|UNITED STATES 
    SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-Q
|------------------------------------------------------------------------------------
|                                                                                    
|                                                                                    

|[X]                                                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|------------------------------------------------------------------- | -------------------------------------------------------------------------------------------
|For the quarterly period ended September
    30, 2003              
|                                                                    | OR                                                                                         
|[_]                                                                 | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934     
|For the transition period from _____________
    to _______________
|Commission file Number 0-21720                                     

Slippery Rock Financial Corporation(Exact Name of registrant as specified in its charter)Pennsylvania(State or other jurisdiction of
    incorporation or organization)
    25-1674381(I.R.S. Employer Identification Number)100 South Main Street
    Slippery Rock, Pennsylvania(Address of principal executive offices)
    16057(Zip Code)


Registrants telephone number, including area code: (724) 794-2210

---

Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirement for the past 90 days. YES
[X] NO [_]

Indicate by check mark whether the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Exchange Act). 
YES

As of November 21, 2003, there were 2,730,882 shares outstanding of the issuers
class of common stock.

---

Slippery Rock Financial Corporation

INDEX TO QUARTERLY REPORT ON FORM 10-Q

|Part I  | Financial Information                                                                                                                                    | Page                                                                                     
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------
|        | Item 1.                                                                                                                                                  | Consolidated Financial Statements
    (unaudited)                                        
|        | Consolidated
    Balance Sheet, September 30, 2003 and December 31, 2002                                                                                 | 3                                                                                        
|        | Consolidated
    Statements of Income Three months ended September 30, 2003 and 2002 and Nine months ended
    September 30, 2003 and 2002               | 4                                                                                        
|        | Consolidated
    Statements of Comprehensive Income Three months ended September 30, 2003 and 2002 and Nine
    months ended September 30, 2003 and 2002 | 5                                                                                        
|        | Consolidated Statement
    of Changes in Stockholders Equity, Nine months ended September 30, 2003                                                      | 6                                                                                        
|        | Consolidated Statement
    of Cash Flows Nine months ended September 30, 2003 and 2002                                                                   | 7                                                                                        
|        | Notes to Consolidated Financial
    Statements                                                                                                           | 8-10                                                                                     
|        | Item 2.                                                                                                                                                  | Managements Discussion and
    Analysis of Financial Condition and Results of Operations
|        | Item 3.                                                                                                                                                  | Quantitative and Qualitative
    Disclosures About Market Risk                           
|        | Item 4.                                                                                                                                                  | Controls and Procedures                                                                  
|Part II | Other Information                                                                                                                                        |                                                                                          
|        | Item 1.                                                                                                                                                  | Legal Proceedings                                                                        
|        | Item 2.                                                                                                                                                  | Changes in Securities and Use of Proceeds                                                
|        | Item 3.                                                                                                                                                  | Defaults upon Senior Securities                                                          
|        | Item 4.                                                                                                                                                  | Submission of Matters to a Vote of Security
    Holders                                  
|        | Item 5.                                                                                                                                                  | Other Information                                                                        
|        | Item 6.                                                                                                                                                  | Exhibits and Reports of Form 8-K                                                         
|        | Signatures                                                                                                                                               | 23                                                                                       

2

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Slippery Rock Financial Corporation
CONSOLIDATED BALANCE SHEET(Unaudited - $ in 000, except share data)

|                                                                 | September 30,   |  | December 31,   
|---------------------------------------------------------------- | --------------- |  | ---------------
|                                                                 | 2003            |  | 2002           
|ASSETS                                                           |                 |  |                
|Cash
    and due from banks                                      | $     16,042    |  | $     13,484   
|Interest-bearing
    deposits in other banks                     | 130             |  | -              
|Federal
    funds sold                                           | 3,700           |  | -              
|Mortgage
    loans held for sale                                 | 6,123           |  | 1,417          
|Investment
    securities:                                       |                 |  |                
|Available
    for sale                                           | 77,493          |  | 75,907         
|Held
    to maturity (market value $427 and $2,661)              | 425             |  | 2,646          
|Loans                                                            | 220,878         |  | 232,157        
|Less
    allowance for loan losses                               | 3,456           |  | 3,110          
|Net
    loans                                                    | 217,422         |  | 229,047        
|                                                                 |                 |  |                
|Premises
    and equipment                                       | 8,488           |  | 7,419          
|Core
    deposit intangible                                      | 15              |  | 99             
|Goodwill                                                         | 1,013           |  | 1,013          
|Bank-owned
    life insurance                                    | 6,074           |  | -              
|Accrued
    interest and other assets                            | 7,776           |  | 6,511          
|                                                                 |                 |  |                
|Total
    assets                                                 | $       344,701 |  | $       337,543
|                                                                 |                 |  |                
|LIABILITIES                                                      |                 |  |                
|Deposits:                                                        |                 |  |                
|Noninterest-bearing
    demand                                   | $52,521         |  | $44,807        
|Interest-bearing
    demand                                      | 40,966          |  | 32,512         
|Savings                                                          | 56,501          |  | 58,209         
|Money
    market                                                 | 25,923          |  | 27,103         
|Time                                                             | 99,624          |  | 108,672        
|Total
    deposits                                               | 275,535         |  | 271,303        
|                                                                 |                 |  |                
|Short-term
    borrowings                                        | 6,701           |  | 2,825          
|Other
    borrowings                                             | 30,140          |  | 30,177         
|Accrued
    interest and other liabilities                       | 850             |  | 1,278          
|                                                                 |                 |  |                
|Total
    liabilities                                            | 313,226         |  | 305,583        
|                                                                 |                 |  |                
|STOCKHOLDERS' EQUITY                                             |                 |  |                
|Common
    stock (par value $0.25; 12,000,000 shares authorized; |                 | 
|2,730,588
    and 2,776,504 shares issued and outstanding)       | 695             |  | 694            
|Capital
    surplus                                              | 10,704          |  | 10,656         
|Retained
    earnings                                            | 20,779          |  | 19,982         
|Accumulated
    other comprehensive income                       | 68              |  | 628            
|Treasury
    Stock (49,000 shares at cost)                       | (771)           |  | -              
|                                                                 |                 |  |                
|Total
    stockholders' equity                                   | 31,475          |  | 31,960         
|                                                                 |                 |  |                
|Total
    liabilities and stockholders equity                   | $     344,701   |  | $     337,543  



See accompanying notes to the unaudited consolidated financial
statements

3

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Slippery Rock Financial Corporation
CONSOLIDATED STATEMENTS OF INCOME

(Unaudited - $ in 000 except per share amounts)

