818 in 2002 from $76,454 in 2001.  Loans
90 days past due and still accruing interest increased $20,802 from $1,150,634 in 2001 to $1,171,436 in 2002, primarily due to an increase in past due residential mortgage loans.

The current quality of the loan portfolio can be demonstrated by the following table which details total non-performing loans and past due loans:

|                                          |                                                | December 31, |          
|----------------------------------------- | ---------------------------------------------- | ------------ | ---------
|                                          |                                                |              |          
|                                          |                                                | 2002         |          
|                                          |                                                |              |          
|Nonaccrual Loans                          |                                                | $            | 889,842  
|Other Real Estate Owned                   |                                                |              | 82,818   
|Other Assets Held for Sale                |                                                |              | 186,098  
|                                          |                                                |              |          
|                                          | Total Non-Performing Assets                    |              |          
|Loans 90 Days Past Due and Still Accruing |                                                |              | 1,171,436
|                                          |                                                |              |          
|                                          | Total Non-Performing Assets and Past Due Loans |              | $        
|                                          |                                                |              |          

Reserve for Loan Losses

The Corporations policies provide for the maintaining of a loan loss reserves adequate to absorb estimated potential unidentified and/or identified loan losses inherent in the loan
portfolio.  The allowance is increased by the provision for

38



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loan losses, which is charged against operating results, and is decreased by the amount of net charge-offs.  Management considers historical data concerning actual losses
and loans classified by specific loan credit evaluation in determining the adequacy of the reserve for loan losses.  Also considered in this process are loan delinquency trends, economic conditions and uncertainties in estimating losses, all of
which may be susceptible to significant change.  This evaluation is inherently subjective as it requires material estimates concerning future losses for each type of loan in the portfolio.

The Corporation follows a loan review program to evaluate the credit risk in its loan portfolio for substantially all loans greater than $50,000.  Through the loan review process, the
Corporation maintains a classified account list, which, along with the delinquency list of loans, helps management assess the overall quality of the loan portfolio and the adequacy of the reserve for loan losses.  Loans classified as
substandard are those loans with clear and defined weaknesses such as highly leveraged positions, unfavorable financial ratios, uncertain repayment sources or poor financial condition, which may jeopardize recoverability of the
asset.  Loans classified as doubtful are those loans which have characteristics similar to substandard accounts but with an increased risk that a loss may occur, or at least a portion of the loan may require charge-off if
immediately liquidated.  Although loans classified as substandard do not duplicate loans classified as doubtful, both substandard and doubtful loans include some loans that are delinquent or on nonaccrual status.  As of December 31, 2002,
substandard loans totaled $1,831,661 and doubtful loans totaled $1,112,525.  All substandard and doubtful loans were designated as delinquent or nonaccrual as of December 31, 2002.

In addition to its classified account list and delinquency list of loans, the Corporation maintains a separate watch list, which further aids the Corporation in monitoring its loan
portfolio.  Watch list loans show warning elements where the present status portrays one or more deficiencies requiring attention in the short run, or pertinent ratios of the loan account have weakened to a point that more frequent monitoring
is warranted.  These loans do not have all the characteristics of a classified loan (substandard or doubtful) but do show weakened elements as compared with those of a satisfactory credit.  The Corporation reviews these loans while
assessing the adequacy of the reserve for loan losses and may determine that sufficient risk is present to warrant provision of a specific reserve based on the facts and circumstances concerning individual loan relationships.

The Corporation establishes specific reserves for potential problem loans as determined by its loan review program described above.  The specific reserves on these loans are
determined in accordance with Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan  Income
Recognition and Disclosures taking into account the credits current operating status, pledged collateral and plans of action for resolving any deficiencies.  The specific reserves are usually only considered for the
Corporations commercial loan portfolio.

The Corporation maintains formula reserves for all loans not considered by the specific reserve method.  Formula
reserves are calculated for each pool of homogeneous loans based on a loans risk rating, delinquency status and the historical charge-off experience pertaining to each loan type.  The loss factors used in calculating formula reserves for
substandard, doubtful and loss credits are based upon managements judgment of inherent risks associated within these loan classifications.  Formula reserves, relative to loan delinquency status, are based on the type of loan and
delinquency aging and are determined by managements judgment of the inherent risk of loss from these delinquency categories.  The Corporation also establishes formula reserves for all loan types by applying a factor, based on
corresponding historical charge-off percentages, to homogeneous pools of loans.

