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SECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549


Form 10-K

|      |  |                                                                                                                                                
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|[X]   |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002                
|     
|[   ] |  | TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
________ TO ________.

Commission File Number: 0-15624



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|                                                  
|--------------------------------------------------
|Second Bancorp Incorporated                       
|(Exact Name of Registrant as Specified in Charter)

|                                |  |                    
|------------------------------- |  | -------------------
|Ohio                            |  | 34-1547453         
|(State or Other Jurisdiction of |  | (IRS Employer      
|Incorporation or Organization)  |  | Identification No.)

|                                                   
|---------------------------------------------------
|108 Main Avenue SW, Warren, Ohio 44481             
|(Address of Principal Executive Offices) (Zip Code)
|                                                   
|Registrants telephone number, including area code:
|330.841.0123                                       

Securities registered pursuant to Section 12(g) of the Act:

|                           |  |                                         
|-------------------------- |  | ----------------------------------------
|Title of each class        |  | Name of each exchangeon which registered
|Common Stock, no par value |  | The NASDAQ National Market              

Securities registered pursuant to Section 12(b) of the Act: None

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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants knowledge, in definitive proxy of information
statements, incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [x] No [   ]

The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of June 28, 2002 as reported on the NASDAQ National Market
System, was approximately $235,797,362. Shares of Common Stock held by each
officer and director and by each person who owns 5% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

As of February 21, 2003, the registrant had outstanding 9,642,154 shares of
Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual shareholders meeting to be held
on April 17, 2003 are incorporated by reference into Part II and Part III.





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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I.                                           
|                                                   | Item 1. BUSINESS                                                                             
|                                                   | Item 2. PROPERTIES                                                                           
|                                                   | Item 3. LEGAL PROCEEDINGS                                                                    
|                                                   | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                                                   | Item 4 A IDENTIFICATION OF EXECUTIVE OFFICERS                                                
|PART II.                                          
|                                                   | Item 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED SHAREHOLDER MATTERS                 
|                                                   | Item 6. SELECTED FINANCIAL DATA                                                              
|                                                   | Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                   | Item 7 (a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                       
|                                                   | Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                   | Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
|PART III                                          
|                                                   | Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                   | Item 11. EXECUTIVE COMPENSATION                                                              
|                                                   | Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                   | Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|                                                   | Item 14. CONTROLS AND PROCEDURES                                                             
|PART IV                                           
|                                                   | Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                     
|SIGNATURES                                        
|CEO CERTIFICATION                                 
|CFO CERTIFICATION                                 
|EX-10.13 5th Amendment to Revolving Credit Agreemt
|EX-10.18 Amd. 1998 Nonqualified Stock Option Plan 
|EX-10.19 Stock Purchase Agreement                 
|EX-10.20 Purchase and Assumption Agreement        
|EX-21.1 Subsidiaries of the Registrant            
|EX-23.1 Consent of Ernst & Young                  
|EX-99.1 Certification of CEO                      
|EX-99.2 Certification of CFO                      



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PART I.




Item 1. BUSINESS

General

Second Bancorp Incorporated (Second Bancorp) is a one-bank financial holding
company with its most significant subsidiary being The Second National Bank of
Warren (Second National), a Warren, Ohio based commercial bank. Operating
through 35 branches, Second National offers a wide range of commercial and
consumer banking and trust services primarily to business and individual
customers in various communities in a nine county area in northeast and
east-central Ohio. A second operating subsidiary is Stouffer-Herzog Insurance
Agency, which sells a wide range of property, casualty, life and health
insurance products in northeast Ohio. At December 31, 2002, Second Bancorp had
consolidated total assets of $1.89 billion, deposits of $1.20 billion and
shareholders equity of $136 million. The Corporation also maintains another
subsidiary, Second Bancorp Capital Trust I, which was established in 2001 to
facilitate raising Tier I eligible capital in the form of corporation-obligated
mandatorily redeemable capital securities of subsidiary trust for the primary
purpose of funding our acquisition of Commerce Exchange Corporation. Additional
non-operating subsidiaries include Second National Capital Corporation and
Second National Financial Company, LLC, which were formed in 2002 to facilitate
a capital conversion plan for the subsidiary Bank.

