##### 



Exhibit 13.2

FIRST SHARES BANCORP, INC.

CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000





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##### 



FIRST SHARES BANCORP, INC.
Greenwood, Indiana

CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 2001 and 2000

CONTENTS

|                                                           |  |  |   | 
|---------------------------------------------------------- |  |  | - | 
|REPORT OF INDEPENDENT AUDITORS                             |  |  | 1 | 
|                                                           |  |  |   | 
|CONSOLIDATED FINANCIAL STATEMENTS                          |  |  |   | 
|                                                           |  |  |   | 
|CONSOLIDATED BALANCE SHEETS                                |  |  | 2 | 
|                                                           |  |  |   | 
|CONSOLIDATED STATEMENTS OF OPERATIONS                      |  |  | 3 | 
|                                                           |  |  |   | 
|CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY |  |  | 4 | 
|                                                           |  |  |   | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                      |  |  | 5 | 
|                                                           |  |  |   | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 |  |  | 6 | 





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##### 



FIRST SHARES BANCORP, INC.

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
First Shares Bancorp, Inc.
Greenwood, Indiana

We have audited the accompanying consolidated balance sheets of First Shares
Bancorp, Inc. as of December 31, 2002 and 2001, and the related consolidated
statements of operations, 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 Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Shares Bancorp, Inc. as
of December 31, 2002 and 2001, and the results of its operations and its 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.

Crowe, Chizek and Company LLP

Indianapolis, Indiana
January 23, 2003

1.



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##### 



FIRST SHARES BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

|                                                         |                                                                                                   |                           |                |         |       |         |         |         |       |         | 
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ------------------------- | -------------- | ------- | ----- | ------- | ------- | ------- | ----- | ------- | 
|                                                         |                                                                                                   |                           |                |         | 2002  |         |         | 2001    |      
|                                                         |                                                                                                   |                           |                |         |       |         |         |         |      
|ASSETS                                                   |                                                                                                   |                           |                |         |       |         |         |        
|Cash and due from banks                                  |                                                                                                   | $                         | 5,348          |         |       | $       | 5,227   |        
|Federal funds sold and other                             |                                                                                                   |                           |               |         |       |         | 1,081   |        
|                                                         |                                                                                                   |                           |                |         |       |        
|                                                         |                                                                                                   | Cash and cash equivalents |                |         | 5,348 |         |         |         | 6,308 |        
|Securities available for sale                            |                                                                                                   |                           | 26,810         |         |       |         | 22,881  |        
|Securities held to maturity (fair value of
$277 in 2001) |                                                                                                   |                           |               |         |       |         | 275     |        
|FHLB stock, at cost                                      |                                                                                                   |                           | 670            |         |       |         | 670     |        
|Loans held for sale                                      |                                                                                                   |                           | 5,778          |         |       |         | 2,759   |        
|Loans, net of allowance ($1,386 and $1,148)              |                                                                                                   |                           | 110,443        |         |       |         | 89,808  |        
|Premises and equipment, net                              |                                                                                                   |                           | 2,057          |         |       |         | 2,072   |        
|Intangible assets, net                                   |                                                                                                   |                           | 75             |         |       |         | 119     |        
|Cash surrender value of life insurance                   |                                                                                                   |                           | 2,427          |         |       |         | 2,293   |        
|Accrued interest receivable and other assets             |                                                                                                   |                           | 1,704          |         |       |         | 928     |        
|                                                         |                                                                                                   |                           |                |         |       |        
|                                                         |                                                                                                   | $                         | 155,312        |         |       | $       | 128,113 |        
|                                                         |                                                                                                   |                           |                |         |       |        
|LIABILITIES AND SHAREHOLDERS EQUITY                     |                                                                                                   |                           |                |         |       |         |         |        
|Liabilities                                              |                                                                                                   |                           |                |         |       |         |         |        
|                                                         | Noninterest-bearing deposits                                                                      |                           | $              | 15,750  |       |         | $       | 11,253  |      
|                                                         | Interest-bearing deposits                                                                         |                           |                | 107,313 |       |         |         | 100,122 |      
|                                                         |                                                                                                   |                           |                |         |       |        
|                                                         |                                                                                                   |                           | Total deposits |         |       | 123,063 |         |         |       | 111,375 | 
|                                                         | Federal Home Loan Bank advances                                                                   |                           |                | 8,700   |       |         |         | 3,000   |      
|                                                         | Federal funds purchased                                                                           |                           |                | 2,245   |       |         |         |        |      
|                                                         | Repurchase agreements                                                                             |                           |                | 5,684   |       |         |         | 4,211   |      
|                                                         | Note payable                                                                                      |                           |                | 1,475   |       |         |         | 1,780   |      
|                                                         | Debentures                                                                                        |                           |                | 5,000   |       |         |         |        |      
|                                                         | Accrued interest payable and other liabilities                                                    |                           |                | 583     |       |         |         | 484     |      
|                                                         |                                                                                                   |                           |                |         |       |        
|                                                         |                                                                                                   |                           | 146,750        |         |       |         | 120,850 |        
|Shareholders equity                                     |                                                                                                   |                           |                |         |       |         |         |        
|                                                         | Preferred stock, 2,000,000 shares authorized; none outstanding                                    |                           |                |        |       |         |         |        |      
|                                                         | Common stock, $.01 par value: 10,000,000 shares authorized,
1,579,162 and 1,052,779 shares issued |                           |                | 16      |       |         |         | 11      |      
|                                                         | Additional paid in capital                                                                        |                           |                | 4,674   |       |         |         | 4,674   |      
|                                                         | Retained earnings                                                                                 |                           |                | 3,912   |       |         |         | 2,583   |      
|                                                         | Accumulated other comprehensive loss                                                              |                           |                | (40     | )     |         |         | (5      | )    
|                                                         |                                                                                                   |                           |                |         |       |        
|                                                         |                                                                                                   |                           | 8,562          |         |       |         | 7,263   |        
|                                                         |                                                                                                   |                           |                |         |       |        
|                                                         |                                                                                                   | $                         | 155,312        |         |       | $       | 128,113 |        
|                                                         |                                                                                                   |                           |                |         |       |        

See accompanying notes.

2.



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##### 



FIRST SHARES BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2002, 2001 and 2000
(Dollar amounts in thousands, except per share data)

|                                                    |                                                    |   |       |       |  |      |       |       |      |   |       |       |  
|--------------------------------------------------- | -------------------------------------------------- | - | ----- | ----- |  | ---- | ----- | ----- | ---- | - | ----- | ----- | -
|                                                    |                                                    |   | 2002  |       |  | 2001 |       |       | 2000 |  
|                                                    |                                                    |   |       |       |  |      |       |       |      |  
|Interest income                                     |                                                    |   |       |       |  |      |       |       |      |   |       |      
|                                                    | Loans, including related fees                      |   | $     | 7,547 |  |      | $     | 7,755 |      |   | $     | 6,353 |  
|                                                    | Taxable securities                                 |   |       | 1,553 |  |      |       | 1,313 |      |   |       | 1,105 |  
|                                                    | Nontaxable securities                              |   |       | 109   |  |      |       | 41    |      |   |       | 51    |  
|                                                    | Other                                              |   |       | 25    |  |      |       | 55    |      |   |       | 87    |  
|                                                    |                                                    |   |       |       |  |      |       |       |     
|                                                    |                                                    |   | 9,234 |       |  |      | 9,164 |       |      |   | 7,596 |      
|Interest expense                                    |                                                    |   |       |       |  |      |       |       |      |   |       |      
|                                                    | Deposits                                           |   |       | 3,193 |  |      |       | 4,456 |      |   |       | 3,936 |  
|                                                    | Other                                              |   |       | 598   |  |      |       | 348   |      |   |       | 399   |  
|                                                    |                                                    |   |       |       |  |      |       |       |     
|                                                    |                                                    |   | 3,791 |       |  |      | 4,804 |       |      |   | 4,335 |      
|                                                    |                                                    |   |       |       |  |      |       |       |     
|Net interest income                                 |                                                    |   | 5,443 |       |  |      | 4,360 |       |      |   | 3,261 |      
|Provision for loan losses                           |                                                    |   | 448   |       |  |      | 331   |       |      |   | 417   |      
|                                                    |                                                    |   |       |       |  |      |       |       |     
|Net interest income after provision for loan losses |                                                    |   | 4,995 |       |  |      | 4,029 |       |      |   | 2,844 |      
|Noninterest income                                  |                                                    |   |       |       |  |      |       |       |      |   |       |      
|                                                    | Service charges on deposit accounts                |   |       | 402   |  |      |       | 317   |      |   |       | 187   |  
|                                                    | Gain on sale of loans                              |   |       | 881   |  |      |       | 451   |      |   |       | 143   |  
|                                                    | Increase in cash surrender value of life insurance |   |       | 149   |  |      |       | 117   |      |   |       | 93    |  
|                                                    | Net gain on sale of securities                     |   |       | 222   |  |      |       | 63    |      |   |       |      |  
|                                                    | Other                                              |   |       | 203   |  |      |       | 154   |      |   |       | 83    |  
|                                                    |                                                    |   |       |       |  |      |       |       |     
|                                                    |                                                    |   | 1,857 |       |  |      | 1,102 |       |      |   | 506   |      
|Noninterest expenses                                |                                                    |   |       |       |  |      |       |       |      |   |       |      
|                                                    | Salaries and employee benefits                     |   |       | 3,168 |  |      |       | 2,559 |      |   |       | 2,334 |  
|                                                    | Occupancy                                          |   |       | 454   |  |      |       | 355   |      |   |       | 362   |  
|                                                    | Equipment and data processing                      |   |       | 426   |  |      |       | 378   |      |   |       | 384   |  
|                                                    | Telephone                                          |   |       | 137   |  |      |       | 117   |      |   |       | 123   |  
|                                                    | Advertising                                        |   |       | 113   |  |      |       | 87    |      |   |       | 125   |  
|                                                    | Other                                              |   |       | 1,137 |  |      |       | 943   |      |   |       | 880   |  
|                                                    |                                                    |   |       |       |  |      |       |       |     
|                                                    |                                                    |   | 5,435 |       |  |      | 4,439 |       |      |   | 4,208 |      
|                                                    |                                                    |   |       |       |  |      |       |       |     
|Income (loss) before income taxes                   |                                                    |   | 1,417 |       |  |      | 692   |       |      |   | (858  | )    
|Income tax expense                                  |                                                    |   | 83    |       |  |      |      |       |      |   |      |      
|                                                    |                                                    |   |       |       |  |      |       |       |     
|Net income (loss)                                   |                                                    | $ | 1,334 |       |  | $    | 692   |       |      | $ | (858  | )    
|                                                    |                                                    |   |       |       |  |      |       |       |     
|Earnings/(loss) per share:                          |                                                    |   |       |       |  |      |       |       |      |   |       |      
|                                                    | Basic                                              |   | $     | .84   |  |      | $     | .44   |      |   | $     | (.72  | )
|                                                    | Diluted                                            |   |       | .83   |  |      |       | .43   |      |   |       | (.72  | )

See accompanying notes.