These formula reserves are based on the Corporations historical charge-off
experience.  If current charge-off levels deviate from the Corporations historical experience, the deviation will be reflected in the Corporations ongoing formula reserves and the allowance for loan losses is adjusted
accordingly.  The Corporation maintains an unallocated reserve taking into consideration the following factors:

| |  | Trends in volume and terms of loans,                                                                            
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | Seasoning of the loan portfolio,                                                                                
| |  | Delinquency and non-accrual trends,                                                                             
| |  | Recent loss experience in particular segments of the portfolio,                                                 
| |  | Credit quality trends (including current and expected trends in non-performing loans under existing conditions),
| |  | Specific industry conditions within portfolio segments,                                                         

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NSDBancorp

| |  | General local and national economic and business conditions affecting key loan portfolios,                     
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | Duration of the current business cycle,                                                                        
| |  | Changes in lending and collection practices,                                                                   
| |  | Managements experience,                                                                                       
| |  | Other external factors that could affect the ability of the Corporations customers to repay their obligations.

Management reviews these conditions to determine if any of these conditions is evidenced by a specifically identified problem credit or portfolio segment.  Managements estimate of this
condition may be reflected as a specific allowance applicable to this credit or portfolio segment.

Where any of these conditions is not evidenced by a
specifically identifiable problem credit or portfolio segment as of the evaluation date, managements evaluation of the potential risk concerning this condition is reflected in the unallocated reserve.  The unallocated portion of the
reserve for loan losses is maintained to absorb estimated losses due to inherent risks within the loan portfolio which have not been detected or otherwise identified as probable losses as of December 31, 2002.  These losses may be due to
several factors which include uncertainties in economic conditions, delays in obtaining information about a borrowers financial condition, the difficulty in identifying triggering events that directly correspond to future loss experience and
other issues which have historically not been a factor in the Corporations loss experience.  Also, loss data representing a complete economic cycle is not available for all segments of the loan portfolio.  In addition, a portion of
the unallocated risk is attributable to uncertainty regarding the overall impact and timing of economic cycles, including managements concerns over the effects of the protraction of the current economic cycle.  Management performs a
periodic analysis of the unallocated allowance to ensure its reasonableness and appropriateness based on the above factors and a risk assessment of all loan portfolios.

The composition of the Corporations reserve for loan losses, including reserves attributable to loans held for sale, is as follows at December 31, 2002 and 2001:

|                     |       | December 31, |          
|-------------------- | ----- | ------------ | ---------
|                     |       |              |          
|                     |       | 2002         |          
|                     |       |              |          
|Specific Reserves    |       | $            | 1,215,973
|Formula Reserves     |       |              | 2,714,452
|Unallocated Reserves |       |              | 281,800  
|                     |       |              |          
|                     | Total |              | $        
|                     |       |              |          
|                     |       |              |          

The Corporation made no changes in estimation methods or assumptions that affected the methodology for assessing the appropriateness of the
reserves for loan losses.  Changes in assumptions regarding the effects of economic and business conditions on borrowers and other factors, which are described below, have affected the assessment of the unallocated allowance.  Estimation
risk, which continues to be present in the allowance for loan losses, is included as part of attributed factors within the unallocated reserve for loan losses.

Specific reserves increased $75,001 from $1,140,972 at December 31, 2001, to $1,215,973 at December 31, 2002, principally due to a $364,726 increase in loans classified as doubtful.  This
increase in loans classified as doubtful was primarily caused by the deterioration of one equipment leasing relationship which accounted for a significant portion of the $168,941 increase in leases classified as doubtful while installment loans
classified as doubtful increased by $140,683 during the year. Also impacting specific reserves was an additional reserve of $280,063 which was provided for one loan relationship which was not classified as substandard, doubtful or loss at December
31, 2002.  This relationship is considered adequately secured and collectible, however, there has been an indication that a weakening in the borrowers position is present.  Therefore, management has determined that it is prudent to
create a specific reserve corresponding to the increase in risk specific to this relationship.  Offsetting increases to specific reserves was a $1,968,931 decrease in loans classified as substandard. Of this decrease, $1,726,072 can be
attributed to three business banking relationships which were previously classified as substandard at December 31, 2001 and have either been collected or have exhibited substantial improvement in factors deemed critical to the underlying quality of
the relationship at December 31, 2002.  Management does not consider the upgrading or collection of the loans attributable to these relationships to be indicative of a significant trend, adverse or otherwise, in overall loan portfolio
performance or credit quality.  Rather, the improvement in quality or collection of these credits is considered to be specific to the facts and circumstances related those individual loan relationships.  Loans classified as loss increase
by $6,362, at December 31, 2002, to $13,316 from $6,954 at December 31, 2001.  As of December 31, 2002, total classified loans were $2,957,502 compared to $4,555,345 at December 31, 2001.  Management believes that current reserves
appropriately reflect the level of risk and potential loss of these credits. The reserve amount specified for

40



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these loans may change in the event that there is evidence of an improvement or further deterioration in a customers ability to satisfy contractual
requirements.