|                                                        | Three
    Months Ended
    September 30, |  | Nine
    Months Ended
    September 30,
|------------------------------------------------------- | ---------------------------------------- |  | ---------------------------------------
|                                                        | 2003                                     |  | 2002                                   
|INTEREST AND DIVIDEND INCOME                            |                                          |  |                                        
|Interest and fees on
    loans                          | $ 3,552                                  |  | $ 4,278                                
|Interest-bearing
    deposits in other banks            | -                                        |  | 1                                      
|Federal funds sold                                      | 31                                       |  | 57                                     
|Interest
    and dividends on investment securities:    |                                          |  |                                        
|Taxable
    interest                                    | 622                                      |  | 592                                    
|Tax-exempt
    interest                                 | 148                                      |  | 153                                    
|Dividends                                               | 14                                       |  | 14                                     
|Total
    interest and dividend income                  | 4,367                                    |  | 5,095                                  
|INTEREST EXPENSE                                        |                                          |  |                                        
|Deposits                                                | 1,127                                    |  | 1,699                                  
|Short-term borrowings                                   | 15                                       |  | -                                      
|Other borrowings                                        | 394                                      |  | 395                                    
|Total
    interest expense                              | 1,536                                    |  | 2,094                                  
|NET INTEREST INCOME                                     | 2,831                                    |  | 3,001                                  
|Provision for loan losses                               | 826                                      |  | 150                                    
|NET INTEREST INCOME AFTER
    PROVISIONFOR  LOAN LOSSES | 2,005                                    |  | 2,851                                  
|                                                        |                                          |  |                                        
|OTHER INCOME                                            |                                          |  |                                        
|Service charges on
    deposit accounts                 | 373                                      |  | 235                                    
|Trust department
    income                             | 32                                       |  | 20                                     
|Net investment
    securities gains (losses)            | -                                        |  | -                                      
|Net gains on loan
    sales                             | 44                                       |  | 177                                    
|Interchange fee income                                  | 63                                       |  | 69                                     
|Other income                                            | 134                                      |  | 123                                    
|Total
    other income                                  | 646                                      |  | 624                                    
|OTHER EXPENSE                                           |                                          |  |                                        
|Salaries and employee
    benefits                      | 1,397                                    |  | 1,264                                  
|Occupancy expense                                       | 166                                      |  | 176                                    
|Equipment expense                                       | 269                                      |  | 245                                    
|Data processing
    expense                             | 77                                       |  | 81                                     
|Pennsylvania shares
    tax                             | 82                                       |  | 77                                     
|Professional fees                                       | 38                                       |  | 119                                    
|Other expense                                           | 595                                      |  | 678                                    
|Total
    other expense                                 | 2,624                                    |  | 2,640                                  
|                                                        |                                          |  |                                        
|Income before income taxes                              | 27                                       |  | 835                                    
|Income tax expense (benefit)                            | (65)                                     |  | 238                                    
|                                                        |                                          |  |                                        
|NET INCOME                                              | $ 92                                     |  | $ 597                                  
|                                                        |                                          |  |                                        
|PER SHARE DATA                                          |                                          |  |                                        
|Average
    shares for the period, Basic                | 2,730,542                                |  | 2,776,163                              
|Average
    shares for the period, Diluted              | 2,743,592                                |  | 2,779,942                              
|Earnings
    per share, Basic                           | $ 0.03                                   |  | $ 0.21                                 
|Earnings
    per share, Diluted                         | $ 0.03                                   |  | $ 0.21                                 
|Dividends
    paid                                      | $ 0.15                                   |  | $ 0.15                                 
|                                                        |                                          |  |                                        



See accompanying notes to the unaudited consolidated financial
statements

4

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Slippery Rock Financial Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Unaudited - $ in 000)

|                                                                              | Three
    Months Ended
    September 30, |  | Nine
    Months Ended
    September 30,
|----------------------------------------------------------------------------- | ---------------------------------------- |  | ---------------------------------------
|                                                                              | 2003                                     |  | 2002                                   
|                                                                              |                                          |  |                                        
|Net income                                                                    | $ 92                                     |  | $ 597                                  
|                                                                              |                                          |  |                                        
|Other comprehensive income:                                                   |                                          |  |                                        
|Unrealized
    gains (losses) on available for sale securities                | (1,043)                                  |  | 621                                    
|Reclassification
    adjustment for (gains) losses included in net income     | -                                        |  | -                                      
|                                                                              |                                          |  |                                        
|Other comprehensive income (loss)
    before tax                              | (1,043)                                  |  | 621                                    
|                                                                              |                                          |  |                                        
|Income tax expense (benefit)
    related to other comprehensive income        | (355)                                    |  | 211                                    
|                                                                              |                                          |  |                                        
|Other comprehensive income (loss),
    net of tax                             | (688)                                    |  | 410                                    
|                                                                              |                                          |  |                                        
|Comprehensive income (loss)                                                   | $  (596)                                 |  | $ 1,007                                
|                                                                              |                                          |  |                                        
|                                                                              |                                          |  |                                        
|See accompanying notes
    to the unaudited consolidated financial statements |                                          |  |                                        
|                                                                              |                                          |  |                                        

5

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Slippery Rock Financial Corporation
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY(Unaudited - $ in 000 except per share amounts)

|                                                                              |                                     |  |                             |  |                         |  |                                  |  |                    | Accumulated |                         |  |  |  |  | 
|----------------------------------------------------------------------------- | ----------------------------------- |  | --------------------------- |  | ----------------------- |  | -------------------------------- |  | ------------------ | ----------- | ----------------------- |  |  |  |  | 
|                                                                              |                                     |  |                             |  |                         |  |                                  |  |                    | Other       |                         |  |  |  |  | 
|                                                                              | Common                              |  | Capital                     |  | Retained                |  | Comprehensive                    |  | Treasury           |             |                         | 
|                                                                              | Stock                               |  | Surplus                     |  | Earnings                |  | Income                           |  | Stock              |             | Total                  
|Balance, December 31, 2002                                                    | $      694                          |  | $  10,656                   |  | $  19,982               |  | $       628                      |  | $           -      |             | $    31,960            
|                                                                              |                                     |  |                             |  |                         |  |                                  |  |                    |             |                        
|Net Income                                                                    |                                     |  |                             |  | 2,035                   |  |                                  |  |                    |             | 2,035                  
|Net unrealized loss on                                                        |                                     |  |                             |  |                         |  |                                  |  |                    |             |                        
|available
    for sale securities                                             |                                     |  |                             |  |                         |  | (560)                            |  |                    |             | (560)                  
|Stock options exercised                                                       | 1                                   |  | 48                          |  | (3)                     |  |                                  |  |                    |             | 46                     
|Treasury stock purchased                                                      |                                     |  |                             |  |                         |  |                                  |  | (771)              |             | (771)                  
|Cash dividends ($0.45 per share)                                              |                                     |  |                             |  | (1,235)                 |  |                                  |  |                    |             | (1,235)                
|Balance, September 30, 2003                                                   | $   
                   
       695 |  | $   
                10,704 |  | $  
             20,779 |  | $   
               
         68 |  | $    
       (771) |             | $   
            31,475
|                                                                              |                                     |  |                             |  |                         |  |                                  |  |                    |             |                         |  |  |  |  | 
|See accompanying
    notes to the unaudited consolidated financial statements |                                     |  |                             |  |                         | 



6

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Slippery Rock Financial Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS(Unaudited - $ in 000)

|                                                                              | Nine
    Months Ended
    September 30,
|----------------------------------------------------------------------------- | ---------------------------------------
|                                                                              | 2003                                   
|OPERATING ACTIVITIES                                                          |                                        
|Net income                                                                    | $ 2,035                                
|Adjustments
    to reconcile net income to                                    |                                        
|net
    cash provided by operating activities:                                |                                        
|Provision
    for loan losses                                                 | 1,126                                  
|Depreciation,
    amortization and accretion of investment securities         | 786                                    
|Originations
    of mortgage loans held for sale                              | (44,920)                               
|Proceeds
    from sales of mortgage loans                                     | 41,054                                 
|Net
    gains on loan sales                                                   | (1,341)                                
|Net
    investment security (gains) losses                                    | (252)                                  
|Earnings
    on bank-owned life insurance                                     | (74)                                   
|Decrease
    in accrued interest receivable                                   | 293                                    
|Decrease
    in accrued interest payable                                      | (191)                                  
|Other,
    net                                                                | (1,142)                                
|Net
    cash provided (used) by operating activities                          | (2,626)                                
|                                                                              |                                        
|INVESTING ACTIVITIES                                                          |                                        
|Investment securities
    available for sale:                                 |                                        
|Proceeds
    from sales                                                       | 17,699                                 
|Proceeds
    from maturities and repayments                                   | 17,402                                 
|Purchases                                                                     | (37,419)                               
|Investment securities
    held to maturity:                                   |                                        
|Proceeds
    from maturities and repayments                                   | 2,221                                  
|Purchases                                                                     | -                                      
|Decrease in loans, net                                                        | 3,608                                  
|Purchases of premises
    and equipment                                       | (1,739)                                
|Purchase of bank-owned
    life insurance                                     | (6,000)                                
|Proceeds from student
    loan sales                                          | 6,720                                  
|Proceeds from the sale
    of other real estate owned                         | 410                                    
|Net cash
    provided by (used for) investing activities                      | 2,902                                  
|                                                                              |                                        
|FINANCING ACTIVITIES                                                          |                                        
|Increase in deposits,
    net                                                 | 4,233                                  
|Increase in short term
    borrowings                                         | 3,876                                  
|Payments on other
    borrowings                                              | (37)                                   
|Proceeds from stock
    options exercised                                     | 46                                     
|Purchase of treasury
    stock                                                | (771)                                  
|Cash dividends paid                                                           | (1,235)                                
|Net
    cash provided by financing activities                                 | 6,112                                  
|                                                                              |                                        
|Increase
    in cash and cash equivalents                                     | 6,388                                  
|                                                                              |                                        
|CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD                          | 13,484                                 
|                                                                              |                                        
|CASH AND CASH EQUIVALENTS AT
    END OF PERIOD                                | $   19,872                             
|                                                                              |                                        
|Cash payments for interest                                                    | $    5,062                             
|Cash payments for income taxes                                                | $    1,460                             
|                                                                              |                                        
|See accompanying notes
    to the unaudited consolidated financial statements |                                        