3.



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##### 



FIRST SHARES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
Years ended December 31, 2002, 2001 and 2000
(Dollar amounts in thousands, except per share data)

|                             |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |       |               |   |       |       |       |       |  
|---------------------------- | -------------------------------------------- | -------------------------- | -- | ------ |  | - | ------- | ---------- |  | -------- | ----- | ----- | ------------- | - | ----- | ------------- | - | ----- | ----- | ----- | ----- | -
|                             |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |       | Accumulated   |   |       |       |       |      
|                             |                                              |                            |    |        |  |   |         | Additional |  |          |       |       |               |   | Other |               |   | Total |      
|                             |                                              |                            |    | Common |  |   | Paid-in |            |  | Retained |       |       | Comprehensive |   |       | Shareholders' |  
|                             |                                              |                            |    | Stock  |  |   | Capital |            |  | Earnings |       |       | Income (Loss) |   |       | Equity        |  
|                             |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |       |               |  
|Balance at January 1, 2000   |                                              | $                          | 7  |        |  | $ | 1,988   |            |  | $        | 2,749 |       |               | $ | (147  | )             |   | $     | 4,597 |      
|Comprehensive loss:          |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |       |               |   |       |       |      
|                             | Net loss                                     |                            |    |        |  |   |         |            |  |          |       | (858  | )             |   |       |               |   |       |       | (858  | )    
|                             | Change in unrealized
gain/(loss)             |                            |    |        |  |   |         |            |  |          |       |       |               |   |       | 170           |   |       |       | 170   |      
|                             |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |       |               |   |       |      
|                             |                                              | Total comprehensive
loss   |    |        |  |   |         |            |  |          |       |       |               |   |       |               |   |       |       |       | (688  | )
|                             | Proceeds from sale of stock
(388,267 shares) |                            |    | 4      |  |   |         | 2,686      |  |          |       |       |               |   |       |               |   |       |       | 2,690 |      
|                             |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |      
|Balance at December 31, 2000 |                                              |                            | 11 |        |  |   | 4,674   |            |  |          | 1,891 |       |               |   | 23    |               |   |       | 6,599 |      
|Comprehensive income:        |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |       |               |   |       |       |      
|                             | Net income                                   |                            |    |        |  |   |         |            |  |          |       | 692   |               |   |       |               |   |       |       | 692   |      
|                             | Change in unrealized
gain/(loss)             |                            |    |        |  |   |         |            |  |          |       |       |               |   |       | (28           | ) |       |       | (28   | )    
|                             |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |       |               |   |       |      
|                             |                                              | Total comprehensive
income |    |        |  |   |         |            |  |          |       |       |               |   |       |               |   |       |       |       | 664   |  
|                             |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |      
|Balance at December 31, 2001 |                                              |                            | 11 |        |  |   | 4,674   |            |  |          | 2,583 |       |               |   | (5    | )             |   |       | 7,263 |      
|Comprehensive income:        |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |       |               |   |       |       |      
|                             | Net income                                   |                            |    |        |  |   |         |            |  |          |       | 1,334 |               |   |       |               |   |       |       | 1,334 |      
|                             | Change in unrealized
gain/(loss)             |                            |    |        |  |   |         |            |  |          |       |       |               |   |       | (35           | ) |       |       | (35   | )    
|                             |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |       |               |   |       |      
|                             |                                              | Total comprehensive
income |    |        |  |   |         |            |  |          |       |       |               |   |       |               |   |       |       |       | 1,299 |  
|                             | Shares issued in 3:2 stock
split (526,383)   |                            |    | 5      |  |   |         |            |  |          |       | (5    | )             |   |       |               |   |       |       |      |      
|                             |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |      
|Balance at December 31, 2002 |                                              | $                          | 16 |        |  | $ | 4,674   |            |  | $        | 3,912 |       |               | $ | (40   | )             |   | $     | 8,562 |      
|                             |                                              |                            |    |        |  |   |         |            |  |          |       |       |               |   |      

See accompanying notes.

4.



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##### 



FIRST SHARES BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002, 2001 and 2000
(Dollar amounts in thousands)

|                                                  |                                                                                   |                                                |                                                    |                                    |         |        |        |         |         |        |        |         |         |      |      |  
|------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------- | -------------------------------------------------- | ---------------------------------- | ------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ---- | ---- | -
|                                                  |                                                                                   |                                                |                                                    |                                    |         | 2002   |        |         | 2001    |        |        | 2000    |        
|                                                  |                                                                                   |                                                |                                                    |                                    |         |        |        |         |         |        |        |         |        
|Cash flows from operating activities              |                                                                                   |                                                |                                                    |                                    |         |        |        |         |         |        |        |        
|                                                  | Net income (loss)                                                                 |                                                | $                                                  | 1,334                              |         |        | $      | 692     |         |        | $      | (858    | )      
|                                                  | Adjustments to reconcile net income (loss)
to net cash from operating activities: |                                                |                                                    |                                    |         |        |        |         |         |        |        |         |        
|                                                  |                                                                                   | Depreciation and amortization                  |                                                    |                                    | 326     |        |        |         | 295     |        |        |         | 311     |     
|                                                  |                                                                                   | Provision for loan losses                      |                                                    |                                    | 448     |        |        |         | 331     |        |        |         | 417     |     
|                                                  |                                                                                   | Discount (accretion) and premium amortization  |                                                    |                                    | 210     |        |        |         | 4       |        |        |         | (3      | )   
|                                                  |                                                                                   | (Gain) loss on sale of securities              |                                                    |                                    | (222    | )      |        |         | (63     | )      |        |         |        |     
|                                                  |                                                                                   | (Gain) loss on sale of other real estate owned |                                                    |                                    | (16     | )      |        |         |        |        |        |         |        |     
|                                                  |                                                                                   | Amortization                                   |                                                    |                                    | 86      |        |        |         | 44      |        |        |         | 43      |     
|                                                  |                                                                                   | Net realized loss on disposal of fixed assets  |                                                    |                                    |        |        |        |         |        |        |        |         | 25      |     
|                                                  |                                                                                   | Changes in assets and liabilities:             |                                                    |                                    |         |        |        |         |         |        |        |         |         |     
|                                                  |                                                                                   |                                                | Loans held for sale                                |                                    |         | (3,019 | )      |         |         | (2,265 | )      |         |         | 107  |     
|                                                  |                                                                                   |                                                | Increase on cash surrender value of life insurance |                                    |         | (134   | )      |         |         | (104   | )      |         |         |     |     
|                                                  |                                                                                   |                                                | Interest receivable and other assets               |                                    |         | (259   | )      |         |         | (40    | )      |         |         | (425 | )   
|                                                  |                                                                                   |                                                | Interest payable and other liabilities             |                                    |         | 122    |        |         |         | 24     |        |         |         | 82   |     
|                                                  |                                                                                   |                                                |                                                    |                                    |         |        |        |         |        
|                                                  |                                                                                   |                                                |                                                    | Net cash from operating activities |         |        | (1,124 | )       |         |        | (1,082 | )       |         |      | (301 | )
|Cash flows from investing activities              |                                                                                   |                                                |                                                    |                                    |         |        |        |         |         |        |        |        
|                                                  | Proceeds from maturities and paydowns of securities
available for sale            |                                                |                                                    | 18,741                             |         |        |        | 17,621  |         |        |        | 12,735  |        
|                                                  | Proceeds from sales of securities available for sale                              |                                                |                                                    | 25,750                             |         |        |        | 6,113   |         |        |        | 5,315   |        
|                                                  | Proceeds from maturities of securities held to maturity                           |                                                |                                                    | 275                                |         |        |        |        |         |        |        | 343     |        
|                                                  | Purchases of securities available for sale                                        |                                                |                                                    | (48,466                            | )       |        |        | (30,830 | )       |        |        | (16,665 | )      
|                                                  | Purchase of Federal Home Loan Bank stock                                          |                                                |                                                    |                                   |         |        |        |        |         |        |        | (541    | )      
|                                                  | Loans made to customers net of payments received                                  |                                                |                                                    | (21,051                            | )       |        |        | (9,640  | )       |        |        | (35,920 | )      
|                                                  | Premises and equipment purchases                                                  |                                                |                                                    | (311                               | )       |        |        | (276    | )       |        |        | (731    | )      
|                                                  | Purchase of life insurance                                                        |                                                |                                                    |                                   |         |        |        |        |         |        |        | (1,751  | )      
|                                                  | Proceeds from sale of other real estate                                           |                                                |                                                    | 86                                 |         |        |        |        |         |        |        |        |        
|                                                  |                                                                                   |                                                |                                                    |                                    |         |        |        |         |        
|                                                  |                                                                                   | Net cash from investing activities             |                                                    |                                    | (24,976 | )      |        |         | (17,012 | )      |        |         | (37,215 | )   
|Cash flows from financing activities              |                                                                                   |                                                |                                                    |                                    |         |        |        |         |         |        |        |        
|                                                  | Change in deposit accounts                                                        |                                                |                                                    | 11,688                             |         |        |        | 20,667  |         |        |        | 27,721  |        
|                                                  | Change in repurchase agreements                                                   |                                                |                                                    | 1,473                              |         |        |        | 4,211   |         |        |        |        |        
|                                                  | Proceeds from Federal Home Loan Bank advances                                     |                                                |                                                    | 5,700                              |         |        |        | 2,000   |         |        |        | 3,500   |        
|                                                  | Payments on Federal Home Loan Bank advance                                        |                                                |                                                    |                                   |         |        |        | (3,300  | )       |        |        |        |        
|                                                  | Sale of common stock                                                              |                                                |                                                    |                                   |         |        |        |        |         |        |        | 2,690   |        
|                                                  | Change in federal funds purchased                                                 |                                                |                                                    | 2,245                              |         |        |        | (2,600  | )       |        |        | 2,600   |        
|                                                  | Proceeds from debentures                                                          |                                                |                                                    | 5,000                              |         |        |        |        |         |        |        |        |        
|                                                  | Debt issuance costs                                                               |                                                |                                                    | (661                               | )       |        |        |        |         |        |        |        |        
|                                                  | Proceeds from note payable                                                        |                                                |                                                    | 90                                 |         |        |        | 30      |         |        |        | 1,750   |        
|                                                  | Payments on note payable                                                          |                                                |                                                    | (395                               | )       |        |        |        |         |        |        |        |        
|                                                  |                                                                                   |                                                |                                                    |                                    |         |        |        |         |        
|                                                  |                                                                                   | Net cash from financing activities             |                                                    |                                    | 25,140  |        |        |         | 21,008  |        |        |         | 38,261  |     
|                                                  |                                                                                   |                                                |                                                    |                                    |         |        |        |         |        
|Net change in cash and cash equivalents           |                                                                                   |                                                | (960                                               | )                                  |         |        | 2,914  |         |         |        | 745    |        
|Cash and cash equivalents at beginning of year    |                                                                                   |                                                | 6,308                                              |                                    |         |        | 3,394  |         |         |        | 2,649  |        
|                                                  |                                                                                   |                                                |                                                    |                                    |         |        |        |         |        
|Cash and cash equivalents at end of year          |                                                                                   | $                                              | 5,348                                              |                                    |         | $      | 6,308  |         |         | $      | 3,394  |        
|                                                  |                                                                                   |                                                |                                                    |                                    |         |        |        |         |        
|Supplemental disclosures of cash flow information |                                                                                   |                                                |                                                    |                                    |         |        |        |         |         |        |        |        
|                                                  | Cash paid during the year for:                                                    |                                                |                                                    |                                    |         |        |        |         |         |        |        |         |        
|                                                  |                                                                                   | Interest                                       |                                                    | $                                  | 3,726   |        |        | $       | 4,814   |        |        | $       | 4,289   |     
|                                                  |                                                                                   | Income taxes paid/(received)                   |                                                    |                                    | 171     |        |        |         |        |        |        |         | (128    | )   