The formula reserve portion of the reserve for loan losses increased $233,310 to $2,714.452 at December 31, 2002 from $2,481,142 at December 31, 2001,
corresponding to the overall increase in loans outstanding and most notable, to increases in commercial and installment loans.

The unallocated reserve portion of the
reserve for loan losses decreased $235,562 to $281,800 at December 31, 2002 from $517,362 at December 31, 2001.  This decrease is attributable, in part, to several significant initiatives which were implemented during 2002.  These
initiatives have enhanced the Corporations ability to more closely identify and monitor risk elements associated with loan underwriting, review and collection processes and to more clearly determine the adequacy of loan loss reserves. 
Specifically, a management committee was established to monitor loan portfolio performance and to review, identify and classify individual loan relationships.  Also, certain personnel changes within the business banking division have improved
the risk management process through the addition of several more experienced underwriters and another experienced analyst to assist in loan underwriting and the ongoing credit review processes.  In addition, the decrease in unallocated
allowance, at December 31, 2002, can be attributed to managements determination that general credit deterioration, identified in 2001, on various segments of the overall loan portfolio had manifested itself in 2002 in the form of past due and
non-performing assets at which time specific allowance allocations were made to corresponding segments of the portfolio.

Current local and national economic
conditions are expected to remain unchanged throughout the course of the 2003 operating year.  Managements performance outlook concerning certain segments of the overall loan portfolio, however, has improved slightly due to indications
that such economic conditions, although protracted, have not manifested a material adverse impact on the performance or quality of those segments. Management does feel, however, that market uncertainty and low growth expectations in the local and
national economy are such that the current outlook must be continually re-evaluated for the potential of a more significant impact in the future.  New loan volumes and loan terms appear consistent with historical trends with regard to credit
quality and proportionate composition.  In evaluating the appropriateness of the unallocated reserve, management considered specific and inherent loss estimates, which are periodically adjusted based upon the most recent available
information.  There is, however, a possibility that the amount of actual losses may vary from estimated amounts.  Consequently, estimation risk is present and is provided for in assessing the appropriateness of the unallocated reserve for
loan losses.  Management also remains concerned about the potential adverse effects of changes in the current economic and interest rate environment on those borrowers who have a more leveraged financial profile.  In addition, concern also
exists as to the effects of projected slowing trends, by certain external parties, on automobile manufacturers and the impact on consumer demand and consumption.

The
following schedule sets forth the allocation of the reserve for loan losses among individual loan categories (in thousands).  A portion is allocated to general risk to protect the Corporation against potential yet undetermined losses and is
based on historical experience.  The entire reserve for loan losses, including reserves attributable to loans held for sale, is available to absorb future loan losses in any category.

|                                             |  | For the Years Ended December 31, |      
|-------------------------------------------- |  | -------------------------------- | -----
|                                             |  |                                  |      
|                                             |  | 2002                             |      
|                                             |  |                                  |      
|                                             |  | Amount                           |      
|                                             |  |                                  |      
|Commercial, Financial and Agricultural Loans |  | $                                | 1,825
|Real Estate Mortgage Loans                   |  |                                  | 212  
|Installment Loans                            |  |                                  | 1,514
|Lease Financing                              |  |                                  | 379  
|Allocation to General Risk                   |  |                                  | 282  
|                                             |  |                                  |      
|Total                                        |  | $                                | 4,212
|                                             |  |                                  |      

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NSD Bancorp

The Corporations net charge-offs by loan type and changes in the
reserve for loan losses, including those attributable to loans held for sale, for each of the past five years were as follows (in thousands):