Second National focuses its marketing efforts primarily on local independent
commercial and professional firms, the individuals who are the owners and
principals of such firms as well as the low-to-moderate to upper income retail
customers in Second Nationals trade areas. In recent years, Second Bancorp has
emphasized increased commercial, direct consumer and real estate lending as
well as market area expansion.

Primary Business Operations

We currently operate three major lines of business.

Commercial
Commercial includes credit and related financial services to
small-to-large-sized corporations and businesses.

Our commercial lending activities focus primarily on providing local
independent commercial and professional firms with commercial business loans
and loans secured by owner-occupied real estate. Typically, our customers
financing requirements range from $250,000 to $10 million. We primarily make
secured and unsecured commercial loans for general business purposes, including
working capital, accounts receivable financing, machinery and equipment
acquisition, and commercial real estate financing. These loans have both fixed
and floating interest rates and typically have maturities of three to seven
years. Commercial loans comprised approximately 46% of our total loan portfolio
at December 31, 2002.

Second National Commercial Banking Introduces the Financial Services Center
Concept, Bringing Focus To a Combined Effort From All Business Lines.The
growing complexity of commercial banking has meant that progressive banks can
no longer do business in ways that had worked well for many years. During 2002,
Second National responded to that reality by inaugurating its Financial
Services Center or hub concept as a primary conduit to increased income
coupled with reduced and controlled expenses.

By way of definition: a Financial Services Center is a strategically located
facility in which commercial bankers are combined with a team of other
disciplines: private banking, retail, wealth management, investments, all under
the same roof. That creates an ideal environment for clients because it
provides them all the product and service opportunities they would find at the
main office in Warren. It is extremely efficient for Second National because
our in-house team of diverse talents and expertise can bounce ideas off each
other, help one another in cross-selling, and develop synergies between our
different lines of business.

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Currently Second National operates four Financial Services Centers in Boardman,
Beachwood, Akron and North Olmsted in addition to our Warren Headquarters. All
are customized to some degree to accommodate local marketplace variations, but
all follow a basic template for integrating on-site representatives from all of
the Banks lines of business.

Although it is tempting to simplify this as a one-stop shopping opportunity,
the concept goes much deeper than that. Our objective is not just to make all
our products available, but to match our wide-ranging product line to meet very
specific client needs. The Financial Services Center concept is rooted in our
commitment to sharing knowledge within for the purpose of coordinating
cross-sells. Referrals between lines of business are logistically more likely
when commercial lenders, private bankers, wealth managers and investment
professionals are all literally just down the hall from each other.

Additionally, this new approach to doing business is in keeping with Second
Nationals priority commitment to developing and maintaining long-term client
relationships. Most notably, it puts our entire team much closer to local
markets, making it easier to serve the needs of clients whom we know very
well...and others whom we are now able to know better because we can
efficiently offer everything they need from one location in their own backyard.

Commercial Banking Continues to Grow its Reputation as a Leader in Northeast
Ohio.Our increasingly positive reputation has enabled us to successfully
compete in larger commercial relationships.

As of July 31, 2002, our fee generation had already exceeded all of 2001 and
ended this year at over $2 million or 67% above the prior year. Similarly, new
loan production had already exceeded the entire year of 2001 by mid-2002 with
year-end totals approaching $200 million, up 83% over the previous year.

This progress has been fueled by a very competent core team of bankers and
underwriters, most of who have been with the organization for more than four
years. Using input from our Finance Division and the Financial Information
System (FIS), we are able to develop accurate pricing models balancing growth
and profitability. We have also standardized practices for transferring of
assets to Asset Recovery. Those procedures provide the Recovery Department with
up-to-date analysis of the borrowers situation.