See accompanying notes.

5.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The accompanying
consolidated financial statements include the accounts of First Shares Bancorp,
Inc. (the Company) and its wholly owned subsidiary, First Bank (the Bank).
Intercompany balances and transactions are eliminated in consolidation. The
Bank operates from eight locations which generate commercial, mortgage and
installment loans, and receives deposits from customers located primarily in
Johnson, Morgan and Brown Counties of Indiana. The majority of the Companys
income is derived from commercial and retail lending activities and
investments. The majority of the Banks loans are secured by specific items of
collateral including business assets, real property and consumer assets.

Use of Estimates: To prepare financial statements in conformity with
accounting principles generally accepted in the United States of America,
management makes estimates and assumptions based on available information.
These estimates and assumptions affect the amounts reported in the financial
statements and the disclosures provided, and future results could differ. The
allowance for loan losses and the fair values of financial instruments are
particularly subject to change.

Securities: Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in other comprehensive income
(loss). Federal Home Loan Bank stock is carried at cost. Interest and
dividend income, adjusted by amortization of purchase premium or discount, is
included in earnings. Gains and losses on sales are based on the amortized
cost of the security sold. Securities are written down to fair value when a
decline in fair value is not temporary.

Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs,
and an allowance for loan losses. Loans held for sale are reported at the
lower of cost or market, on an aggregate basis. Interest income is reported on
the interest method and includes amortization of net deferred loan fees and
costs over the loan term.

Interest income is not reported when full loan repayment is in doubt, typically
when payments are past due over 90 days. In all cases loans are placed on
nonaccrual or charged off at an earlier date if collection of principal or
interest is considered doubtful. All interest accrued but not received for
loans placed on nonaccrual is reversed against interest income. Interest
received on such loans is accounted for on the cash-basis or cost-recovery
method, until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and the interest amounts contractually due are
brought current and future payments are reasonably assured.

(Continued)

6.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required based on past loan loss experience, known and
inherent risks in the portfolio, information about specific borrower situations
and estimated collateral values, economic conditions, and other factors.
Allocations of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in managements judgment, should be
charged-off. Loan losses are charged against the allowance when management
believes the collectibility of the loan is confirmed.

A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loans existing rate or at the fair
value of collateral if repayment is expected solely from collateral.

Premises and Equipment: Land is carried at cost. Premises and equipment is
reported net of accumulated depreciation. Depreciation expense is calculated
on the straight-line method over asset useful lives, ranging from 3 to 40
years.

Intangible Assets: Intangible assets consist entirely of a core deposit
intangible from a 1995 branch acquisition which is being amortized over its
estimated 10 year life. The core deposit intangible has a gross carrying value
of $396, with accumulated amortization totaling $321 and $277 at year end 2002
and 2001. Estimated amortization expense is $44 for 2003 and $31 for 2004.

Long-Term Assets: These assets are reviewed for impairment when events
indicate their carrying amount may not be recoverable from future undiscounted
cash flows. If impaired, the assets are recorded at fair value.

Bank Owned Life Insurance: The Company has purchased a life insurance policy
on a key executive. Bank owned life insurance is recorded at its cash
surrender value.

Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized.

Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. Management does not believe there now are such matters
that will have a material effect on the financial statements.

(Continued)

7.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Cash Flows: Cash and cash equivalents include cash, deposits with other
financial institutions under 90 days, and federal funds sold. Net cash flows
are reported for customer loan and deposit transactions.

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

|                                                                                  |  |      |       |   |      |   |     |      |  |   |      |  
|--------------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | --- | ---- |  | - | ---- | -
|                                                                                  |  | 2002 |       |   | 2001 |   |     | 2000 | 
|                                                                                  |  |      |       |   |      |   |     |      | 
|Net income as reported                                                            |  | $    | 1,334 |   |      | $ | 692 |      |  | $ | (858 | )
|Deduct: Stock-based compensation expense
determined under fair value based method |  |      | (24   | ) |      |   | (45 | )    |  |   | (16  | )
|                                                                                  |  |      |       |   |      |   |     |      | 
|Pro forma net income                                                              |  |      | 1,310 |   |      |   | 647 |      |  |   | (874 | )
|Basic earnings per share as reported                                              |  |      | .84   |   |      |   | .44 |      |  |   | (.72 | )
|Pro forma basic earnings per share                                                |  |      | .83   |   |      |   | .41 |      |  |   | (.73 | )
|Diluted earnings per share as reported                                            |  |      | .83   |   |      |   | .43 |      |  |   | (.72 | )
|Pro forma diluted earnings per share                                              |  |      | .81   |   |      |   | .41 |      |  |   | (.73 | )

The Pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date. There were no options
granted in 2002 or 2000.

|                                |  |      |   |   |      |         |      |      |   |  |   |  
|------------------------------- |  | ---- | - | - | ---- | ------- | ---- | ---- | - |  | - | -
|                                |  | 2002 |   |   | 2001 |         |      | 2000 |  
|Risk-free interest rate         |  |      |  | % |      |         | 5.11 | %    |   |  |  | %
|Expected option life            |  |      |  |   |      | 7 years |      |      |  | 
|Expected stock price volatility |  |      |  |   |      |         |     |      |   |  |  |  
|Dividend yield                  |  |      |  | % |      |         |     | %    |   |  |  | %

Earnings Per Share: Earnings per share is based on weighted-average common
shares outstanding. Diluted earnings per share includes the dilutive effect of
additional potential shares issuable under outstanding options. Earnings and
dividends per share, and other financial information, are restated for all
stock splits and dividends through the date of issue of the financial
statements. On November 6, 2002 the Company declared a three-for-two common
stock split to shareholders of record as of November 20, 2002.

(Continued)

8.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Comprehensive Income (Loss): Comprehensive income (loss) consists of net
income (loss) and other comprehensive income (loss). Other comprehensive
income (loss) includes unrealized gains and losses on securities available for
sale and is recognized as a separate component of equity.

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

Dividend Restriction: Banking regulations require the maintenance of certain
capital levels that may limit the amount of dividends which may be paid by the
Bank to the Company or by the Company to its shareholders.