|                                                  |                                               | For the Years Ended December 31, |       
|------------------------------------------------- | --------------------------------------------- | -------------------------------- | ------
|                                                  |                                               |                                  |       
|                                                  |                                               | 2002                             |       
|                                                  |                                               |                                  |       
|Reserve for Loan Losses at Beginning of Year      |                                               | $                                | 4,139 
|Charge-offs:                                      |                                               |                                  |       
|                                                  | Commercial, Financial, and Agricultural Loans |                                  |       
|                                                  | Real Estate Mortgage Loans                    |                                  |       
|                                                  | Installment Loans                             |                                  |       
|                                                  | Lease Financing                               |                                  |       
|                                                  |                                               |                                  |       
|                                                  | Total Charge-offs                             |                                  |       
|Recoveries:                                       |                                               |                                  |       
|                                                  | Commercial, Financial, and Agricultural Loans |                                  |       
|                                                  | Real Estate Mortgage Loans                    |                                  |       
|                                                  | Installment Loans                             |                                  |       
|                                                  | Lease Financing                               |                                  |       
|                                                  |                                               |                                  |       
|                                                  | Total Recoveries                              |                                  |       
|                                                  |                                               |                                  |       
|Net Charge-offs                                   |                                               |                                  | 808   
|Transfer to Reserve for Unfunded Loan Commitments |                                               |                                  | 79    
|Provision for Loan Losses                         |                                               |                                  | 960   
|                                                  |                                               |                                  |       
|Reserve for Loan Losses at End of Year            |                                               | $                                | 4,212 
|                                                  |                                               |                                  |       
|Net Loan Charge-offs to Average Loans             |                                               |                                  | 0.24  
|Loan Loss Reserve to Non-Performing Assets        |                                               |                                  | 363.51
|                                                  |                                               |                                  |       

The provision for loan losses reflects the Corporations evaluation of the reserve for loan losses and other probable losses due to credit
exposure related to unfounded loan commitments and letters of credit.  During 2002, the Corporation established a separate reserve of $78,882 for unfunded loan commitments and letters of credit.

The following is a summary of changes in the reserve for unfunded loan commitments and letters of credit.

|                                               |  | 2002 |       
|---------------------------------------------- |  | ---- | ------
|                                               |  |      |       
|Reserve at January 1                           |  | $    | 0     
|Net change in Reserve for Unfunded Commitments |  |      | 78,882
|                                               |  |      |       
|Reserve at December 31                         |  | $    | 78,882
|                                               |  |      |       

Liabilities

Total liabilities were $471,626,016 at December 31, 2002, an increase of $29,029,386 from December 31, 2001.  An increase in total deposits of $28,215,853 was principally used to fund
significant loan growth during 2002.

Deposits

Total deposits increased $28,215,853 from
$340,983,291 at December 31, 2001 to $369,199,144 at December 31, 2002.  Noninterest bearing demand deposits increased during 2002 by $4,390,457 due principally to emphasis on the development of small business relationships, while interest
bearing demand deposits declined by $1,156,680.  As the financial markets generally experienced a flight to quality during 2002, banks experienced significant increases in outstanding deposits.  The Corporation benefited from this shift as
savings deposits increased by $12,760,937 during the year.  Also, contributing to the overall increase in deposits was a $17,045,966 increase in certificates of deposit. A significant portion of this increase can be attributed to the opening of
the Banks Fox Chapel branch office and also the first full year operating its Franklin Park branch during 2002.

Average deposits and the average cost of
deposits for the past three years were as follows:

|                             |                | 2002            |             | 2001         |  | 2000            |     
|---------------------------- | -------------- | --------------- | ----------- | ------------ |  | --------------- | ----
|                             |                |                 |             |              |  |                 |     
|                             |                | Average Balance |             | Average Rate |  | Average Balance |     
|                             |                |                 |             |              |  |                 |     
|Noninterest Bearing Deposits |                | $               | 63,738,345  |              |  |                |     
|Interest Bearing Deposits    |                |                 | 84,039,001  |              |  | 1.33            | %   
|Savings Deposits             |                |                 | 71,374,688  |              |  | 1.89            |     
|Time Deposits                |                |                 | 127,773,645 |              |  | 4.81            |     
|                             |                |                 |             |              |  |                 |     
|                             | Total Deposits |                 | $           | 346,925,679  |  |                 | 2.48
|                             |                |                 |             |              |  |                 |     
|                             |                |                 |             |              |  |                 |     

42



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At December 31, 2002, outstanding Certificates of Deposit are scheduled to mature as follows  (in thousands):

|                                      |       | $100,000 and over |        | Less than $100,000 |  
|------------------------------------- | ----- | ----------------- | ------ | ------------------ | -
|                                      |       |                   |        |                    |  
|Three Months or Less                  |       | $                 | 3,490  |                    | $
|Over Three Months Through Six Months  |       |                   | 3,974  |                    |  
|Over Six Months Through Twelve Months |       |                   | 13,251 |                    |  
|Over Twelve Months                    |       |                   | 10,025 |                    |  
|                                      |       |                   |        |                    |  
|                                      | Total |                   | $      | 30,740             |  
|                                      |       |                   |        |                    |  
|                                      |       |                   |        |                    |  

Repurchase Agreements

At December 31, 2002, the Corporation had no
outstanding repurchase agreements.