7

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Slippery Rock Financial Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

NOTE 1  BASIS OF PRESENTATIONThe accompanying unaudited consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not necessarily include
all information, which would be included in audited financial statements. The information
furnished reflects all normal recurring adjustments, which are, in the opinion of
management, necessary for fair statement of the results of the period. The results of
operations for the interim periods are not necessarily indicative of the results to be
expected for the full year.

NOTE 2  EARNINGS PER SHAREThere were no convertible securities which would affect the numerator in calculating
basic and diluted earnings per share; therefore, net income as presented on the
Consolidated Statement of Income will be used as the numerator. The following table sets
forth the composition of the weighted-average common shares (denominator) used in the
basic and diluted earnings per share computation.

|                                                                                                             | Three
    Months 
    EndedSeptember 30,  2003 |  | Three
    Months
    EndedSeptember 30,2002 |  | Nine
    Months 
    EndedSeptember 30, 2003 |  | Nine
    Months 
    EndedSeptember 30, 2002
|------------------------------------------------------------------------------------------------------------ | ---------------------------------------------- |  | ------------------------------------------- |  | -------------------------------------------- |  | --------------------------------------------
|                                                                                                             |                                                |  |                                            
|Weightedaverage common shares
    outstanding used to calculate basic earnings per share                    | 2,730,542                                      |  | 2,776,163                                   |  | 2,748,030                                    |  | 2,775,734                                   
|Additional common stock
    equivalents (stock options) used to calculate diluted earnings per share         | 13,050                                         |  | 3,779                                       |  | 8,151                                        |  | 4,733                                       
|Weighted-average common shares and
    common stock equivalents used to calculate diluted earnings per share | 2,743,592                                      |  | 2,779,942                                   |  | 2,756,181                                    |  | 2,780,467                                   

Options to purchase 30,950 and 37,850 shares of common stock at prices
from $18.50 to $19.30 were outstanding for the periods ended September 30, 2003 and 2002,
respectively, but were not included in the computation of diluted EPS because to do so
would have been anti-dilutive.

NOTE 3  RECLASSIFICATION OF COMPARATIVE AMOUNTSCertain comparative amounts for the prior periods have been reclassified to conform to
current period presentations. Such reclassifications had no effect on net income or
stockholders equity.

NOTE 4  RECENT ACCOUNTING PRONOUNCEMENTSIn August 2001, the Financial Accounting Standards Board ("FASB") issued FAS
No. 143, Accounting for Asset Retirement Obligations, which requires that the fair value
of a liability be recognized when incurred for the retirement of a long-lived asset and
the value of the asset be increased by that amount. The statement also requires that the
liability be maintained at its present value in subsequent periods and outlines certain
disclosures for such obligations. The adoption of this statement, which was effective
January 1, 2003, did not have a material effect on the Companys financial position
or results of operations.

8

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

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

The following table represents the effect on net income and earnings
per share had the stock-based employee compensation expense been recognized:

|                                         |             |    | Three
    Months Ended 
    September 30, |     | Nine
    Months Ended September 30,
|---------------------------------------- | ----------- | -- | ----------------------------------------- | --- | -----------------------------------
|                                         |             |    | 2003                                      |     | 2002                               
|                                         |             |    |                                           |     |                                    
|Net
    income, as reported:             | $           | 92 | $                                         | 597 | $                                  
|Less
    proforma expense related        |             |    |                                           |     |                                    
|To
    stock options                     |             | 53 |                                           | 21  |                                    
|Proforma
    net income                  | $           | 39 | $                                         | 576 | $                                  
|                                         |             |    |                                           |     |                                    
|Basic
    net income per common share:   |             |    |                                           |     |                                    
|                                         | As reported | $  | 0.03                                      | $   | 0.21                               
|                                         | Pro forma   |    | 0.02                                      |     | 0.21                               
|Diluted
    net income per common share: |             |    |                                           |     |                                    
|                                         | As reported | $  | 0.03                                      | $   | 0.21                               
|                                         | Pro forma   |    | 0.02                                      |     | 0.21                               

In April, 2003, the FASB issued FAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and clarifies
accounting for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities under FAS No. 133. The amendments set forth
in FAS No. 149 improve financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, this statement clarifies under
what circumstances a contract with an initial net investment meets the characteristic of a
derivative as discussed in FAS No. 133. In addition, it clarifies when a derivative
contains a financing component that warrants special reporting in the statement of cash
flows. FAS No.149 amends certain other existing pronouncements. Those changes will result
in more consistent reporting of contracts that are derivatives in their entirety or that
contain embedded derivatives that warrant separate accounting. This statement is effective
for contracts entered into or modified after June 30, 2003, except as stated below and for
hedging relationships designated after June 30, 2003. The guidance should be applied
prospectively. The provisions of this statement that relate to FAS No. 133 Implementation
Issues that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective dates. In
addition, certain provisions relating

9

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to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to existing contracts as well as new
contracts entered into after June 30, 2003. The adoption of this statement is not expected
to have a material effect on the Companys financial position or results of
operations.

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

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

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

10



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

Forward Looking Statement

The Private Securities Litigation Act of 1995 contains safe harbor provisions regarding
forward-looking statements. When used in this discussion, the words "believes,"
"anticipates," "contemplates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements are
subject to certain risks and uncertainties that could cause actual results to differ
materially from those projected. Those risks and uncertainties include changes in interest
rates, the ability to control costs and expenses, and general economic conditions. The
Company undertakes no obligation to publicly release the results of any revisions to those
forward-looking statements, which may be made to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.

Comparison of the Three Months Ended September 30, 2003 and 2002

Total interest income was $4,367,000 for the three-month period ended September 30,
2003 compared to $5,095,000 for the same three-month period in 2002, a decrease of
$728,000 or 14.3%. The overall decrease in total interest income is attributed principally
to a decrease in interest and fees on loans of $726,000 or 17.0%. This is partially offset
by an increase in taxable interest income from investments of $30,000. Income from
interest and fees on loans decreased due to decreases in both volume and yields within the
loan portfolio.