New Initiatives Emphasize Our Long-Standing Commitment to Small Business
Banking.Small Business Banking at Second National benefited from an infusion
of new energy during 2002 as professionals (charged with creating and enhancing
commercial banking services to accounts with borrowings under $400,000) were
located at each of our Financial Services Centers.

Those bankers will have at their disposal technology and product lines to equal
or surpass the competition. Of equal importance, they will approach the
marketplace with a positive differentiating philosophy.
Unlike other organizations that use various business models to determine
whether they will grant loans to small businesses, Second National maintains a
high touch delivery system based on actual face-to-face interaction with each
prospect or client, plus local loan authority resulting in quicker, more
accurate decision-making. Our higher level of human contact will also help
generate cross-selling opportunities in that each Financial Services Center
includes wealth management, investment and retail associates.

These efforts are now supported by new display advertising and sales brochures
plus a Small Business Banking section on www.secondnationalbank.com. Online
Business Banking simplifies routine small business banking tasks. Clients can
easily access daily account balances and transaction information, transfer
funds between accounts, make loan payments and much more, without ever leaving
the office. Business clients participating in this service have more than
tripled since year-end 2001.

Reflective of our performance, Second National Bank has been, for the fourth
consecutive year, recognized by the U.S. Small Business Administration (SBA)
for achieving a top position in SBA loan volume among lenders in the
Cleveland District. Second Nationals SBA activities resulted in 74 loans
totaling $8.724 million, making us the largest community bank lender in the
Cleveland SBA district, as well as the leading SBA lender to the small business
community within the Warren-Youngstown market.

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Retail
Retail includes deposit gathering, direct and indirect consumer lending along
with a minor amount of small business banking services.

We offer a full range of consumer loans to individuals, including the owners
and principals of our commercial customers and a wide range of retail customers
in our market area. We offer consumer loans for a variety of personal financial
needs, including home equity, new and used automobiles, boat and recreational
vehicle loans, credit cards and overdraft protection for checking account
customers. At December 31, 2002, approximately 40% of our consumer loans
consisted of indirect auto, boat and recreational vehicle loans, which are
originated through dealers in the local area. Consumer loans comprised
approximately 28% of our total loan portfolio at December 31, 2002.

Retail Banking Begins A Strategic Upgrade Of Its Entire Network.Second
National has begun a strategic upgrade of its retail banking network based on
an in-depth analysis of product demand and market share in primary market
areas. We regard this as a prime opportunity to enhance and expand our ability
to compete and serve in key markets where we have successfully grown from a
small presence to a market share level that allows us to offer our clients new,
state-of-the-art facilities in which to conduct their business. Specifically:



| |  | North Olmsted. Second National Bank relocated its North Olmsted Banking
Center on November 12, 2002, opening the doors to a new Financial Services
Center in North Olmsted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | This was much more than a routine relocation. Second National has now
established a true hub to serve the financial needs of the entire
west-Cleveland area. We have doubled the physical size of our presence in
North Olmsted but more importantly have made all business lines available to
clients from this single Financial Services Center. The new North Olmsted
location features significant improvements including drive-thru lanes, a
drive-up ATM and safe deposit boxes. A convenient night depository is also
available. The new facility provides customer friendly access in and out
from main roads where traffic is well controlled.
| 
| |  | Hudson. With a capital expenditure of nearly $1 million, a new retail
banking facility will be constructed in Hudson. The new full-service
banking center will include drive-thru lanes, a drive-up ATM, additional
safe deposit boxes and easy access. The enlarged office will retain its
Western Reserve atmosphere. The Second National Stow and present Hudson
banking centers will be merged into the newly expanded facility scheduled
to open in the summer of 2003.                                                                                                                                                                           
| 
| |  | Kent. Another expanded banking facility will be built in Kent. An
investment of nearly $1 million will provide multiple drive-thru lanes, a
drive-up ATM and safe deposit boxes. Supported by the Banks increasing
market share in the Kent-Brimfield area and customer demand for an
expanded facility, the present Brimfield and Kent banking centers will be
moved into the new Kent facility in the spring of 2003.                                                                                                                                                                                                                               
| 
| |  | Medina. Second National Bank will relocate its present Medina facility to
a new office in a prime traffic area. The million-dollar retail banking
center is scheduled to open in the summer of 2003 and will feature
multiple drive-thru lanes, a drive-up ATM and safe deposit boxes.                                                                                                                                                                                                                                                                                                                                                                 
| 
| |  | Wooster. A new full-service banking center in Wooster in the summer of
2003 will provide Second National with an opportunity to establish a major
presence in Wayne County adding to the Loan Production Office already
serving clients there.                                                                                                                                                                                                                                                                                                                                                                                                         
| 
| |  | Howland. Second National Bank purchased approximately $2.6 million of
deposits from Metropolitan National Bank headquartered in Youngstown,
Ohio. Metropolitan had previously announced its intention to close its
Howland office. The Second National banking centers closest to
Metropolitans former Howland office are our facilities in Niles and
Howland.                                                                                                                                                                                                                                                                                        
| 
| |  | Steubenville. As part of our intensified focus on taking advantage of
proven growth opportunities in key northeast Ohio markets, Second National
has sold our two banking centers in Steubenville, Ohio. The two locations
have been acquired by Advance Financial Savings Bank, subsidiary of
Advance Financial Bancorp located in Wellsburg, West Virginia. The two
Steubenville banking centers                                                                                                                                                                                                                                                     