FHLB Advances and Other Borrowed Funds

At December 31, 2002, the
Corporation had outstanding borrowings of $94,000,000 consisting entirely of advances from the Federal Home Loan Bank which are collateralized by qualifying securities and loans and are subject to restrictions or penalties related to
prepayments.  There are no borrowings scheduled to mature during 2003.  The Corporation borrowed these funds to provide liquidity for specific asset-liability management strategies and to provide supplemental funding for loan growth. 
At December 31, 2002 there were no outstanding overnight borrowings.

Shareholders Equity

Consolidated shareholders equity increased $2,149,092 from $36,673,164 at December 31, 2001 to $38,822,256 at December 31, 2002.  This increase was the result of an increase in capital
surplus primarily due to the exercise of stock options along with payment of a stock dividend to shareholders and an increase in net unrealized holding gains on securities available for sale partially offset by the purchase of treasury stock and by
cash dividends paid to shareholders.

The Corporation continues to maintain a strong capital position.  Risk-based capital ratios exceed current regulatory
requirements.  The Corporations Tier I risk-based capital ratio at December 31, 2002 was 9.47% compared to 10.09% at December 31, 2001.  The Corporations total risk-based capital ratio at December 31, 2002 was 10.78% compared
to 11.52% at December 31, 2001.  Regulatory requirements for Tier I and total risk-based capital ratios are 4.00% and 8.00%, respectively.

Sales Price and Cash Dividends Per
Share

The following table sets forth the high and low sale prices and cash dividends declared for the Corporations common stock as reported by the
NASDAQ National Market system.  Prices and dividends set forth below have been adjusted to reflect a 5% stock dividend declared April 23, 2002 and payable on May 31, 2002 to shareholders of record on May 1, 2002 and a 5% stock dividend declared
April 24, 2001 and payable on May 31, 2001 to shareholders of record on May 1, 2001.

|               |  | Sales Price |       | Cash Dividends Declared Per Share |  
|-------------- |  | ----------- | ----- | --------------------------------- | -
|               |  |             |       |                                  
|               |  | High        |       | Low                               |  
|               |  |             |       |                                   |  
|2002           |  |             |       |                                   |  
|First Quarter  |  | $           | 21.90 |                                   | $
|Second Quarter |  |             | 23.84 |                                   |  
|Third Quarter  |  |             | 25.40 |                                   |  
|Fourth Quarter |  |             | 26.10 |                                   |  
|2001           |  |             |       |                                   |  
|First Quarter  |  | $           | 16.32 |                                   | $
|Second Quarter |  |             | 18.14 |                                   |  
|Third Quarter  |  |             | 20.00 |                                   |  
|Fourth Quarter |  |             | 20.10 |                                   |  

Market Risk

The Corporation operates as a traditional commercial banking institution investing in securities and loans with funding primarily provided by retail deposits and wholesale borrowings.  The
primary source of revenue is the net spread between interest earned on investments and the cost of related funding.  Inherent in this business is market risk or the risk of an adverse impact on earnings from changes in market interest
rates.  Other types of market risks such as foreign currency exchange rate risk and commodity price risk do not arise in the normal course of the Corporations business activities.  The Corporation has an asset/liability management
process in place to monitor and control risks associated with changing interest rates and the potential impact on future financial performance.  Managements objective is to provide an optimum return while maintaining an appropriate mix of
earning assets and funding sources consistent with acceptable exposure to market risk.  Ultimately, the Corporation seeks to produce consistent profitability in all interest rate environments.

43



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NSD Bancorp

Simulation modeling enables management to quantify the extent of the
Corporations interest rate exposure by forecasting how net interest income, and consequently net income, varies under alternative interest rate scenarios based on the Corporations current position.  At December 31, 2002, a
simulation analysis assuming a one-time 200 basis point increase in interest rates, results in a positive impact of approximately 5.7 or approximately $1,003,000 on projected net interest income over a one-year period.  Conversely, a 200 basis
point decrease in interest rates may result in a decrease in projected net interest income of 7.1% or approximately $1,244,000 over the same period.  These findings are the result of normal projected growth in interest earning assets and
interest related liability levels based on the Corporations position at December 31, 2002.  The results reflect the impact of a relatively short repricing or rate adjustment period of the Corporations loan products and the effect of
investment security prepayments matched with the relative short term nature of interest sensitive deposit and borrowing liabilities.  In a rising rate environment, the increased cost of funding would be offset by increases in yields on prime
rate, LIBOR and Treasury indexed loans and securities and the repricing of significant cash flow in the consumer loan portfolio.  In a declining rate environment, the declining yield on loans and securities due to prepayments and index
adjustments would be offset by a shortening of deposit maturities and the repricing of a significant interest bearing demand deposit portfolio.  In any event, a sudden, substantial and protracted shift in interest rates may adversely impact the
Corporations earnings to the extent that the interest rates on interest earning assets and interest bearing liabilities change at varying frequencies and market forces may limit the ability to appropriately respond to such changes.