Average gross loans, including loans available for sale, at September 30, 2003 were
$225.6 million, a decrease of $15.5 million or 6.4% from $241.1 million at September 30,
2002. Virtually all major segments within the loan portfolio reflected net declines in
average balances compared to September 30, 2002. The most significant declines occurred
within the home equity, residential real estate, and dealer loan segments. Average home
equity loans decreased $6.1 million or 12.7%, average residential real estate loans
decreased $5.2 million or 15.8%, and average dealer loans decreased $2.4 million or 14.1%.
Partially offsetting these declines was an increase in average commercial real estate
loans of $3.6 million or 5.2%. The decline within the average loan portfolio was brought
about by general market activity. With the low interest rate environment over the past
year, the Company has seen a record number of refinances. Many customers have chosen to
refinance or consolidate their home equity loans into fixed rate 1-4 family loans with a
first lien position, which the Company generally sells to Freddie Mac. This is the primary
cause of the decline in the home equity loans. The dealer loan segment also declined in
its average balance compared to last year. Financing promotions being offered by
automobile manufacturers was the primary cause of the decline.

Interest and fees on loans also decreased due to a decline in the net yield on interest
earning assets as a result of the historically low interest rate environment as discussed
in the nine month comparison below.

While interest and fee income from loans decreased, taxable investment interest income
increased due to an increase in volume within the investment portfolio. Average total
investments were $89.6 million at September 30, 2003, an increase of $22.7 million.
Average mortgage-backed securities represented the largest increase within the taxable
investment securities of $15.9 million. As the interest rate on overnight funds decreased
throughout 2002, management felt it prudent to invest in higher yielding, short-term
duration, mortgage-backed securities, which also provide liquidity to the Company through
monthly repayments of principal and interest.

Total interest expense of $1,536,000 for the three-month period ended September 30,
2003 represented a decrease of $558,000 from the $2,094,000 reported for the same
three-month period in 2002. The change is due to a decrease in interest expense on
deposits of $572,000 resulting from both a decline in the Banks cost of funds and a
decrease in average interest-bearing deposits as discussed below.

Net interest income of $2,831,000 for the three months ended September 30, 2003
compared to $3,001,000 for the same three-month period in 2002, a decrease of $170,000.

11

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The provision for loan losses for the three months ended September 30, 2003 was
$826,000, an increase of $676,000 from September 30, 2002. Management determined the
increase in the provision expense was warranted as a result of its recurring quarterly
analysis of loan loss reserve adequacy. For details of the analysis and methodology, see
"Risk Elements".

Total other income for the three-month period ended September 30, 2003 of $646,000
compared to $624,000 for the three-month period ended September 30, 2002, an increase of
$22,000. This increase is the result of an increase in service charges on deposit accounts
of $138,000, and is partially offset by a decrease in gains on loan sales of $133,000.
Service charge fee income increased primarily due to the new "Bounce Protection"
program implemented in October 2002.

Gains of $44,000 were recorded on the sale of $8.1 million of fixed rate, 1-4 family
residential mortgages to Freddie Mac for the three-month period ended September 30, 2003.
For the three-month period ended September 30, 2002, $4.6 million of fixed rated, 1-4
family residential mortgages were sold resulting in a net gain of $177,000. Although the
volume of loans sold increased for 2003, gains resulting from these sales decreased due to
the lower interest rate environment.

Total other expense of $2,624,000 for the three months ended September 30, 2003
compared to $2,640,000 for the same three-month period in 2002. This represented a
decrease of $16,000 or 0.6%. The decrease was primarily derived from decreases in
professional fees and other expenses of $81,000 and $83,000, respectively. Partially
offsetting these decreases was an increase in salaries and employee benefits expense of
$133,000. The increases in salaries and employee benefits resulted principally from
additional personnel as well as an increase in the cost of employee benefits.

The decrease in legal and professional fees of $81,000 was due to elevated expenses in
the third quarter of 2002 resulting from various projects the Company was involved in,
including a previous OCC examination. The Company has since completed many of these
projects resulting in lower legal and professional fees in 2003. The decrease in other
expense of $83,000 was primarily due to a decrease in contributions expense of $33,000
resulting from the reduction and discontinuation of one time contributions that occurred
in 2003.

Net income for the three-month period ended September 30, 2003 was $92,000, a decrease
of $505,000 from the $597,000 reported at September 30, 2002. Earnings per share for the
three-month period ended September 30, 2003 were $0.03, compared to earnings per share of
$0.21 during the same three-month period in 2002.

Comparison of the Nine Months Ended September 30, 2003 and 2002

Total interest income of $13.4 million for the nine month period ended September 30,
2003 compared to $15.5 million for the same nine month period in 2002, a decrease of $2.1
million or 13.4%. The overall decrease in total interest income is attributed principally
to a decrease in interest and fees on loans of $2.2 million or 16.8%. Interest and fees on
loans decreased due to a decline in the net yield on interest earning assets as a result
of the historically low interest rate environment. The tax equivalent yield on interest
earning assets fell from 6.89% at September 30, 2002 to 5.84% at September 30, 2003.
Yields on interest-earning assets have been computed on a taxable-equivalent basis using
the federal income tax statutory rate of 34%. As interest rates fell throughout 2001,
2002, and 2003, the Banks variable rate earning assets repriced downward, and
continue to do so, while new loans with lower yields are being added to the portfolio. The
net yield on interest earning assets also decreased due to a shift in the earning asset
composition. Average investments, which generally have a lower yield than loans, as a
percent of average earning assets at September 30, 2003 were 28.4% compared to 21.7% at
September 30, 2002.

Total interest expense of $4.9 million for the nine month period ended September 30,
2003 represented a decrease of $1.5 million from the $6.4 million reported for the same
nine month period in 2002. The change is due to a decrease in interest expense on deposits
resulting from both a decline in the Banks cost of funds and a

12

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decrease in average interest-bearing deposits as discussed below. The Banks cost
of deposits decreased from 3.10% at September 30, 2002 to 2.18% at September 30, 2003.
Average interest-bearing deposits decreased $1.7 million from 2002. Due to the low
interest rate environment, the Bank continued to see a shift in consumer preference within
the interest bearing deposits from time deposits with fixed maturities to more liquid
products such as savings and interest-bearing demand deposits. Average time deposits
decreased $14.6 million from September 30, 2002, while the average savings products
increased $8.2 million or 16.2% and average interest-bearing demand deposits increased
$6.1 million.

Net interest income of $8.5 million for the nine months ended September 30, 2003
compared to $9.1 million for the same nine month period in 2002, a decrease of $542,000.

The provision for loan losses for the nine months ended September 30, 2003 was
$1,126,000, an increase of $365,000 from September 30, 2002. Management determined the
increase in the provision expense was warranted as a result of its recurring quarterly
analysis of loan loss reserve adequacy. For details of the analysis and methodology, see
"Risk Elements".

Total other income for the nine month period ended September 30, 2003 of $3.4 million
compared to $1.8 million for the nine month period ended September 30, 2002, an increase
of $1.6 million. The increase is primarily due to an increase in service charges of
$386,000, and an increase in net gains on the sale of loans of $921,000 and investment
securities of $259,000. The increase in the service charges was primarily due to the
"Bounce Protection" program discussed above.

Gains of $1,242,000 were recorded on the sale of $40.2 million of fixed rate, 1-4
family residential mortgages to Freddie Mac for the nine month period ended September 30,
2003. For the nine month period ended September 30, 2002, $31.2 million of fixed rated,
1-4 family residential mortgages were sold resulting in a gain of $420,000. In addition to
the sale of mortgages, the Company also sold $6.6 million in student loans during the
first quarter of 2003 which resulted in a gain of $99,000.

Total other expense of $8.0 million for the nine months ended September 30, 2003
compared to $7.3 million for the same nine month period in 2002. This represented an
increase of $631,000 or 8.6%. The increase is primarily derived from an increase in
salaries and employee benefits expense of $465,000 and an increase in other expense of
$100,000. The increases in salaries and employee benefits resulted principally from
additional personnel as well as an increase in the cost of employee benefits. Additional
personnel were needed due to the centralization of loan functions and the expansion of the
credit administration department. Additional senior management positions were also created
to supervise these areas.