Operating Segment: While the Companys chief decision-makers monitor the
revenue streams of the various Company products and services, the identifiable
segments are not material and operations are managed and financial performance
is evaluated on a Company-wide basis. Accordingly, all of the Companys
financial service operations are considered by management to be aggregated in
one reportable operating segment.

Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to
cover these liabilities, which are not covered by federal deposit insurance.

Off Balance Sheet Financial Instruments: Financial instruments include
off-balance sheet credit instruments, such as commitments to make loans and
standby letters of credit, issued to meet customer financing needs. The face
amount for these items represent the exposure to loss, before considering
customer collateral or ability to repay. Such financial instruments are
recorded when they are funded.

Newly Issued But Not Yet Effective Accounting Standards: New accounting
standards on asset retirement obligations, restructuring activities and exit
costs, operating leases, and early extinguishment of debt were issued in 2002.
Management determined that when the new accounting standards are adopted in
2003 they will not have a material impact in the Companys financial condition
or results of operations.

Reclassification: Some items in the prior year financial statements were
reclassified to conform to the current year presentation.

(Continued)

9.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 2  SECURITIES

The fair values of securities available for sale and the related gains and
losses recognized in accumulated other comprehensive income (loss) were as
follows at December 31:

|     |                                                  |   |        |        |  |            |       |     |            |       |      |      |  
|---- | ------------------------------------------------ | - | ------ | ------ |  | ---------- | ----- | --- | ---------- | ----- | ---- | ---- | -
|     |                                                  |   |        |        |  |            | Gross |     |            | Gross |     
|     |                                                  |   | Fair   |        |  | Unrealized |       |     | Unrealized |      
|     |                                                  |   | Value  |        |  | Gains      |       |     | Losses     |      
|     |                                                  |   |        |        |  |            |       |     |            |      
|2002 |                                                  |   |        |        |  |            |       |     |            |       |      |     
|     | U.S. Treasury and government
agency securities   |   | $      | 5,195  |  |            | $     | 94  |            |       | $    | (11  | )
|     | Obligations of states and
political subdivisions |   |        | 7,892  |  |            |       | 33  |            |       |      | (121 | )
|     | Other securities                                 |   |        | 6,842  |  |            |       | 56  |            |       |      | (111 | )
|     | Mortgage backed securities                       |   |        | 6,881  |  |            |       | 27  |            |       |      | (33  | )
|     |                                                  |   |        |        |  |            |       |     |           
|     |                                                  | $ | 26,810 |        |  | $          | 210   |     |            | $     | (276 | )   
|     |                                                  |   |        |        |  |            |       |     |           
|2001 |                                                  |   |        |        |  |            |       |     |            |       |      |     
|     | U.S. Treasury and government
agency securities   |   | $      | 12,547 |  |            | $     | 156 |            |       | $    | (112 | )
|     | Obligations of states and
political subdivisions |   |        | 616    |  |            |       |    |            |       |      | (11  | )
|     | Other securities                                 |   |        | 1,792  |  |            |       | 6   |            |       |      | (14  | )
|     | Mortgage backed securities                       |   |        | 7,926  |  |            |       | 37  |            |       |      | (72  | )
|     |                                                  |   |        |        |  |            |       |     |           
|     |                                                  | $ | 22,881 |        |  | $          | 199   |     |            | $     | (209 | )   
|     |                                                  |   |        |        |  |            |       |     |           

The carrying amount, unrecognized gains and losses and fair value of securities
held to maturity for 2001 were as follows. There were no securities classified
as held to maturity at year end 2002.

|                                                 |  |          |     |  |              |       |   |              |       |   |       |  |  |   |     | 
|------------------------------------------------ |  | -------- | --- |  | ------------ | ----- | - | ------------ | ----- | - | ----- |  |  | - | --- | 
|                                                 |  |          |     |  |              | Gross |   |              | Gross |   |       |  |  |  
|                                                 |  | Carrying |     |  | Unrecognized |       |   | Unrecognized |       |   | Fair  | 
|                                                 |  | Value    |     |  | Gains        |       |   | Losses       |       |   | Value | 
|                                                 |  |          |     |  |              |       |   |              |       |   |       | 
|2001                                             |  |          |     |  |              |       |   |              |       |   |       |  |  |   |     | 
|Obligations of states and
political subdivisions |  | $        | 275 |  |              | $     | 2 |              |       | $ |      |  |  | $ | 277 | 
|                                                 |  |          |     |  |              |       |   |              |       |   |       | 

(Continued)

10.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 2  SECURITIES(Continued)

The fair value of debt securities at December 31, 2002, by contractual
maturity, are shown below. Securities not due at a single maturity date,
primarily mortgage backed securities, are shown separately.

|                                       |  |                    |        | 
|-------------------------------------- |  | ------------------ | ------ | 
|                                       |  | Available for Sale |       
|                                       |  | Fair               |       
|                                       |  | Value              |       
|                                       |  |                    |       
|Due in one year or less                |  | $                  | 12     | 
|Due after one year through five years  |  |                    | 2,391  | 
|Due after five years through ten years |  |                    | 3,942  | 
|Due after ten years                    |  |                    | 13,584 | 
|Mortgage backed securities             |  |                    | 6,881  | 
|                                       |  |                    |       
|                                       |  | $                  | 26,810 | 
|                                       |  |                    |       

Information about the sales of securities available for sale follows:

|                      |  |      |        |  |      |   |       |      |  |   |       | 
|--------------------- |  | ---- | ------ |  | ---- | - | ----- | ---- |  | - | ----- | 
|                      |  | 2002 |        |  | 2001 |   |       | 2000 | 
|                      |  |      |        |  |      |   |       |      | 
|Proceeds              |  | $    | 25,750 |  |      | $ | 6,113 |      |  | $ | 5,315 | 
|Gross realized gains  |  |      | 230    |  |      |   | 65    |      |  |   | 1     | 
|Gross realized losses |  |      | 8      |  |      |   | 2     |      |  |   | 1     | 

Securities pledged at year-end 2002 and 2001 had a carrying value of $6,013 and
$8,543 and were pledged to secure repurchase agreements.

(Continued)

11.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 3  LOANS

Total loans are comprised of the following at December 31:

|                                |            |   |        |         |  |      |        |        | 
|------------------------------- | ---------- | - | ------ | ------- |  | ---- | ------ | ------ | 
|                                |            |   | 2002   |         |  | 2001 |       
|                                |            |   |        |         |  |      |       
|Commercial                      |            | $ | 25,461 |         |  | $    | 19,606 |       
|Commercial real estate          |            |   | 15,797 |         |  |      | 12,725 |       
|Residential real estate         |            |   | 27,119 |         |  |      | 24,537 |       
|Construction                    |            |   | 15,595 |         |  |      | 10,292 |       
|Consumer                        |            |   | 27,857 |         |  |      | 23,796 |       
|                                |            |   |        |         |  |     
|                                | Subtotal   |   |        | 111,829 |  |      |        | 90,956 | 
|Less: allowance for loan losses |            |   | (1,386 | )       |  |      | (1,148 | )     
|                                |            |   |        |         |  |     
|                                | Loans, net |   | $      | 110,443 |  |      | $      | 89,808 | 
|                                |            |   |        |         |  |     

NOTE 4  ALLOWANCE FOR LOAN LOSSES

An analysis of the allowance for loan losses follows:

|                                |  |      |       |   |      |   |       |      |  |   |      |  
|------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ---- | -
|                                |  | 2002 |       |   | 2001 |   |       | 2000 | 
|                                |  |      |       |   |      |   |       |      | 
|Balance, January 1              |  | $    | 1,148 |   |      | $ | 910   |      |  | $ | 549  |  
|Provision charged to operations |  |      | 448   |   |      |   | 331   |      |  |   | 417  |  
|Loans charged off               |  |      | (237  | ) |      |   | (167  | )    |  |   | (139 | )
|Recoveries                      |  |      | 27    |   |      |   | 74    |      |  |   | 83   |  
|                                |  |      |       |   |      |   |       |      | 
|Balance, December 31            |  | $    | 1,386 |   |      | $ | 1,148 |      |  | $ | 910  |  
|                                |  |      |       |   |      |   |       |      | 

Impaired loans were as follows:

|                                                           |  |      |     |  |      |   |     | 
|---------------------------------------------------------- |  | ---- | --- |  | ---- | - | --- | 
|                                                           |  | 2002 |     |  | 2001 |  
|                                                           |  |      |     |  |      |  
|Year-end loans with no allowance for
loan losses allocated |  | $    | 648 |  |      | $ | 214 | 
|Year-end loans with allowance for
loan losses allocated    |  |      |    |  |      |   | 32  | 
|Amount of the allowance allocated                          |  |      |    |  |      |   | 15  | 
|Average of impaired loans during the year                  |  |      | 213 |  |      |   | 211 | 
|Interest income recognized during impairment               |  |      |    |  |      |   |    | 
|Cash-basis interest income recognized                      |  |      |    |  |      |   |    | 

(Continued)

12.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 4  ALLOWANCE FOR LOAN LOSSES

Nonperforming loans were as follows:

|                                             |  |      |     |  |      |   |     | 
|-------------------------------------------- |  | ---- | --- |  | ---- | - | --- | 
|                                             |  | 2002 |     |  | 2001 |  
|                                             |  |      |     |  |      |  
|Loans past due over 90 days still on accrual |  | $    | 1   |  |      | $ |    | 
|Nonaccrual loans                             |  |      | 254 |  |      |   | 312 | 

Nonperforming loans and impaired loans are defined differently. Some loans may
be included in both categories, whereas other loans may only be included in one
category.