Interest rate risk is also analyzed by comparing the maturity and repricing relationships between interest earning assets and interest bearing liabilities at specific points in
time or GAP analysis.  Management, however, recognizes that a simplified GAP analysis may not adequately reflect the degree to which assets and liabilities with similar repricing characteristics react to changes in market interest
rates.  In addition, repricing characteristics identified under a specific GAP position may vary significantly under different interest rate environments.  Therefore, simulation modeling is also performed to evaluate the extent and
direction of the Corporations interest rate exposure under upward and downward changes in interest rates.

Based upon historical trends, the Corporation has
typically considered all demand and savings deposits as core deposits and relatively non-rate sensitive.  The following table has been prepared, as required, presenting interest bearing demand deposits and savings deposits as repricing within
the earliest period.  As a result, the table reflects a negative, or liability sensitive, cumulative interest GAP position of $99,795 in the first one-year GAP.  Results of simulation modeling and historical experience indicate, however,
that the overall potential effect on net interest income should not have an adverse result on future financial performance.

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The following table summarizes the Corporations interest rate sensitivity or GAP position, which is the estimated aggregate
maturity/repricing structure of interest earning assets and interest bearing liabilities, at December 31, 2002 (in thousands):

|                                           |              | 3 months or less |          | Over 3 to 6 months |   | Over 6 to 12 months |        | Over 1 to 5 Years |         | Over 5 Years |   | Total   |        
|------------------------------------------ | ------------ | ---------------- | -------- | ------------------ | - | ------------------- | ------ | ----------------- | ------- | ------------ | - | ------- | -------
|                                           |              |                  |          |                    |   |                     |        |                   |         |              |   |         |        
|Loans, Net of Unearned Income              |              | $                | 58,660   |                    | $ | 33,649              |        | $                 | 57,313  |              | $ | 146,452 |        
|Securities Available for Sale              |              |                  | 38,243   |                    |   | 8,531               |        |                   | 18,094  |              |   | 28,477  |        
|Other Interest Earning Assets              |              |                  | 18,754   |                    |   |                    |        |                   | 8,159   |              |   |        |        
|Noninterest Earning Assets                 |              |                  |         |                    |   |                    |        |                   |        |              |   |        |        
|                                           |              |                  |          |                    |   |                     |        |                   |         |              |   |         |        
|                                           | Total Assets |                  | $        | 115,657            |   | $                   | 42,180 |                   | $       | 83,566       |   | $       | 174,929
|                                           |              |                  |          |                    |   |                     |        |                   |         |              |   |         |        
|Interest Bearing Demand Deposits           |              | $                | 83,195   |                    |   |                    |        |                   |        |              |   |        |        
|Savings Deposits                           |              |                  | 69,185   |                    |   |                    |        |                   |        |              |   |        |        
|Time Deposits < $100,000                   |              |                  | 20,030   |                    | $ | 18,317              |        | $                 | 35,059  |              | $ | 42,466  |        
|Time Deposits => $100,000                  |              |                  | 3,379    |                    |   | 2,750               |        |                   | 13,144  |              |   | 9,523   |        
|Other Borrowed Funds                       |              |                  | 87,000   |                    |   |                    |        |                   | 2,000   |              |   | 5,000   |        
|Other Liabilities                          |              |                  | 1,785    |                    |   | 1,785               |        |                   | 3,569   |              |   | 28,552  |        
|Shareholders Equity                       |              |                  |         |                    |   |                    |        |                   |        |              |   |        |        
|                                           |              |                  |          |                    |   |                     |        |                   |         |              |   |         |        
|Total Liabilities and Shareholders Equity |              | $                | 264,574  |                    | $ | 22,852              |        | $                 | 53,772  |              | $ | 85,541  |        
|                                           |              |                  |          |                    |   |                     |        |                   |         |              |   |         |        
|Period GAP                                 |              | $                | (148,917 | )                  | $ | 19,328              |        | $                 | 29,794  |              | $ | 89,388  |        
|Cumulative GAP                             |              | $                | (148,917 | )                  | $ | (129,589            | )      | $                 | (99,795 | )            | $ | (10,407 | )      
|                                           |              |                  |          |                    |   |                     |        |                   |         |              |   |         |        