Other expense increased due to a variety of reasons. Although the bounce protection
program increased the Companys fee income for the nine months ended September 30,
2003, it also contributed to the increases in other expenses of $91,000 due to commissions
paid to the program provider and $39,000 for a provision to establish a reserve for
potential losses from demand deposit overdrafts as a result of this program. The Company
also saw an increase in examination fees and federal deposit insurance of $36,000 and
$59,000, respectively. Partially offsetting these increases in other expense was a
decrease in contributions of $104,000 due to the discontinuation and reduction of one time
contributions that occurred in 2003. Credit bureau fees also decreased $32,000 for the
nine months ended September 30, 2003 due to a decline in volume based expenses.

Net income for the nine month period ended September 30, 2003 was $2,035,000, an
increase of $56,000 from the $1,979,000 reported at September 30, 2002. Earnings per share
for the nine month period ended September 30, 2003 were $0.74, an increase of $0.03 from
$0.71 per share earned during the same nine month period in 2002.

13

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Financial Condition

Total assets increased $7.2 million or 2.1% from December 31, 2002 to $344.7 million at
September 30, 2003. The increase in total assets was primarily due to an increase in
federal funds sold and cash and due from banks of $3.7 million and $2.6 million,
respectively. The bank also purchased bank owned life insurance totaling $6.0 million in
June 2003. Partially offsetting these increases were decreases in gross loans (including
loans available for sale) and held to maturity securities of $6.6 million and $2.2
million, respectively. The decrease in held to maturity securities was principally due to
contractually scheduled maturities in the third quarter of 2003. Total gross loans
(including loans available for sale) decreased due to general economic conditions and the
sale of $6.6 million in student loans discussed above.

Premises and equipment also increased from December 31, 2002 to $8.5 million, an
increase of $1.1 million. This increase is a result of additional fixed assets in relation
to the expansion of the Companys data center. The Company anticipates recording
additional fixed assets in the fourth quarter.

In June 2003, the Company purchased bank-owned life insurance ("BOLI")
totaling $6.0 million. The BOLI yields an average rate of 4.90% and was purchased through
two different insurance companies. BOLI provides the Company with tax-free income which is
being utilized by the Company to offset the rising cost of employee benefits. BOLI also
provides the Company with additional life insurance coverage for its key employees.

Total deposits of $275.5 million at September 30, 2003 represented an increase of $4.2
million or 1.6% from $271.3 million at December 31, 2002. Interest-bearing demand deposits
had the largest increase at $8.5 million, followed by noninterest-bearing demand with an
increase of $7.7 million. All other deposit accounts decreased from December 31, 2002. The
most significant decrease within deposit products was time deposits which decreased $9.0
million from December 31, 2002. This decrease was due to consumer preference resulting
from the economic decline and low interest rate environment as customers moved funds from
time deposits to the more liquid deposit products described above, while awaiting an
increase in the interest rates and equities markets. The decrease in time deposits was
followed by decreases in savings and money markets of $1.7 million and $1.2 million,
respectively.

Short term borrowings increased $3.9 million from December 31, 2003 to $6.7 million.
This increase is due to an increase in short term repurchase agreements.

At September 30, 2003, the Company serviced approximately $88.9 million in sold fixed
rate mortgages. Sales of fixed rate mortgages for the nine month period ended September
30, 2003 totaled $40.2 million with net gains of $1,242,000. Although management
anticipates future sales of fixed rate mortgages, the extent to which the Company
participates in the secondary market will be dependent upon demand for fixed rate
mortgages in the market place, liquidity needs of the Company and interest rate risk
exposure. Management will continue to obtain the necessary documentation to allow loans to
be sold in the secondary market, so that if liquidity or market conditions dictate,
management will be able to respond to these conditions.

14

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Management has calculated and monitored risk-based and leverage capital
ratios in order to assess compliance with regulatory guidelines. The following schedule
presents certain regulatory capital ratio requirements along with the Companys
position at September 30, 2003:

|                            |   | Actual |       | Minimum |       | Well |            
|--------------------------- | - | ------ | ----- | ------- | ----- | ---- | -----------
|                            |   | Amount | Ratio |         | Ratio |      | Capitalized
|                            |   |        |       |         |       |      |            
|Tier 1 risk - based capital | $ | 30,302 | 13.41 | %       | 4.00  | %    | 6.00       
|                            |   |        |       |         |       |      |            
|Total risk - based capital  |   | 33,135 | 14.66 |         | 8.00  |      | 10.00      
|                            |   |        |       |         |       |      |            
|Leverage capital            |   | 30,302 | 8.77  |         | 4.00  |      | 5.00       



As the above table illustrates, the Company exceeds both the minimum and
well-capitalized regulatory capital requirements at September 30, 2003. The Banks
regulatory capital amounts, as of the report date, did not differ significantly from that
of the Company.

On October 18, 2002, the Company announced that its subsidiary bank had entered into an
agreement with the Banks primary regulator, the Office of the Comptroller of the
Currency ("OCC"). The agreement is designed to evaluate and enhance certain
areas of the Bank's operations, including management, credit administration, audit,
information technology and regulatory compliance. There are no stipulations that limit or
restrict the Bank's ability to pay dividends or require the Bank to increase its capital
position. Management is committed to addressing the concerns identified within the
agreement and is working diligently to implement the suggestions in a timely and effective
manner. Exclusive of additional personnel expenses, exam related expenditures were
approximately $278,000, of which $227,000 were recorded in 2002. The Company anticipates
incurring additional operating expenses in connection with complying with the agreement
throughout 2003. Potentially impacted areas include: staffing levels, legal and consulting
fees and higher deposit insurance premiums.

A copy of the agreement was included as an exhibit to a Form 8-K filed by the Company
on October 18, 2002.

LIQUIDITY

The principal functions of the Companys asset/liability management program are to
provide adequate liquidity and to monitor interest rate sensitivity. Liquidity represents
the ability to meet the cash flow requirements of both depositors and customers requesting
bank credit. Asset liquidity is provided by repayments and the management of maturity
distributions for loans and securities. An important aspect of asset liquidity lies in
maintaining adequate levels of adjustable rate, short term, or relatively risk free
interest earning assets. Management evaluates the Companys liquidity position over
30 day, 60 day, and 90+ day time horizons. The analysis not only identifies liquidity
within the balance sheet, but off balance sheet as well. It identifies anticipated sources
and uses of funds as well as potential sources and uses. Anticipated needs include
liquidity for credit demand, commitments to purchase assets, and anticipated deposit
decreases. Anticipated sources include cash (net of reserve requirements), maturing
investment securities, daily fed funds sold, anticipated deposit increases, and the
repayment of loans and mortgage backed securities. Potential uses include unfunded loan
commitments available on lines of credit. Potential sources include borrowing capacity
available to the Company through the Federal Home Loan Bank ("FHLB"). At
September 30, 2003, for the 30-day horizon, the Company had a net anticipated funding
position of 3.4% of total assets. This ratio was 1.3% at December 31, 2002. Based on
current conditions, management views this ratio to be at an adequate level.

Management also monitors its liquidity by the loans to deposits ratio. The gross loans
(including loans held for sale) to deposits ratio was 82.4% at September 30, 2003 as
compared to 86.1% at December 31, 2002 and 83.0% at September 30, 2002.

15

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The Company's liquidity plan allows for the use of long-term advances or short-term
lines of credit with the FHLB as a source of funds. Borrowing from the FHLB not only
provides a source of liquidity for the Company, but also serves as a tool to reduce
interest rate risk. The Company may structure borrowings from FHLB to match those of
customer credit requests, and therefore, lock in interest rate spreads over the lives of
the loans. At September 30, 2003, the Company continued to have three such matched funding
loans outstanding totaling $121,000.