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|  |  | originally became part of our organization
through the acquisition of Trumbull Savings. Because they are not part of
our primary northeast Ohio marketplace, their divestiture in February 2003
will enable Second National to reallocate important resources toward
strengthening strategic efforts in demographics where we can take
advantage of significant growth opportunities.                                                                                                                               
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Solon. Second National Banks Solon banking center was closed on September
30, 2002 for the purpose of expanding product and service opportunities at
our banking centers in nearby Twinsburg and Beachwood. Specifically with:
increased professional staff at each location ... added drive-thru lanes
and safe deposit boxes at Twinsburg ... plus quick access to a full
complement of commercial lenders and private banking, mortgage loan, and
wealth management specialists at the Beachwood banking center.

New Concepts in Knowledge-Based Marketing Support Organizational Goals and
Banking Center Reconfigurations.In previous years, our approach to marketing
was driven by a universal or single-message approach to our entire market. As
we grew and expanded into ever-changing markets, we recognized the need for
streamlining our communications to reflect those changes. Consequently, 2002
was a watershed year in which we began to refine our marketing approaches with
focused messages targeted to specific audiences, specific to banking center and
market, thereby maximizing the potential of our diverse market areas.

During 2002, we strove to maintain, within established markets, our current
client base while creating awareness of our broader capabilities. We also gave
trial exposure to specific non-core deposit and consumer loan products. In our
growth markets we addressed the need to further create basic awareness of
Second National, drive core deposit and loan sales, and further introduce and
build our overall brand position. Central to those efforts was the use of
high-reach, high-impact television and radio media, while continuing print
mediadisplay advertising, public relations and direct mailingas formats for
communicating the highest degree of specific product detail.

Key to marketing and marketing communications was the decision, during 2002, to
identify and capitalize on high growth opportunities within our marketplaces.
To facilitate this we employed BancIntelligence, a professional service that
examined our entire network and evaluated individual banking centers against
numerous criteria. BancIntelligence also provided promotional effectiveness
recommendations for each of our banking centers.

We have now matched BancIntelligence data, by banking center, with our 2003
organizational plan and various demographic data to determine our specific
strategies by market. As dictated by our positioning line, The People Making
Banking Better®, all communications will be guided according to our commitment
to providing clients with unparalleled quality in products and services.
Implementation of our new direction of approaching markets based on an educated
understanding of varying needs will be undertaken with the ultimate objective
of significantly increasing our return on investment.