Liquidity and Cash Flows

Liquidity is the ability to generate cash flows or
obtain funds at a reasonable cost to satisfy customer credit needs and the requirements of depositors.  Liquid assets include cash, federal funds sold, investments maturing in less than one year and loan repayments.  The Corporations
ability to obtain deposits and purchase funds at reasonable rates determines its liability liquidity.  As a result of liquid asset management and the ability to generate liquidity through deposit funding, management feels that the Corporation
maintains overall liquidity sufficient to satisfy customer needs.  In the event that such measures are not sufficient, the Corporation has established alternative sources of funds in the form of wholesale borrowings and repurchase
agreements.

Operating activities provided net cash of $8,672,434 during 2002 compared to $3,662,703 and $5,946,180 for 2001 and 2000, respectively.  The primary
source of operating cash flows for 2002 was net income adjusted for the effect of noncash expenses such as the provision for loan losses, depreciation of premises and equipment and a $2,572,950 decrease in other assets primarily due to a $2,334,275
decrease in NorthSide Banks Cashflow Maximizer program due to a $2,204,205 loss related to the previously discussed apparent fraud and the beginning of a gradual process to eliminate this program during 2002.

Investing activities used cash of $26,183,596 during 2002, compared to $36,767,795 and $32,696,330 for 2001 and 2000, respectively.  In 2002, as in 2001 and 2000, cash was used to fund loan
growth, as well as, the purchase of investment securities available for sale. Proceeds from the sales, repayments and maturities of investment securities available for sale were reinvested primarily in investment securities available for sale.

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NSD Bancorp

Financing activities provided cash of $24,432,923, $37,581,997 and
$35,056,040 during 2002, 2001 and 2000, respectively.  During 2002 and 2001, increases in demand and savings accounts, time deposits and borrowings provided cash while cash was used for the payment of cash dividends and the purchase of treasury
stock. During 2000, increases in demand and savings accounts, time deposits and borrowings provided cash while cash was used for the repayment of borrowings, the payment of cash dividends and the purchase of treasury stock.  Net proceeds from
borrowings were used to fund growth in the loan and investment portfolios during 2001 and 2000.

Certain information in this discussion and other statements contained
in this report, which are not historical facts, may be forward-looking statements that involve risks and uncertainties.  Such statements are subject to important factors that could cause actual results to differ materially from those
contemplated by such statements, including without limitation, the effect of changing regional and national economic conditions; changes in interest rates; credit risks of commercial, real estate, consumer and other lending activities; changes in
federal and state regulations; the presence in the Corporations market area of competitors with greater financial resources than the Corporation or other unanticipated external developments materially impacting the Corporations
operational and financial performance.

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|Senior Officers of NorthSide Bank     |                                                                 
|------------------------------------- | ----------------------------------------------------------------
|                                      |                                                                 
|Lawrence R. Gaus                     
|                                      | Chairman of the Board                                           
|                                     
|Lloyd G. Gibson                      
|                                      | President and Chief Executive Officer                           
|                                     
|James P. Radick                      
|                                      | Senior Vice President, Treasurer and Chief Financial Officer    
|                                     
|Rajendra K. Bagga                    
|                                      | Chief Auditor                                                   
|                                     
|John L. Schultz                      
|                                      | Vice President Marketing/Retail Banking                         
|                                     
|Jeffrey R. Uselman                   
|                                      | Senior Vice President, Operations Manager and Head of Technology
|                                     
|Mark A. Allman                       
|                                      | Vice President  Indirect Lending Manager                        
|                                     
|Patricia B. Ault                     
|                                      | Vice President Mortgage Lending CRA Officer                     
|                                     
|William B. Breitinger                
|                                      | Vice President  Asset Recovery Supervisor                       
|                                     
|Gloria J. Bush                       
|                                      | Corporate Secretary and Human Resource Department Manager       
|                                     
|Debra S. Flinner                     
|                                      | Vice President and Commercial Loan Manager                      
|                                     
|John A. Pelusi                       
|                                      | Vice President and Consumer Loan Department Manager             
|                                     
|James R. Schafer                     
|                                      | Vice President  Security Officer                                
|                                     
|Officers of NSD Bancorp, Inc.         |                                                                 
|                                      |                                                                 
|Lawrence R. Gaus                     
|                                      | Chairman of the Baord                                           
|                                     
|Lloyd G. Gibson                      
|                                      | President and Chief Executive Officer                           
|                                     
|James P. Radick                      
|                                      | Treasurer                                                       
|                                     
|Gloria J. Bush                       
|                                      | Corporate Secretary                                             
|                                     
|Officer listings as of March 14, 2003
|                                      |                                                                 