The Company continues to also have short-term borrowing availability through FHLB
"RepoPlus" advances. "RepoPlus" advances are short-term borrowings
maturing within one year, bearing a fixed rate of interest and subject to prepayment
penalty. At September 30, 2003 and 2002, the Company had no "RepoPlus" advances
outstanding. The Companys remaining borrowing capacity with FHLB was $118.1 million
at September 30, 2003.

In March 2001, the Company entered into a Convertible Select with a Strike Rate advance
with the FHLB for general liquidity purposes in the amount of $30.0 million at a rate of
5.11%. The 10year/1year advance has a 10 year maturity with the opportunity to reprice
quarterly, if the strike rate is attained, beginning 1 year from the original advance
date. The strike rate of 7.50% is tied to the 3-month London Inter-bank Offering Rate
("LIBOR"); accordingly, the advance will maintain at its fixed rate unless
3-month LIBOR rises to 7.50%. At September 30, 2003 the 3-month LIBOR was 1.16%. Interest
is paid quarterly to the FHLB at a rate of 5.11%. The advance will mature in March 2011
and is subject to prepayment penalties.

In addition to borrowing from the FHLB as a source for liquidity, as mentioned earlier,
the Company also continued activity in the secondary mortgage market. Specifically, the
Company sold fixed rate residential real estate mortgages to Freddie Mac. The sales to
Freddie Mac not only provide an opportunity for the Company to remain competitive in the
market place by allowing it to offer a fixed rate mortgage product, but also provide an
additional source of liquidity. Loan sales on the secondary market also provide management
an additional tool to use in managing interest rate risk exposure within the balance
sheet. The Company continues to service all loans sold to Freddie Mac.

The Statement of Cash Flows for the nine months ended September 30, 2003 indicated an
increase in cash and cash equivalents of $6.4 million. Cash was provided from proceeds
from sales of mortgage loans and student loans of $41.0 million and $6.7 million,
respectively, proceeds from sales, maturities, and repayments of available for sale
securities of $35.1 million, and a net increase in total deposits of $4.2 million. Cash
was used during the period primarily for the origination of loans held for sale of $44.9
million, the purchase of available for sale investments of $37.4 million, and the purchase
of bank owned life insurance of $6.0 million. Cash dividends paid during the nine month
period ended September 30, 2003 totaled $1,235,000. The Company also repurchased 49,000
shares of its common stock during the first nine months of 2003 for $771,000. Cash and
cash equivalents totaled $19.9 million at September 30, 2003, an increase of $6.4 million
from $13.5 million at December 31, 2002.

Management is not aware of any conditions, including any regulatory recommendations or
requirements, which would adversely affect its liquidity or ability to meet its funding
needs in the normal course of business.

16

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RISK ELEMENTS

Schedule of Non-performing AssetsThe following schedule presents the non-performing assets for the last five
quarters:

|                                            | Sep2003                    |  | Jun2003 |  | Mar2003 |  | Dec2002 |  | Sept2002
|------------------------------------------- | -------------------------- |  | ------- |  | ------- |  | ------- |  | --------
|                                            | (dollars
    in thousands)
|Non-performing and restructured
    loans   |                            |  |         |  |         |  |         |  |         
|Accruing loans past
    due 90 days or more | $ 52                       |  | $ 110   |  | $ 42    |  | $ 66    |  | $ 31    
|Non-accrual loans                           | 3,977                      |  | 3,114   |  | 3,499   |  | 4,823   |  | 5,297   
|Restructured loans                          | -                          |  | -       |  | 17      |  | 462     |  | 467     
|                                            |                            |  |         |  |         |  |         |  |         
|Total
    non-performing                    |                            |  |         |  |         |  |         |  |         
|and
    restructured loans                  | 4,029                      |  | 3,224   |  | 3,558   |  | 5,351   |  | 5,795   
|                                            |                            |  |         |  |         |  |         |  |         
|Other non-performing assets                 |                            |  |         |  |         |  |         |  |         
|Other real estate
    owned                 | 240                        |  | 145     |  | 458     |  | 356     |  | 456     
|Repossessed assets                          | 54                         |  | 87      |  | 93      |  | 92      |  | 83      
|                                            |                            |  |         |  |         |  |         |  |         
|Total
    other non-performing assets       | 294                        |  | 232     |  | 551     |  | 448     |  | 539     
|                                            |                            |  |         |  |         |  |         |  |         
|Total non-performing assets                 | $4,323                     |  | $3,456  |  | $4,109  |  | $5,799  |  | $6,334  
|                                            |                            |  |         |  |         |  |         |  |         
|Non-performing
    and restructured loans   |                            |  |         |  |         |  |         |  |         
|as a
    percentage of total loans(1)       | 1.82%                      |  | 1.47%   |  | 1.61%   |  | 2.30%   |  | 2.47%   
|                                            |                            |  |         |  |         |  |         |  |         
|Non-performing
    assets and               |                            |  |         |  |         |  |         |  |         
|restructured
    loans as a                 |                            |  |         |  |         |  |         |  |         
|percentage
    of total loans               |                            |  |         |  |         |  |         |  |         
|and
    other non-performing                |                            |  |         |  |         |  |         |  |         
|Assets
    and restructured loans(1)        | 1.95%                      |  | 1.58%   |  | 1.85%   |  | 2.49%   |  | 2.70%   
|                                            |                            |  |         |  |         |  |         |  |         
|(1) Excludes loans held for
    sale.       |                            |  |         |  |         |  |         |  |         



Allowance for Loan LossesThe allowance for loan losses at September 30, 2003 totaled $3,456,000 or 1.52% of
total gross loans (including loans held for sale) as compared to $3,110,000 or 1.33% at
December 31, 2002. Provisions for loan losses were $1,126,000 and $761,000 for the nine
months ended September 30, 2003 and 2002.

In determining the level at which the allowance for loan losses should be maintained,
management relies on in-house quarterly reviews of significant loans and commitments
outstanding, including a continuing review of problem or non-performing loans and overall
portfolio quality. Commercial and commercial real estate loans are risk-rated by the
credit administration department, the special asset committee and the loan review
committee. Consumer and residential real estate loans are generally reviewed in the
aggregate due to their relative smaller dollar size and homogeneous nature. Specific
provision and allowance allocations are made for risk-rated loans that have gone before
the loan review committee. These allocations are based upon specific borrower data, such
as non-performance, delinquency, financial performance, capacity to repay, and collateral
valuation. Non-account specific allocations are made for all remaining loans within the
portfolio based on recent charge-off history, other known trends and expected losses. In
addition, allocations are made for qualitative factors such as changes in the local,
regional and national economies, industry trends, loan growth, and loan administration. A
quarterly report and recommendation is presented to and approved by the Board of
Directors.

Based on this analysis management's review of updated financial information provided by
the borrowers

17

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indicating deterioration in the financial condition of certain borrowers due to the
current economic environment, Management determined to lower the risk ratings on
approximately 5% of the commercial and commercial real estate loans reviewed for the
period ended September 30, 2003. The risk-rating changes in the third quarter resulted in
increased provision expense of $636,000 and an increase in non-performing loans for the
quarters presented in the table above.

Although, management believes the allowance is adequate to cover probable losses
inherent within the loan portfolio, future adjustments may be necessary if economic
conditions differ substantially from the economic assumptions used in making its
determinations. In addition, no assurances can be made concerning the future financial
condition of borrowers, the deterioration of which would require additional provisions in
subsequent periods.

Non-accrual/Impaired LoansA loan may be classified as non-accrual if, in the opinion of management, doubts
as to the collectibility of the account arise. In addition, commercial, financial and
agricultural loans are classified as non-accrual when the loans become 90 days or more
past due, and all other loans 120 days or more past due. At the time the account is placed
on non-accrual status, all previously accrued interest is charged against current
earnings. At the time the accrual of interest is discontinued, future income is recognized
only when cash is received depending on managements assessment of the collectibility
of principal. At September 30, 2003, the Company had nonaccrual loans of $3,977,000.