Deposit Line of Business Introduces a New Interest Bearing Checking Account
While Continuing Progress with Existing Products.As a revenue-driver for our
deposit line of business, Second National Bank introduced the Satisfaction
NOWsm account, an interest bearing checking account. Satisfaction NOW is a
premium priced, tiered transaction account. The features of the product are
unlimited access to an account that pays an introductory rate for 90 days and a
premium rate on a tiered basis thereafter. The Your Best Interestsm account
continues to be very popular with consumers and has become a product of choice
through which to keep funds liquid while still receiving a competitive rate.
More than $200 million is now resident in the Your Best Interest product.

Relative to the deposit line of business, we have also continued excellent
progress in generating demand deposit accounts during 2002. As of year-end, we
have increased outstandings by $34.8 million or 24.3%. Demand deposit
transaction accounts are a springboard to profitability due to revenue
generated by way of ATM, debit card and overdraft fees as well as interest
spread.

Innovative Thinking Results in Increased Consumer Loans.During 2002,
zero-percent financing programs offered by automotive manufacturers generated
creative thinking on the part of professionals in Second Nationals Consumer
Loan Department, resulting in an increase of 203% over 2001 specific to loans
for boats and recreational vehicles. By attending marine and RV shows, lending
officers were able

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to attract the attention of numerous dealers with our
ability to understand their markets, provide highly competitive rates, and give
extremely quick turnaround decisions on loan applications.

The Client Advantage Program Grows as Part of Our Corporate Culture.The Client
Advantage Program (CAP) was created to build positive, long-term relationships
with Second National clients by helping to identify optimum combinations
of products and services.

The entire CAP initiative is based on the conviction that the more we know
about our clients, the better service we can provide. To that end, our retail
associates have completed 13,024 Client Preference Interviews during 2002. The
detailed information provided by those surveys assists our associates in
becoming more aware of the many opportunities to proactively help our clients.
Because such knowledge is applied through direct contact with clients, ongoing
training, coaching and counseling, such as outbound retail calling support
programs for tellers and personal bankers, have also intensified to help ensure
proper follow-through. During 2002, 48,255 outbound retail calls were made.

The backbone of CAP is the fact that all activities can be tracked and
measured. Monthly Achievement Results (MARs) are now available on the BankWeb
allowing associates and supervisors to review all current specifics.
Information is also available for each banking center and for each region. A
MAR for every teller will soon be added. Moreover, the MAR format has the
capability of being expanded to include other sales associates in other areas
of the Bank. MARs are used to coach and encourage selling efforts by providing
a complete overview as to the status of goal achievement.

Additionally, CAP has contributed to an overall understanding of the importance
of cross selling. In August 2001, the average associate cross sell was 2.23. In
December 2002, the average associate cross sell was 2.65. In August 2001, the
average banking center cross sell was 2.10. In December 2002, the average
banking center cross sell was 2.62.

As part of the concerted effort to increase cross selling, CAP also embraced an
initiative developed to focus on the objective of converting existing
single-account clients into dual or multi-account clients.

Specifically: a large number of single-account clients were identified
representing a large share of all current retail business. Most of those
clients had done business with Second National Bank for some time. We applied
our current technology, extensive training, sales skills, and diverse products
to increase the retail cross sell ratio within this group of single-account
clients.

Within the span of nine months, this initiative resulted in 1,200 clients being
cross-sold into multiple relationships. As the overall program grows and
expands, the single-account list will be further defined so-as to match clients
with probable best cross sell products.

As CAP becomes firmly established in the banking centers, throughout the retail
side of the business, the program will then be evaluated with an eye toward
broadening it into other areas including Private Banking, Wealth Management and
Mortgage Lending.

Mortgage
Mortgage includes mortgage banking activities, including the ownership,
origination, sale and servicing of mortgages.

Our mortgage banking department underwrites and originates a wide range of
mortgage loan products and sells a significant volume of them primarily on a
servicing retained basis. Generally, the loans sold into the secondary mortgage
market make funds available for reuse in mortgage or other lending activities.
The sales typically generate a net gain (including origination fee income and
deferred origination costs), limit the interest rate risk caused by holding
long-term, fixed-rate loans, and supplement our portfolio of serviced loans
which generate fee income. We originated over $920 million of loans in 2002 and
serviced $1.32 billion in mortgage loans for others at December 31, 2002.