NOTE 5  PREMISES AND EQUIPMENT

Premises and equipment consists of the following at December 31:

|                           |       |   |        |       |  |      |        |       | 
|-------------------------- | ----- | - | ------ | ----- |  | ---- | ------ | ----- | 
|                           |       |   | 2002   |       |  | 2001 |       
|                           |       |   |        |       |  |      |       
|Land                       |       | $ | 40     |       |  | $    | 26     |      
|Buildings and improvements |       |   | 770    |       |  |      | 770    |      
|Leasehold improvements     |       |   | 598    |       |  |      | 581    |      
|Furniture and equipment    |       |   | 2,193  |       |  |      | 1,914  |      
|                           |       |   |        |       |  |     
|                           | Total |   |        | 3,601 |  |      |        | 3,291 | 
|Accumulated depreciation   |       |   | (1,544 | )     |  |      | (1,219 | )    
|                           |       |   |        |       |  |     
|                           |       | $ | 2,057  |       |  | $    | 2,072  |      
|                           |       |   |        |       |  |     

Depreciation expense was $326, $295 and $311 for 2002, 2001 and 2000.

NOTE 6  DEPOSITS

Certificates of deposit in denominations of $100 or more totaled $28,403 and
$28,861 at December 31, 2002 and 2001.

At year-end 2002, scheduled maturities of time deposits were as follows:

|           |  |   |        | 
|---------- |  | - | ------ | 
|2003       |  | $ | 47,557 | 
|2004       |  |   | 10,668 | 
|2005       |  |   | 6,818  | 
|2006       |  |   | 1,594  | 
|2007       |  |   | 3,144  | 
|Thereafter |  |   | 108    | 
|           |  |   |       
|           |  | $ | 69,889 | 
|           |  |   |       

Deposits from principal officers, directors, and their affiliates at year end
2002 and 2001 were $3,849 and $4,021.

(Continued)

13.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 7  FEDERAL HOME LOAN BANK ADVANCES AND OTHER DEBT

At year-end, advances from the Federal Home Loan Bank were as follows:

|                  |  |               |      |   |      |   |       |      |  |   |       | 
|----------------- |  | ------------- | ---- | - | ---- | - | ----- | ---- |  | - | ----- | 
|Maturity Date     |  | Interest Rate |      |   | 2002 |   |       | 2001 | 
|                  |  |               |      |   |      |   |       |      | 
|June 18, 2003     |  |               | 1.51 | % |      | $ | 5,700 |      |  | $ |      | 
|January 23, 2006  |  |               | 4.73 | % |      |   | 1,000 |      |  |   | 1,000 | 
|December 27, 2010 |  |               | 5.30 | % |      |   | 1,000 |      |  |   | 1,000 | 
|March 7, 2011     |  |               | 4.75 | % |      |   | 1,000 |      |  |   | 1,000 | 
|                  |  |               |      |   |      |   |       |      |  |  
|                  |  |               |      |   |      | $ | 8,700 |      |  | $ | 3,000 | 
|                  |  |               |      |   |      |   |       |      |  |  

The June 2003 advance is a variable rate advance and may be repaid at any date
prior to maturity without penalty. The remaining advances are due at maturity
and may not be re-paid prior to maturity without a penalty. The advances are
collateralized by first mortgage loans under a blanket lien arrangement. The
required principal payments during the next five years are $5,700 in 2003,
$1,000 in 2006, with the remaining balances due thereafter.

The Company maintains a note payable with a financial institution. The balance
outstanding on the note at December 31, 2002 and 2001 was $1,475 and $1,780.
The outstanding balance accrues interest at LIBOR plus 2.50% (the interest rate
was 3.85% at December 31, 2002). The note requires monthly principal payments
of $25 plus interest. Scheduled annual principal reductions over the next five
years are $300 through 2004 and $875 in 2005. The note matures July 30, 2005
and is secured by Bank stock and other assets of the Company.

During the first quarter of 2002, the Company initiated a public offering of
Debentures and Stock Purchase Contracts. The Company raised $5,000 with the
offering closing during the third quarter of 2002. Capitalized costs in
connection with the offering totaled $661. The Debentures are unsecured and
subordinated, have a term of approximately 9 years, and accrue interest at 8%
per annum payable quarterly in arrears. The Debentures mature on July 1, 2011,
but are redeemable by the Company at any time prior to their maturity. The
stock purchase contracts require a purchaser to buy common shares of the
Company at $6.67 per share on January 1, 2011. A purchaser may elect to
purchase the common shares of the Company at any time prior to that date at the
same price per share. The Stock Purchase Contracts will be cancelled in the
event the Debentures are redeemed. Proceeds of $3,000 were contributed from
the Company to the Bank to support growth. The debentures qualify as part of
total capital for the Companys regulatory capital requirements.

(Continued)

14.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 8  SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase are financing arrangements that
mature daily. Information concerning securities sold under agreements to
repurchase is summarized as follows:

|                                           |  |      |       |   |      |   |       |  
|------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|                                           |  | 2002 |       |   | 2001 |  
|                                           |  |      |       |   |      |  
|Average daily balance during the year      |  | $    | 4,840 |   |      | $ | 737   |  
|Average interest rate during the year      |  |      | .98   | % |      |   | 1.13  | %
|Maximum month-end balance during the year  |  | $    | 6,051 |   |      | $ | 5,837 |  
|Weighted average interest rate at year-end |  |      | .31   | % |      |   | .75   | %

NOTE 9  EMPLOYMENT BENEFIT PLANS

The Bank maintains a 401(k) retirement plan in which substantially all
employees may participate. Employee contributions are limited to a maximum of
15% of their salary. The Plan allows for employer matching contributions up to
6% of an employees compensation, and employer discretionary contributions.
The Banks contributions to the Plan become 20% vested after each year of
service, and are fully vested after 5 years. Total 401(k) contributions
charged to expense were $49, $43 and $47 in 2002, 2001 and 2000.

The Bank has a deferred compensation plan for the benefit of certain directors.
Under the plan, the Bank agrees, in return for the directors deferring the
receipt of a portion of their current compensation, to pay a retirement benefit
computed as the amount of the compensation deferred plus accrued interest at a
variable rate. Accrued benefits payable totaled $196 and $161 at December 31,
2002 and 2001. The Bank purchased life insurance on the directors. The cash
surrender value of that insurance was $496 and $456 at December 31, 2002 and
2001.

(Continued)

15.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 10  INCOME TAXES

Income tax expense/(benefit) consists of the following:

|                              |                              |   |      |    |  |      |      |   |      |   |      |   | 
|----------------------------- | ---------------------------- | - | ---- | -- |  | ---- | ---- | - | ---- | - | ---- | - | 
|                              |                              |   | 2002 |    |  | 2001 |      |   | 2000 |  
|                              |                              |   |      |    |  |      |      |   |      |  
|Current payable/(receivable)  |                              | $ | 335  |    |  | $    |     |   |      | $ |     |  
|Deferred income tax           |                              |   | 152  |    |  |      | 208  |   |      |   | (418 | )
|Change in valuation allowance |                              |   | (404 | )  |  |      | (208 | ) |      |   | 418  |  
|                              |                              |   |      |    |  |      |      |   |     
|                              | Income tax expense/(benefit) |   | $    | 83 |  |      | $    |  |      |   | $    |  | 
|                              |                              |   |      |    |  |      |      |   |     

The following is a reconciliation of income taxes and the amount computed by
applying the statutory federal income tax rate of 34% to income/(loss) before
income taxes for December 31:

|                                                            |                                    |   |      |     |   |      |      |     |      |   |      |     |  
|----------------------------------------------------------- | ---------------------------------- | - | ---- | --- | - | ---- | ---- | --- | ---- | - | ---- | --- | -
|                                                            |                                    |   | 2002 |     |   | 2001 |      |     | 2000 |  
|                                                            |                                    |   |      |     |   |      |      |     |      |  
|Statutory rate applied to income/(loss)
before income taxes |                                    | $ | 482  |     |   | $    | 235  |     |      | $ | (292 | )  
|Add (deduct)                                                |                                    |   |      |     |   |      |      |     |      |   |      |    
|                                                            | Tax-exempt interest
income, net    |   |      | (33 | ) |      |      | (12 | )    |   |      | (14 | )
|                                                            | Life insurance                     |   |      | (46 | ) |      |      | (40 | )    |   |      | (27 | )
|                                                            | Other                              |   |      | 84  |   |      |      | 27  |      |   |      | (85 | )
|Valuation Allowance                                         |                                    |   | (404 | )   |   |      | (210 | )   |      |   | 418  |    
|                                                            |                                    |   |      |     |   |      |      |     |     
|                                                            | Total income tax expense/(benefit) |   | $    | 83  |   |      | $    |    |      |   | $    |    |  
|                                                            |                                    |   |      |     |   |      |      |     |     

Deferred tax assets and liabilities as of December 31, 2002 and 2001 are
comprised of the following components:

|                     |                                                      |                           |   |      |     |  |      |     |     | 
|-------------------- | ---------------------------------------------------- | ------------------------- | - | ---- | --- |  | ---- | --- | --- | 
|                     |                                                      |                           |   | 2002 |     |  | 2001 |    
|                     |                                                      |                           |   |      |     |  |      |    
|Deferred tax assets: |                                                      |                           |   |      |     |  |      |    
|                     | Allowance for loan losses                            |                           | $ | 422  |     |  | $    | 370 |    
|                     | Core deposit                                         |                           |   | 57   |     |  |      | 53  |    
|                     | Net unrealized loss on securities available for sale |                           |   | 26   |     |  |      | 4   |    
|                     | Net operating loss carryforward                      |                           |   |     |     |  |      | 253 |    
|                     | Deferred compensation                                |                           |   | 76   |     |  |      | 63  |    
|                     | Other                                                |                           |   | 71   |     |  |      | 27  |    
|                     |                                                      |                           |   |      |     | 
|                     |                                                      | Total deferred tax assets |   | $    | 652 |  |      | $   | 770 | 
|                     |                                                      |                           |   |      |     | 