A loan is considered impaired when, based upon current information and events, it is
probable that the Company will be unable to collect all principal and interest amounts due
according to the contractual terms of the loan agreement. Included in the non-accrual
loans at September 30, 2003 were impaired loans totaling $3.2 million. The average balance
in 2003 of impaired loans was $3.2 million. Impaired loans had a related allowance
allocation of $794,000 and income recognized in 2003 for impaired loans totaled $75,000.

Two borrowers represent approximately $1.5 million of total impaired loans:

> The largest of these borrowers has several credits totaling $794,000 which are secured
>           by commercial property. These credits were classified as impaired and placed in
>           non-accrual status in the third quarter of 2003 due to the deteriorating financial
>           condition and subsequent bankruptcy filing of the borrower.
>         The second largest borrower continues to be a $700,000 participated loan for a dairy
>           operation. The loan was cross-collateralized with cattle, feed, and real estate, including
>           facilities. In 1999, the Bank recorded a $300,000 charge off pertaining to the cattle
>           portion of the loan. The borrower subsequently filed for bankruptcy relief, and the
>           Company continues to pursue foreclosure proceedings on the real estate portion of the loan
>           through the bankruptcy court. As a result of collateral valuations subsequent to the
>           original charge off, the Company has recorded charge offs of $100,000, $190,000, and
>           $101,000 in 2000, 2001, and 2002, respectively, resulting principally from valuations on
>           the remaining feed stored on the property. Management will continue its collateral
>           valuations until final resolution of the matter, which may result in additional
>           charge-offs.

Management does not consider any of the remaining non-performing loans to pose any
further significant risk to the capital position or future earnings of the Company.

Management believes none of the non-performing assets, including other real estate
owned, at September 30, 2003, pose any significant risk to the operations, liquidity or
capital position of the Company.

18

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk for the Company is comprised primarily from interest rate risk exposure and
liquidity risk. Since virtually all of the interest-earning assets and paying liabilities
are at the Bank, virtually all of the interest rate risk and liquidity risk lies at the
Bank level. The Bank is not subject to currency exchange risk or commodity price risk, and
has no trading portfolio, and therefore, is not subject to any trading risk. In addition,
the Bank does not participate in hedging transactions such as interest rate swaps and
caps. Changes in interest rates will impact both income and expense recorded and also the
market value of long-term interest-earning assets. Interest rate risk and liquidity risk
management is performed at the Bank level. Although the Bank has a diversified loan
portfolio, loans outstanding to individuals and businesses are dependent upon the local
economic conditions in the immediate trade area.

One of the principal functions of the Company's asset/liability management program is
to monitor the level to which the balance sheet is subject to interest rate risk. The goal
of the asset/liability program is to manage the relationship between interest rate
sensitive assets and liabilities, thereby minimizing the fluctuations in the net interest
margin, which achieves consistent growth of net interest income during periods of changing
interest rates.

Interest rate sensitivity is the result of differences in the amounts and repricing
dates of a bank's rate sensitive assets and rate sensitive liabilities. These differences,
or interest rate repricing "gap", provide an indication of the extent that the
Company's net interest income is affected by future changes in interest rates. During a
period of rising interest rates, a positive gap, a position of more rate sensitive assets
than rate sensitive liabilities, is desired. During a falling interest rate environment, a
negative gap is desired, that is, a position in which rate sensitive liabilities exceed
rate sensitive assets.

At September 30, 2003, the Company had a cumulative negative gap of $32.5 million at
the one-year horizon. The gap analysis indicates that if interest rates were to rise 100
basis points (1.00%), the Company's net interest income would decline at the one-year
horizon because the Company's rate sensitive liabilities would reprice faster than rate
sensitive assets. Conversely, if rates were to fall 100 basis points, the Company would
earn more in net interest income. However, not all assets and liabilities with similar
maturities and repricing opportunities will reprice at the same time or to the same
degree. The pricing on all deposit products, for example, is determined by management, and
therefore can be controlled as to the extent and timing of repricing. As a result, the
Companys gap position does not necessarily predict the impact on interest income
given a change in interest rate levels.

Management also manages interest rate risk with the use of simulation modeling which
measures the sensitivity of future net interest income as a result of changes in interest
rates. The analysis is based on repricing opportunities for variable rate assets and
liabilities and upon contractual maturities of fixed rate instruments.

The simulation also calculates net interest income based upon rate increases or
decreases of + or- 300 basis points (or 3.00%) in 100 basis point (or 1.00%) increments.
The analysis reprices the balance sheet and forecasts future cash flows over a one-year
horizon at the new interest rate levels. The cash flows are then totaled to calculate net
interest income. Assumptions are made for loan and investment pre-payment speeds and are
incorporated into the simulation as well. Loan and investment pre-payment speeds will
increase as interest rates decrease and slow as interest rates rise. The current analysis
indicates that, given a 300 basis point overnight decrease in interest rates, the Company
would experience a potential $2,382,000 or 20.0% decline in net interest income. If rates
were to increase 300 basis points, the analysis indicates that the Companys net
interest income would increase $470,000 or 4.0%. It is important to note, however, that
this exercise would be of a worst-case scenario. It would be more likely to have
incremental changes in interest rates, rather than a single significant increase or
decrease. When management believes interest rate movements will occur, it can restructure
the balance sheet and thereby the ratio of rate sensitive assets to rate sensitive
liabilities, which in turn will affect the net interest income. It is important to note;
however, that in gap analysis and simulation modeling not all assets and liabilities with
similar maturities and repricing opportunities will reprice at the same time or to the
same degree and therefore, could effect forecasted results.

Much of the Company's deposits have the ability to reprice immediately; however,
deposit rates are not tied to an external index. As a result, although changing market
interest rates impact repricing, the Company retains

19

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much of the control over repricing by determining itself the extent and timing of
repricing of deposit products. In addition, the Company maintains a significant portion of
its investment portfolio as available for sale securities and also has a significant
variable rate loan portfolio, which is used to offset rate sensitive liabilities.

Changes in market interest rates can also affect the Company's liquidity position
through the impact rate changes may have on the market value of the available for sale
portion of the investment portfolio. Increases in market rates can adversely impact the
market values and therefore, make it more difficult for the Bank to sell available for
sale securities needed for general liquidity purposes without incurring a loss on the
sale. This issue is addressed by the Company with the use of borrowings from the Federal
Home Loan Bank ("FHLB") and the selling of fixed rate mortgages as a source of
liquidity to the Company.

The Company's liquidity plan allows for the use of long-term advances or short-term
lines of credit with the FHLB as a source of funds. Borrowing from FHLB not only provides
a source of liquidity for the Company, but also serves as a tool to reduce interest risk
as well. The Company may structure borrowings from FHLB to match those of customer credit
requests, and therefore, lock in interest rate spreads over the lives of the loans.

In addition to borrowing from the FHLB as a source for liquidity, the Company also
participates in the secondary mortgage market. Specifically, the Company sells fixed rate,
residential real estate mortgages to Freddie Mac. The sales to Freddie Mac not only
provide an opportunity for the Bank to remain competitive in the market place, by allowing
it to offer a fixed rate mortgage product, but also provide an additional source of
liquidity and an additional tool for management to limit interest rate risk exposure. The
Bank continues to service all loans sold to Freddie Mac.