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NSDBancorp

Board of Directors

|[PHOTO OF WILLIAM B. BAIERL]                                                               |                                      | [PHOTO OF JOHN C. BROWN, JR.]                         |                                                        | [PHOTO OF GRANT A. COLTON, JR.]                                                           |                                                                                                | [PHOTO OF LAWRENCE R. GAUS, C.P.A.]                                                                                       
|------------------------------------------------------------------------------------------ | ------------------------------------ | ----------------------------------------------------- | ------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------
|                                                                                           |                                      |                                                       |                                                        |                                                                                           |                                                                                                |                                                                                                                           
|William B. BaierlPresident-Baierl Chevrolet, Inc.                                          |                                      | John C. Brown, Jr.Retired Regional Executive-PNC Bank |                                                        | Grant A. Colton, Jr.Chairman of the Board GA Industries, Inc.                             |                                                                                                | Lawrence R. Gaus, C.P.A.Gaus, Siegel, McMillen & Davisson, LLC Chairman of the Board- NSD Bancorp, Inc. And Northside
Bank
|                                                                                           |                                      |                                                       |                                                        |                                                                                           |                                                                                                |                                                                                                                           
|[PHOTO OF NICHOLAS C. GEANOPULOS]                                                          |                                      | [PHOTO OF GUS P. GEORGIADIS]                          |                                                        | [PHOTO OF LLOYD G. GIBSON]                                                                |                                                                                                | [PHOTO OF CHARLES S. LENZNER]                                                                                             
|                                                                                           |                                      |                                                       |                                                        |                                                                                           |                                                                                                |                                                                                                                           
|Nicholas C. GeanopulosPresident-N.C. Geanopulos, Inc. President-Geanopulos Representations |                                      | Gus P. GeorgiadisPresident-TRIAD USA                  |                                                        | Lloyd G. GibsonPresident and Chief Executive Officer NSD Bancorp, Inc. And NorthSide Bank |                                                                                                | Charles S. LenznerVice President-Lenzner Tours                                                                            
|                                                                                           |                                      |                                                       |                                                        |                                                                                           |                                                                                                |                                                                                                                           
|                                                                                           | [PHOTO OF DAVID J. MALONE]           |                                                       | [PHOTO OF KENNETH L. RALL]                             |                                                                                           | [PHOTO OF ARTHUR J. ROONEY, II]                                                                |                                                                                                                           
|                                                                                           |                                      |                                                       |                                                        |                                                                                           |                                                                                                |                                                                                                                           
|                                                                                           | David J. MaloneCFO-Gateway Financial |                                                       | Kenneth L. RallPresident-Renaissance Homes Sales, Inc. |                                                                                           | Arthur J. Rooney, IIChairman of the Board- Klett, Rooney, Lieber & Schorling, Attorneys at law |                                                                                                                           
|                                                                                           |                                      |                                                       |                                                        |                                                                                           |                                                                                                |                                                                                                                           

Director listings of NSD Bancorp, Inc. and NorthSide Bank as of March 14, 2003

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Shareholders Information

Stock ListingShares of NSD Bancorp, Inc. Common stock are traded on the
NASDAQ National Market System.  The ticker symbol is NSDB.

Shareholder InquiriesQuestions regarding dividends, transfer of stock, address change or lost certificates should be
directed to Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016-3572.  If you need more information, please call 1-800-368-5948.  Website address: www.rtco.com

Annual MeetingThe Annual Meeting of Shareholders will be held at 3:00 p.m. Eastern Time, on Tuesday, April 22, 2003, in the ballroom of the Holiday Inn, 4859 McKnight Road, Pittsburgh, Pennsylvania.

Additional Financial Information AvailableThe Banks Annual Report to the Securities and Exchange Commission (Form 10-K) or any quarterly Report (Form 10-Q) issued subsequent to the period
covered in this report will be furnished to any shareholder upon request and addressed to James P. Radick, Treasurer, NSD Bancorp, Inc., 5004 McKnight Road, Pittsburgh, PA 15237, (412) 231-6900.

Community Offices

|Pittsburgh North Side (Principal Office)
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|Allegheny Professional Building         
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|Cranberry Township                      
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|Duncan Manor Shopping Center            
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|Fox Chapel                              
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|Franklin Park                           
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*This statement has not been reviewed, or confirmed for relevance by the Federal Deposit Insurance
Corp.Officer Listings as of March 14,2003.

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