(Continued)

16.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 10  INCOME TAXES(Continued)

|                          |                                                      |                            |   |      |      |   |      |      |      |  
|------------------------- | ---------------------------------------------------- | -------------------------- | - | ---- | ---- | - | ---- | ---- | ---- | -
|                          |                                                      |                            |   | 2002 |      |   | 2001 |     
|                          |                                                      |                            |   |      |      |   |      |     
|Deferred tax liabilities: |                                                      |                            |   |      |      |   |      |     
|                          | Depreciation                                         |                            |   | (269 | )    |   |      | (194 | )   
|                          | Accrual to cash                                      |                            |   | (105 | )    |   |      | (168 | )   
|                          | Net unrealized gain on securities available for sale |                            |   |     |      |   |      |     |     
|                          |                                                      |                            |   |      |      |  
|                          |                                                      | Total deferred liabilities |   |      | (374 | ) |      |      | (362 | )
|Valuation allowance       |                                                      |                            |  |      |      |   | (404 | )   
|                          |                                                      |                            |   |      |      |  
|                          | Net deferred tax asset/(liability)                   |                            | $ | 278  |      |   | $    | 4    |     
|                          |                                                      |                            |   |      |      |  

NOTE 11  COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Bank has guarantees and commitments to
extend credit which are not reflected in the balance sheet. The Banks
exposure to credit loss in the event of nonperformance by the other party to
the financial instrument is represented by the contractual amount of those
instruments. The Bank uses the same credit policy to make such commitments as
it does for on-balance sheet items. At December 31, 2002 and 2001, unused
lines of credit and standby letters of credit totaled $16,391 and $9,441.
Interest rates on these commitments are primarily variable. Since many
commitments to make loans expire without being used, the amount does not
necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using managements credit evaluation
of the borrower, and may include accounts receivable, inventory, property, land
and other items.

At year-end 2002 and 2001, reserves of $484 and $317 were required as deposits
with the Federal Reserve or as cash on hand. These reserves do not earn
interest.

The Bank leases branch facilities under operating leases expiring in various
years through 2006. Expense for leased premises was $218, $139 and $124 for
2002, 2001 and 2000.

During 2001, the Bank entered into a lease agreement with a director for a
branch facility. The lease terms require annual payments of $56, with the
lease expiring 2006. Amounts paid to related parties under this lease total
$56 for 2002.

(Continued)

17.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 11  COMMITMENTS AND CONTINGENCIES(Continued)

Future minimum lease payments are as follows:

|     |  |   |     | 
|---- |  | - | --- | 
|2003 |  | $ | 198 | 
|2004 |  |   | 183 | 
|2005 |  |   | 124 | 
|2006 |  |   | 113 | 
|2007 |  |   | 4   | 
|     |  |   |    
|     |  | $ | 618 | 
|     |  |   |    

During 1999 the company entered into employment contracts with certain
executive officers. The contracts have an initial term of three years, with
the expiration extended an additional year at each annual anniversary date.
The contracts provide for severance payments and other benefits, the amount of
which depends upon the nature of the separation. No amount is accrued at
December 31, 2002 or 2001 under these agreements.

NOTE 12  CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

The Bank and, beginning in 2002, the Company are subject to regulatory capital
requirements administered by federal banking agencies. Capital adequacy
guidelines and prompt corrective action regulations involve quantitative
measures of assets, liabilities, and certain off-balance sheet items calculated
under regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators. Failure to meet capital
requirements can initiate regulatory action.

The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. As of December 31,
2002 and 2001 the Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action.

The Company has passed a resolution not to declare or pay dividends; incur any
debt; or purchase or redeem any treasury stock without obtaining prior written
consent of its regulatory agencies.

(Continued)

18.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 12  CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS(Continued)

|                                         |              |  |        |        |  |                   |  |       |                    |  |                  |        |  |                   |        |      |   |       |                  |        |  |  |  |       |  
|---------------------------------------- | ------------ |  | ------ | ------ |  | ----------------- |  | ----- | ------------------ |  | ---------------- | ------ |  | ----------------- | ------ | ---- | - | ----- | ---------------- | ------ |  |  |  | ----- | -
|                                         |              |  | 2002   |       
|                                         |              |  |        |       
|                                         |              |  |        |        |  |                   |  |       |                    |  |                  |        |  |                   |        |      |   |       | Minimum Required |       
|                                         |              |  |        |        |  |                   |  |       |                    |  |                  |        |  |                   |        |      |   |       | To Be Well       |       
|                                         |              |  |        |        |  |                   |  |       |                    |  | Minimum Required |        |  | Capitalized Under |       
|                                         |              |  |        |        |  |                   |  |       |                    |  | For Capital      |        |  | Prompt Corrective |       
|                                         |              |  | Actual |        |  | Adequacy Purposes |  |       | Action Regulations | 
|                                         |              |  |        |        |  |                   |  |       |                    | 
|                                         |              |  | Amount |        |  | Ratio             |  |       | Amount             |  |                  | Ratio  |  |                   | Amount |      |   | Ratio |                 
|                                         |              |  |        |        |  |                   |  |       |                    |  |                  |        |  |                   |        |      |   |       |                 
|Total capital (to risk weighted
assets)  |              |  |        |        |  |                   |  |       |                    |  |                  |        |  |                   |        |      |   |       |                  |        |  |  |  |      
|                                         | Consolidated |  | $      | 14,913 |  |                   |  | 11.48 | %                  |  | $                | 10,392 |  |                   |        | 8.00 | % |       | $                | 12,991 |  |  |  | 10.00 | %
|                                         | Bank         |  |        | 14,918 |  |                   |  | 11.53 |                    |  |                  | 10,352 |  |                   |        | 8.00 |   |       |                  | 12,940 |  |  |  | 10.00 |  
|Tier 1 capital (to risk weighted
assets) |              |  |        |        |  |                   |  |       |                    |  |                  |        |  |                   |        |      |   |       |                  |        |  |  |  |      
|                                         | Consolidated |  | $      | 8,527  |  |                   |  | 6.56  | %                  |  | $                | 5,196  |  |                   |        | 4.00 | % |       | $                | 7,794  |  |  |  | 6.00  | %
|                                         | Bank         |  |        | 13,532 |  |                   |  | 10.46 |                    |  |                  | 5,176  |  |                   |        | 4.00 |   |       |                  | 7,764  |  |  |  | 6.00  |  
|Tier 1 capital (to average assets)       |              |  |        |        |  |                   |  |       |                    |  |                  |        |  |                   |        |      |   |       |                  |        |  |  |  |      
|                                         | Consolidated |  | $      | 8,527  |  |                   |  | 5.34  | %                  |  | $                | 6,387  |  |                   |        | 4.00 | % |       | $                | 7,984  |  |  |  | 5.00  | %
|                                         | Bank         |  |        | 13,532 |  |                   |  | 8.52  |                    |  |                  | 6,349  |  |                   |        | 4.00 |   |       |                  | 7,937  |  |  |  | 5.00  |  

|      |                                          |  |        |        |  |                   |  |       |                    |  |                  |       |  |                   |        |      |   |       |                  |       |  |  |  |       |  
|----- | ---------------------------------------- |  | ------ | ------ |  | ----------------- |  | ----- | ------------------ |  | ---------------- | ----- |  | ----------------- | ------ | ---- | - | ----- | ---------------- | ----- |  |  |  | ----- | -
|      |                                          |  | 2001   |       
|      |                                          |  |        |       
|      |                                          |  |        |        |  |                   |  |       |                    |  |                  |       |  |                   |        |      |   |       | Minimum Required |      
|      |                                          |  |        |        |  |                   |  |       |                    |  |                  |       |  |                   |        |      |   |       | To Be Well       |      
|      |                                          |  |        |        |  |                   |  |       |                    |  | Minimum Required |       |  | Capitalized Under |       
|      |                                          |  |        |        |  |                   |  |       |                    |  | For Capital      |       |  | Prompt Corrective |       
|      |                                          |  | Actual |        |  | Adequacy Purposes |  |       | Action Regulations | 
|      |                                          |  |        |        |  |                   |  |       |                    | 
|      |                                          |  | Amount |        |  | Ratio             |  |       | Amount             |  |                  | Ratio |  |                   | Amount |      |   | Ratio |                 
|      |                                          |  |        |        |  |                   |  |       |                    |  |                  |       |  |                   |        |      |   |       |                 
|Bank: |                                          |  |        |        |  |                   |  |       |                    |  |                  |       |  |                   |        |      |   |       |                  |       |  |  |  |      
|      | Total capital (to risk weighted
assets)  |  | $      | 10,048 |  |                   |  | 10.18 | %                  |  | $                | 7,892 |  |                   |        | 8.00 | % |       | $                | 9,866 |  |  |  | 10.00 | %
|      | Tier 1 capital (to risk weighted
assets) |  | $      | 8,900  |  |                   |  | 9.02  | %                  |  | $                | 3,946 |  |                   |        | 4.00 | % |       | $                | 5,919 |  |  |  | 6.00  | %
|      | Tier 1 capital (to average assets)       |  | $      | 8,900  |  |                   |  | 6.95  | %                  |  | $                | 5,121 |  |                   |        | 4.00 | % |       | $                | 6,401 |  |  |  | 5.00  | %

(Continued)

19.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 13  STOCK OPTIONS

The Company has established two separate stock option plans, the 1996 plan and
the 1999 plan, which provide for the issue of up to 211,500 total options. The
1996 plan has expired and no further options may be granted under that plan.
At grant date, 25% of the options granted to employees are available for
immediate exercise with the balance vesting at 25% per year over the next three
years. Options granted to directors are fully vested at grant date. The
options expire either five or seven years from the grant date.