A Year of Phenomenal Growth in Mortgage Loans.Second Nationals Mortgage Loan
line of business has established for itself a very clear set of objectives. The
strong commitment continues to be capitalizing on the profitability of mortgage
loans with a sales culture focus while increasing fee generation; the sale of
investment quality mortgages and enhanced technological resources.

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| |  | In January 2001, Second National processed and closed 113 mortgage loans
for approximately $12.7 million. In the record month of October 2002, the
Bank processed and closed 1,137 loans for a total of $124.8 million for a
983% growth in less than 24 months. For the entire year of 2002, the Bank
processed and closed 9,112 loans for a total of $935.3 million.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | During the entire year of 1999, Second National sold $119 million in
mortgage loans. For the entire year of 2002, the Bank sold $865 million
with $146 million in the month of December alone.                                                                                                                                                                        
| 
| |  | In just four years, mortgage loans serviced for others have exploded from
an annual figure of only $41 million to surpassing the $1 billion
benchmark.                                                                                                                                                                                                                
| 
| |  | Second Nationals mortgage loan servicing performance has earned the Bank
the highest Tier 1 rating assigned by Freddie Mac. This, in turn, has
created opportunities that have not before existed.                                                                                                                                                                   
| 
| |  | In 1999, the Bank had only 5 mortgage loan originators. Today there are a
total of 75 persons taking mortgage loan applications; 15 do so as their
sole job responsibility.                                                                                                                                                                                           
| 
| |  | On the wholesale lending side of the mortgage business, the Bank has grown
from approximately 10 correspondents to more than 200 highly qualified
correspondents in a five state area.                                                                                                                                                                                
| 
| |  | In the past four years, the number of mortgage loans actively being
serviced has risen from 2,000 to 18,500.                                                                                                                                                                                                                                                          
| 
| |  | In less than five years, Second National Bank has gone from being a
me-too mortgage lender to the leading mortgage loan institution in
Trumbull Countyand a major player in Ohio.                                                                                                                                                                                  

One of the most far-reaching advancements made at Second National during recent
years has been the implementation of LoanQuest by MortgageFlex. This fact-based
system enables us to commit loans to an investor as soon as the initial
application is locked, minimizing the Banks mortgage interest rate risk. Our
competitive rates have increased our volume to an all time record high.
Moreover, such technological advancements have enabled loan applications to be
channeled through a single system, broadening the number of authorized persons
with access to origination procedures and contributing to speed, accuracy and
the ability to handle high volume by electronically streamlining what used to
be a time-consuming manual effort.

The benefits of technology are being felt in other ways as well. Second
National has recently entered into a relationship with our primary mortgage
loan investor FreddieMac and mortgagebot® a preferred FreddieMac vendor.
Initially, a link on Second Nationals Web site will permit originators to
perform instant pre-approvals at the point-of-sale.

Operating StrategyReallocating our business mix to strengthen and stabilize our net interest
margin.We are focused on restructuring both the asset and liability side of
our balance sheet in order to increase our net interest margin and reduce net
interest margin volatility. We are actively working to improve profitability by
generating more core deposits in order to reduce our cost of funds. To achieve
this goal, we have launched a new product line of personal and business deposit
accounts including many new and innovative products, allocated more funding to
advertising, and introduced employee incentives focused on core deposit growth.
During 2002, the number of demand deposit, NOW and MMDA accounts increased at
an annualized rate of 5.3%. On the asset side, we intend to return to a more
traditional commercial bank mix, which had been impacted by our acquisition of
a large thrift in 1998. We are focused on making our loan portfolio more
balanced. The approximate loan distribution at December 31, 2002 was 38.8% of
total loans were residential real estate, 33.11% were commercial real estate,
13.36% were commercial and 14.72% were consumer. Our goal is to achieve a mix
of approximately 25% in each category.