Item 4. Controls and Procedures

As of the quarter ended September 30, 2003, the Company carried out an evaluation,
under the supervision and with the participation of the Companys management,
including the Companys President and Chief Executive Officer along with the
Companys Chief Financial Officer, of the effectiveness of the design and operation
of the Companys disclosure controls and procedures pursuant to Exchange Act Rule
13a-14. Based upon that evaluation, the Companys President and Chief Executive
Officer along with the Companys Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated subsidiaries)
required to be included in the Companys periodic SEC filings. There have been no
significant changes in the Companys internal controls or in other factors which
could significantly affect internal controls subsequent to the date the Company carried
out its evaluation.

A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within
the Company have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur because of
simple error or mistake. Additionally, controls can be circumvented by the individual acts
of some persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected, and, thus, the Company's management cannot provide absolute
assurance that the Company's disclosure controls will prevent all errors and all fraud.

21

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PART II  OTHER INFORMATION

|Item 1.        | Legal Proceedings
    (none)                                                                                                                                       
|-------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Item 2.        | Changes in Securities and Use of Proceeds
    (none)                                                                                                               
|Item 3.        | Defaults Upon Senior Securities
    (none)                                                                                                                         
|Item 4.        | Submission of Matters to a Vote of Security
    Holders
    (none)                                                                                                 
|Item 5.        | Other Information
    (none)                                                                                                                                       
|Item 6.        | Exhibits and Reports on Form 8  K                                                                                                                                 
|               | (a) Exhibits required by Item 601 of
    Regulation S  K:                                                                                                         
|Exhibit Number
|2              | N/A                                                                                                                                                                
|3(i)           | Articles of Incorporation filed on March 6,
    1992 as Exhibit 3(i) to Registration Statement on Form S-4 (No. 33-46164) and incorporated
    herein by reference.
|3(ii)          | By  laws filed on March 6, 1992 as
    Exhibit 3(ii) to Registration Statement on Form S-4 (No.33-46164) and incorporated herein
    by reference.                
|4              | N/A                                                                                                                                                                
|10             | N/A                                                                                                                                                                
|11             | N/A                                                                                                                                                                
|15             | N/A                                                                                                                                                                
|18             | N/A                                                                                                                                                                
|19             | N/A                                                                                                                                                                
|22             | N/A                                                                                                                                                                
|23             | N/A                                                                                                                                                                
|31(i)          | Certification of the Chief Executive Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                         
|31(ii)         | Certification of the Chief Financial Officer
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                         
|32(i)          | Certification of the Chief Executive Officer
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                         
|22            
|32(ii)         | Certification of the Chief Financial Officer
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                         
|99.0           | Independent Auditors Review                                                                                                                                       
|               | (b) Reports on Form 8-K  
           Filed on July 22, 2003 regarding earnings press
    release, dated July 22, 2003                                             



23

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Slippery Rock Financial Corporation

(Registrant)





|Date: November 21, 2003 | By:/s/William C. SonntagWilliam C. Sonntag
    President & CEO
|----------------------- | --------------------------------------------------------------
|Date: November 21, 2003 | By:/s/ Mark A. VolponiMark A. Volponi
    CFO                 

---

Exhibit 31(i)

SECTION 302 CERTIFICATION

I, William C. Sonntag, President and Chief Executive Officer of Slippery Rock Financial
Corporation (the "Company"), certify that:

|1. | I have reviewed this quarterly
    report on Form 10-Q of Slippery Rock Financial Corporation;                                                                                                                                                                                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Based on my knowledge, this
    quarterly report does not contain any untrue statement of a material fact or omit to state
    a material fact necessary to make the statements made, in light of the circumstances under
    which such statements were made, not misleading with respect to the period covered by this
    quarterly report;
|3. | Based on my knowledge, the
    financial statements, and other financial information included in this quarterly report,
    fairly present in all material respects the financial condition, results of operations and
    cash flows of the registrant as of, and for, the periods presented in this quarterly
    report;                   
|4. | The Companys other
    certifying officer and I are responsible for establishing and maintaining disclosure
    controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
    Company and have:                                                                                                             
|   | a.                                                                                                                                                                                                                                                                                                                                            
|   | b.                                                                                                                                                                                                                                                                                                                                            
|   | c.                                                                                                                                                                                                                                                                                                                                            
|5. | The Companys other
    certifying officer and I have disclosed, based on our most recent evaluation of internal
    control over financial reporting, to the Companys auditors and the audit committee
    of the Companys board of directors:                                                                                             
|   | a.                                                                                                                                                                                                                                                                                                                                            
|6. | b.                                                                                                                                                                                                                                                                                                                                            

|Date:_November 21, 2003________ | /s/ William C. Sonntag________
    President and Chief Executive Officer
|------------------------------- | ------------------------------------------------------------------------

Exhibit 31(ii)

SECTION 302 CERTIFICATION

I, Mark A. Volponi, Chief Financial Officer of Slippery Rock Financial Corporation (the
"Company"), certify that:

|1. | I have reviewed this quarterly
    report on Form 10-Q of Slippery Rock Financial Corporation;                                                                                                                                                                                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Based on my knowledge, this
    quarterly report does not contain any untrue statement of a material fact or omit to state
    a material fact necessary to make the statements made, in light of the circumstances under
    which such statements were made, not misleading with respect to the period covered by this
    quarterly report;
|3. | Based on my knowledge, the
    financial statements, and other financial information included in this quarterly report,
    fairly present in all material respects the financial condition, results of operations and
    cash flows of the registrant as of, and for, the periods presented in this quarterly
    report;                   
|4. | The Companys other
    certifying officer and I are responsible for establishing and maintaining disclosure
    controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
    Company and have:                                                                                                             
|   | a.                                                                                                                                                                                                                                                                                                                                            
|   | b.                                                                                                                                                                                                                                                                                                                                            
|   | c.                                                                                                                                                                                                                                                                                                                                            
|5. | The Companys other
    certifying officer and I have disclosed, based on our most recent evaluation of internal
    control over financial reporting, to the Companys auditors and the audit committee
    of the Companys board of directors:                                                                                             
|   | a.                                                                                                                                                                                                                                                                                                                                            
|   | b.                                                                                                                                                                                                                                                                                                                                            

|Date:_November 21, 2003________ | /s/ Mark A.
    Volponi________
    Chief Financial Officer
|------------------------------- | -----------------------------------------------------------



---

Exhibit 32(i)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Slippery Rock Financial
Corporation (the "Company") on Form 10-Q for the period ending September 30,
2003 as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, William C. Sonntag, Chief Executive Officer, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:

(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the Company.

/s/ William C. Sonntag_______
Chief Executive Officer

November 21, 2003





---

Exhibit 32(ii)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Slippery Rock Financial
Corporation (the "Company") on Form 10-Q for the period ending September 30,
2003 as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Mark A. Volponi, Chief Financial Officer, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the Company.



/s/ Mark A. Volponi_______ 
Chief Financial Officer

November 21, 2003

---

Exhibit 99.0

INDEPENDENT ACCOUNTANTS REPORT

Board of Directors and Stockholders
Slippery Rock Financial Corporation

We have reviewed the accompanying consolidated balance sheet of Slippery Rock Financial
Corporation and subsidiary as of September 30, 2003, and the related consolidated
statements of income and comprehensive income for the three and nine-month periods ended
September 30, 2003 and 2002, and the consolidated statement of cash flows for the
nine-month periods ended September 30, 2003 and 2002, and the consolidated statement of
changes in stockholders equity for the nine-month period ended September 30, 2003.
These financial statements are the responsibility of the Companys management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial information
consists principally of applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with auditing standards generally
accepted in the United States of America, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.

Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements for them to be in conformity
with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in
the United States of America, the consolidated balance sheet as of December 31, 2002, and
the related consolidated statements of income, changes in stockholders equity and
cash flows for the year then ended (not presented herein); and in our report dated January
31, 2003 we expressed an unqualified opinion on those consolidated financial statements.

/s/ S.R. Snodgrass, A.C.
Wexford, PA
November 20, 2003