A summary of the activity in the plan is as follows.

|                                                               |  |        |         |  |       |          |      |        |  |   |         |   |          |        |      |  |       |   |         |          |  |   |      | 
|-------------------------------------------------------------- |  | ------ | ------- |  | ----- | -------- | ---- | ------ |  | - | ------- | - | -------- | ------ | ---- |  | ----- | - | ------- | -------- |  | - | ---- | 
|                                                               |  | 2002   |         |  | 2001  |          |      | 2000   | 
|                                                               |  |        |         |  |       |          |      |        | 
|                                                               |  |        |         |  |       | Weighted |      |        |  |   |         |   | Weighted |        |      |  |       |   |         | Weighted | 
|                                                               |  |        |         |  |       | Average  |      |        |  |   |         |   | Average  |        |      |  |       |   |         | Average  | 
|                                                               |  |        |         |  |       | Exercise |      |        |  |   |         |   | Exercise |        |      |  |       |   |         | Exercise | 
|                                                               |  |        |         |  |       |          |      |        |  |   |         |   |          |        |      |  |       |   |         |          | 
|                                                               |  | Shares |         |  | Price |          |      | Shares |  |   | Price   |   |          | Shares |      |  | Price |  
|                                                               |  |        |         |  |       |          |      |        |  |   |         |   |          |        |      |  |       |  
|Outstanding at beginning of year                               |  |        | 159,000 |  |       | $        | 4.99 |        |  |   | 108,000 |   |          | $      | 5.31 |  |       |   | 162,000 |          |  | $ | 5.03 | 
|Granted                                                        |  |        |        |  |       |          |     |        |  |   | 55,500  |   |          |        | 4.34 |  |       |   |        |          |  |   |     | 
|Exercised                                                      |  |        |        |  |       |          |     |        |  |   |        |   |          |        |     |  |       |   |        |          |  |   |     | 
|Forfeited                                                      |  |        |        |  |       |          |     |        |  |   | (4,500  | ) |          |        | 4.45 |  |       |   | (54,000 | )        |  |   | 4.45 | 
|                                                               |  |        |         |  |       |          |      |        |  |   |         |   |          |        |      |  |       |  
|Outstanding at end of year                                     |  |        | 159,000 |  |       | $        | 4.99 |        |  |   | 159,000 |   |          | $      | 4.99 |  |       |   | 108,000 |          |  | $ | 5.31 | 
|                                                               |  |        |         |  |       |          |      |        |  |   |         |   |          |        |      |  |       |  
|Weighted average fair value per
option granted during the year |  | $      |        |  |       |          |      |        |  | $ | 1.30    |   |          |        |      |  |       | $ |        |          |  |   |      | 
|                                                               |  |        |         |  |       |          |      |        |  |   |         |   |          |        |      |  |       |   |         |          | 

Options outstanding at year-end 2002 were as follows.

|                        |       |        |             |        |      |             |                  |        |         |        |       |  |          |          |  |  | 
|----------------------- | ----- | ------ | ----------- | ------ | ---- | ----------- | ---------------- | ------ | ------- | ------ | ----- |  | -------- | -------- |  |  | 
|                        |       |        | Outstanding |        |      | Exercisable |                 
|                        |       |        |             |        |      |             |                 
|                        |       |        |             |        |      |             | Weighted Average |        |         |        |       |  |          | Weighted | 
|                        |       |        |             |        |      |             | Remaining        |        |         |        |       |  |          | Average  | 
|Exercise                |       |        |             |        |      | Contractual |                  |        |         |        |       |  | Exercise |         
|Prices                  |       | Number |             |        | Life |             |                  | Number |         |        | Price | 
|                        |       |        |             |        |      |             |                  |        |         |        |       | 
|                        | $4.45 |        |             | 13,500 |      |             | .9 years         |        |         | 13,500 |       |  | $        | 4.45     | 
|                        | $5.49 |        |             | 90,000 |      |             | 1.4 years        |        |         | 90,000 |       |  |          | 5.49     | 
|                        | $4.34 |        |             | 55,500 |      |             | 5.3 years        |        |         | 43,500 |       |  |          | 4.34     | 
|                        |       |        |             |        |      |             |                  |        |         |        |       |  |         
|Outstanding at year end |       |        | 159,000     |        |      | 2.7 years   |                  |        | 147,000 |        |       |  | 5.05     |         
|                        |       |        |             |        |      |             |                  |        |         |        |       |  |         

(Continued)

20.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 14  EARNINGS (LOSS) PER SHARE

A reconciliation of the numerators and denominators used to compute earnings
per share is presented below:

|                                         |                                                                                |                                 |     |           |      |   |      |           |     |      |      |           |      |  
|---------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------- | --- | --------- | ---- | - | ---- | --------- | --- | ---- | ---- | --------- | ---- | -
|                                         |                                                                                |                                 |     | 2002      |      |   | 2001 |           |     | 2000 |     
|                                         |                                                                                |                                 |     |           |      |   |      |           |     |      |     
|Basic earnings (loss) per share          |                                                                                |                                 |     |           |      |   |      |           |     |      |      |          
|                                         | Net income (loss)                                                              |                                 | $   | 1,334     |      |   | $    | 692       |     |      | $    | (858      | )   
|                                         |                                                                                |                                 |     |           |      |   |      |           |    
|                                         | Weighted average shares
outstanding                                            |                                 |     | 1,579,162 |      |   |      | 1,579,162 |     |      |      | 1,190,734 |     
|                                         |                                                                                |                                 |     |           |      |   |      |           |    
|                                         |                                                                                | Basic earnings (loss) per share |     | $         | 0.84 |   |      | $         | .44 |      |      | $         | (.72 | )
|                                         |                                                                                |                                 |     |           |      |   |      |           |    
|Diluted                                  |                                                                                |                                 |     |           |      |   |      |           |     |      |      |          
|                                         | Net income (loss)                                                              |                                 | $   | 1,334     |      |   | $    | 692       |     |      | $    | (858      | )   
|                                         |                                                                                |                                 |     |           |      |   |      |           |    
|                                         | Weighted average common shares
outstanding for basic earnings per
common share |                                 |     | 1,579,162 |      |   |      | 1,579,162 |     |      |      | 1,190,734 |     
|                                         | Add: Dilutive effects of assumed
exercises of stock options                    |                                 |     | 35,769    |      |   |      | 13,591    |     |      |      |          |     
|                                         |                                                                                |                                 |     |           |      |   |      |           |    
|                                         | Average shares and dilutive potential
common shares                            |                                 |     | 1,614,931 |      |   |      | 1,592,753 |     |      |      | 1,190,734 |     
|                                         |                                                                                |                                 |     |           |      |   |      |           |    
|Diluted earnings (loss) per common share |                                                                                | $                               | .83 |           |      | $ | .43  |           |     | $    | (.72 | )        
|                                         |                                                                                |                                 |     |           |      |   |      |           |    

Stock options for 0, 90,000 and 108,000 shares of common stock were not
considered in computing diluted earnings per common share for 2002, 2001 and
2000 because they were antidilutive.

NOTE 15  OTHER COMPREHENSIVE INCOME

Other comprehensive income components and related taxes were as follows:

|                                                                             |                                   |   |      |     |   |      |     |     |      |   |      |     | 
|---------------------------------------------------------------------------- | --------------------------------- | - | ---- | --- | - | ---- | --- | --- | ---- | - | ---- | --- | 
|                                                                             |                                   |   | 2002 |     |   | 2001 |     |     | 2000 |  
|                                                                             |                                   |   |      |     |   |      |     |     |     
|Unrealized holding gains (losses) on
securities available-for-sale           |                                   | $ | 165  |     |   | $    | 15  |     |      | $ | 281  |    
|Reclassification adjustments for gains
and losses later recognized in income |                                   |   | (222 | )   |   |      | (63 | )   |      |   |     |    
|                                                                             |                                   |   |      |     |   |      |     |     |     
|                                                                             | Net unrealized gains (losses)     |   |      | (57 | ) |      |     | (48 | )    |   |      | 281 | 
|Tax effect                                                                   |                                   |   | 22   |     |   |      | 20  |     |      |   | (111 | )  
|                                                                             |                                   |   |      |     |   |      |     |     |     
|                                                                             | Other comprehensive income (loss) |   | $    | (35 | ) |      | $   | (28 | )    |   | $    | 170 | 
|                                                                             |                                   |   |      |     |   |      |     |     |     

(Continued)

21.



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##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 16  FAIR VALUES OF FINANCIAL INSTRUMENTS

Carrying amount and estimated fair values of financial instruments were as
follows at year-end.

|                      |                                 |  |          |          |   |       |   |          |          |  |   |          |   |  |   |          |  
|--------------------- | ------------------------------- |  | -------- | -------- | - | ----- | - | -------- | -------- |  | - | -------- | - |  | - | -------- | -
|                      |                                 |  | 2002     |          |   | 2001  |  
|                      |                                 |  |          |          |   |       |  
|                      |                                 |  | Carrying |          |   | Fair  |   |          | Carrying |  |   | Fair     |  
|                      |                                 |  | Amount   |          |   | Value |   |          | Amount   |  |   | Value    |  
|                      |                                 |  |          |          |   |       |   |          |          |  |   |          |  
|Financial assets      |                                 |  |          |          |   |       |   |          |          |  |   |          |   |  |   |         
|                      | Cash and cash equivalents       |  | $        | 5,348    |   |       | $ | 5,348    |          |  | $ | 6,308    |   |  | $ | 6,308    |  
|                      | Securities available for sale   |  |          | 26,810   |   |       |   | 26,810   |          |  |   | 22,881   |   |  |   | 22,881   |  
|                      | Securities held to maturity     |  |          |         |   |       |   |         |          |  |   | 275      |   |  |   | 277      |  
|                      | Loans held for sale             |  |          | 6,530    |   |       |   | 6,564    |          |  |   | 2,759    |   |  |   | 2,761    |  
|                      | Loans, net                      |  |          | 109,691  |   |       |   | 111,712  |          |  |   | 89,808   |   |  |   | 92,557   |  
|                      | Federal Home Loan Bank stock    |  |          | 670      |   |       |   | 670      |          |  |   | 670      |   |  |   | 670      |  
|                      | Accrued interest receivable     |  |          | 799      |   |       |   | 799      |          |  |   | 713      |   |  |   | 713      |  
|Financial liabilities |                                 |  |          |          |   |       |   |          |          |  |   |          |   |  |   |         
|                      | Deposits                        |  |          | (123,063 | ) |       |   | (124,456 | )        |  |   | (111,375 | ) |  |   | (112,555 | )
|                      | Federal Home Loan Bank advances |  |          | (8,700   | ) |       |   | (8,840   | )        |  |   | (3,000   | ) |  |   | (2,874   | )
|                      | Accrued interest payable        |  |          | (285     | ) |       |   | (285     | )        |  |   | (220     | ) |  |   | (220     | )
|                      | Federal funds purchased         |  |          | (2,245   | ) |       |   | (2,245   | )        |  |   |         |   |  |   |         |  
|                      | Other borrowings                |  |          | (12,159  | ) |       |   | (12,600  | )        |  |   | (5,991   | ) |  |   | (5,991   | )

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

Carrying amount is the estimated fair value for cash and cash equivalents,
short-term borrowings, Federal Home Loan Bank stock, accrued interest
receivable and payable, demand deposits, short-term debt, and variable rate
loans or deposits that reprice frequently and fully. Security fair values are
based on market prices or dealer quotes, and if no such information is
available, on the rate and term of the security and information about the
issuer. For fixed rate loans or deposits and for variable rate loans or
deposits with infrequent repricing and repricing limits, fair value is based on
discounted cash flows using current market rates applied to the estimated life
and credit risk. Fair values for impaired loans are estimated using discounted
cash flow analysis or underlying collateral values. Fair value of loans held
for sale is based on market quotes. Fair value of debt is based on current
rates for similar financing. The fair value of off-balance-sheet items is
based on the current fees or cost that would be charged to enter into or
terminate such arrangements, and are not considered significant.

(Continued)

22.



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##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 17  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of First Shares Bancorp, Inc. follows:

CONDENSED BALANCE SHEETS
December 31, 2002 and 2001

|                                 |                                            |   |        |        |  |      |       |       | 
|-------------------------------- | ------------------------------------------ | - | ------ | ------ |  | ---- | ----- | ----- | 
|                                 |                                            |   | 2002   |        |  | 2001 |      
|                                 |                                            |   |        |        |  |      |      
|ASSETS                           |                                            |   |        |        |  |      |       |      
|Cash and cash equivalents        |                                            | $ | 565    |        |  | $    | 25    |      
|Investment in banking subsidiary |                                            |   | 13,568 |        |  |      | 9,013 |      
|Securities available for sale    |                                            |   | 362    |        |  |      |      |      
|Other assets                     |                                            |   | 627    |        |  |      | 5     |      
|                                 |                                            |   |        |        |  |     
|                                 | Total assets                               |   | $      | 15,122 |  |      | $     | 9,043 | 
|                                 |                                            |   |        |        |  |     
|LIABILITIES AND EQUITY           |                                            |   |        |        |  |      |       |      
|Note payable                     |                                            | $ | 1,475  |        |  | $    | 1,780 |      
|Debentures                       |                                            |   | 5,000  |        |  |      |      |      
|Other liabilities                |                                            |   | 85     |        |  |      |      |      
|Shareholders equity             |                                            |   | 8,562  |        |  |      | 7,263 |      
|                                 |                                            |   |        |        |  |     
|                                 | Total liabilities and shareholders equity |   | $      | 15,122 |  |      | $     | 9,043 | 
|                                 |                                            |   |        |        |  |     

CONDENSED STATEMENTS OF OPERATIONS
December 31, 2002, 2001 and 2000

|                                                                    |  |      |       |   |      |   |      |      |  |   |      |  
|------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                    |  | 2002 |       |   | 2001 |   |      | 2000 | 
|                                                                    |  |      |       |   |      |   |      |      | 
|Dividends from banking subsidiaries                                 |  | $    |      |   |      | $ |     |      |  | $ | 100  |  
|Interest income on securities                                       |  |      | 5     |   |      |   |     |      |  |   |     |  
|Interest expense on borrowings                                      |  |      | 385   |   |      |   | 113  |      |  |   | 82   |  
|Other income                                                        |  |      |      |   |      |   | 3    |      |  |   |     |  
|Other expense                                                       |  |      | 105   |   |      |   | 71   |      |  |   | 33   |  
|                                                                    |  |      |       |   |      |   |      |      | 
|Income (loss) before income tax and undistributed
subsidiary income |  |      | (485  | ) |      |   | (181 | )    |  |   | (15  | )
|Equity in undistributed subsidiary income                           |  |      | 1,589 |   |      |   | 873  |      |  |   | (843 | )
|                                                                    |  |      |       |   |      |   |      |      | 
|Income (loss) before taxes                                          |  |      | 1,104 |   |      |   | 692  |      |  |   | (858 | )
|Income tax expense (benefit)                                        |  |      | (230  | ) |      |   |     |      |  |   |     |  
|                                                                    |  |      |       |   |      |   |      |      | 
|Net income (loss) after taxes                                       |  | $    | 1,334 |   |      | $ | 692  |      |  | $ | (858 | )
|                                                                    |  |      |       |   |      |   |      |      | 

(Continued)

23.



---



##### 



FIRST SHARES BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
(Dollar amounts in thousands, except per share data)

NOTE 17  PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION(Continued)

CONDENSED STATEMENTS OF CASH FLOWS
December 31, 2002, 2001 and 2000

|                                        |                                            |                                           |                                        |        |        |       |      |      |      |      |        |        |     |       |  
|--------------------------------------- | ------------------------------------------ | ----------------------------------------- | -------------------------------------- | ------ | ------ | ----- | ---- | ---- | ---- | ---- | ------ | ------ | --- | ----- | -
|                                        |                                            |                                           |                                        |        | 2002   |       |      | 2001 |      |      | 2000   |       
|                                        |                                            |                                           |                                        |        |        |       |      |      |      |      |        |       
|Cash flows from operating activities    |                                            |                                           |                                        |        |        |       |      |      |      |      |        |       
|                                        | Net income/(loss)                          |                                           | $                                      | 1,334  |        |       | $    | 692  |      |      | $      | (858   | )  
|                                        | Adjustments:                               |                                           |                                        |        |        |       |      |      |      |      |        |        |    
|                                        |                                            | Equity in undistributed subsidiary income |                                        |        | (1,589 | )     |      |      | (873 | )    |        |        | 843 |      
|                                        |                                            | Amortization                              |                                        |        | 43     |       |      |      |     |      |        |        |    |      
|                                        |                                            | Changes in other assets and liabilities   |                                        |        |        |       |      |      |      |      |        |        |     |      
|                                        |                                            |                                           | Interest receivable and other assets   |        |        | (3    | )    |      |      |     |        |        |     | 53    |  
|                                        |                                            |                                           | Interest payable and other liabilities |        |        | 84    |      |      |      |     |        |        |     | (64   | )
|                                        |                                            |                                           |                                        |        |        |       |      |      |     
|                                        |                                            |                                           | Net cash from operating activities     |        |        | (131  | )    |      |      | (181 | )      |        |     | (26   | )
|Cash flows from investing activities    |                                            |                                           |                                        |        |        |       |      |      |      |      |        |       
|                                        | Contribution to subsidiary                 |                                           |                                        | (3,000 | )      |       |      |     |      |      |        | (4,275 | )  
|                                        | Purchases of securities available for sale |                                           |                                        | (363   | )      |       |      |     |      |      |        |       |    
|                                        |                                            |                                           |                                        |        |        |       |      |      |     
|                                        |                                            |                                           | (3,363                                 | )      |        |       |     |      |      |      | (4,275 | )     
|Cash flows from financing activities    |                                            |                                           |                                        |        |        |       |      |      |      |      |        |       
|                                        | Draws on note payable                      |                                           |                                        | 90     |        |       |      | 30   |      |      |        | 1,750  |    
|                                        | Payments on note payable                   |                                           |                                        | (395   | )      |       |      |     |      |      |        |       |    
|                                        | Issuance of debentures                     |                                           |                                        | 5,000  |        |       |      |     |      |      |        |       |    
|                                        | Debt issuance costs                        |                                           |                                        | (661   | )      |       |      |     |      |      |        |       |    
|                                        | Issuance of common stock                   |                                           |                                        |       |        |       |      |     |      |      |        | 2,690  |    
|                                        |                                            |                                           |                                        |        |        |       |      |      |     
|                                        |                                            |                                           | Net cash from financing activities     |        |        | 4,034 |      |      |      | 30   |        |        |     | 4,440 |  
|                                        |                                            |                                           |                                        |        |        |       |      |      |     
|Net change in cash and cash equivalents |                                            |                                           | 540                                    |        |        |       | (151 | )    |      |      | 139    |       
|Beginning cash and cash equivalents     |                                            |                                           | 25                                     |        |        |       | 176  |      |      |      | 37     |       
|                                        |                                            |                                           |                                        |        |        |       |      |      |     
|Ending cash and cash equivalents        |                                            | $                                         | 565                                    |        |        | $     | 25   |      |      | $    | 176    |       
|                                        |                                            |                                           |                                        |        |        |       |      |      |     

24.