Improving financial performance by leveraging our financial information system
and controls.We intend to improve our financial performance and efficiency by
leveraging our newly installed, state-of-the-art financial information system
which will allow us to budget and assess financial performance across the
entire organization. The use of this sophisticated tool throughout the
organization is a vital link in our

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efforts to rigorously control costs and
react quickly to changes in our markets. This financial information system
supports growth, efficiency and flexibility, by incorporating line-of-business
accountability, comprehensive budgeting, forecasting flexibility and
real-time reporting. This comprehensive new budgeting and forecasting system
will give us the ability to forecast on an 18-month time horizon and to
continuously update those forecasts as market conditions change. The value of
the financial information system is that it allows us to better manage our
business by the numbers, focusing on responsibility, accountability and the
ability to proactively manage our lines of business. We anticipate that the
financial information system will allow us to keep on budget and remain
responsive to market opportunities.

Improving efficiency.We are committed to improving our efficiency; including
implementing disciplined cost controls and aligning management incentives with
corporate goals. We are focused on streamlining, reorganizing and re-examining
our policies, processes and procedures. We believe we will be able to reduce
personnel costs through attrition and still maintain our high level of customer
service, due in part to the accountability and responsibility focus enabled by
our new financial information system. Although on a GAAP basis there was a
slight increase in our efficiency ratio in 2002, on a non-GAAP basis, excluding
the banking center reconfiguration and merger costs, the efficiency ratio
improved from 58.4% in 2001 to 58.1% in 2002.

Creating a culture focused on building strong, profitable customer
relationships.Our business depends on increased relationship building in our
northeast and east-central Ohio service area where we do all of our banking
business. We believe one of our key competitive edges is that our size allows
us to offer a full range of competitive products and services typically offered
by regional banks while, at the same time, allowing us the ability to establish
the closer customer relationships of a community bank. We focus on a
decentralized decision making structure which delegates increased authority to
the employees located in our 35 retail banking centers. This approach enables
us to develop long-term customer relationships, maintain high quality service
and respond quickly to customer needs.

Increasing emphasis on fee income.In order to diversify our revenues, we are
committed to movement toward greater fee income through enhancement and
extension of our financial services. Our mortgage banking business and our
wealth management department should contribute to fee income growth through
market expansion of our mortgage originations and increased sales of services.
In addition, we intend to increase fee income through the growth of our private
banking business and our investment center, which provides a wide variety of
mutual funds, annuities, stocks, bonds and insurance products. Non-interest
income represented 28.8% of total revenues during 2002 compared to 27.3% for
the same period last year.

Expansion Strategy
We have been committed to controlled expansion since 1988 by focusing on
strengthening market share in our existing communities and expanding into new
markets, many of them in high growth areas with strong demographics. During
this period, we have expanded our coverage area from one county served by nine
retail banking centers to our current nine counties covered by 35 retail
banking centers. In the process, we have grown from less than $300 million in
assets in 1988 to $1.9 billion at December 31, 2002, specifically through our
1998 acquisitions of two financial institutions, The Trumbull Savings and Loan
Company also headquartered in Warren and Enterprise Bank located in the dynamic
suburban Cleveland market. We acquired Commerce Exchange Bank in 2001 to add to
our presence in the Cuyahoga County/Cleveland market. Also, in 2002, we
acquired Stouffer-Herzog, a leading provider of life, health, property and
casualty insurance products in Ashtabula County, Ohio.

In the future, we intend to explore and consider de novo branching
opportunities and potential acquisitions of community banks, thrifts and other
financial service businesses. We will focus on acquiring institutions, which
are accretive to our earnings per share. Our de novo branching strategy will
focus primarily on high growth areas with strong market demographics in which
we have the potential to grow market share.

Acquisition of Stouffer-Herzog.During the third quarter 2002, Second Bancorp
completed a stock-for-stock acquisition of Stouffer-Herzog Insurance Agency,
Inc. and Stouffer-Herzog Financial Services Agency, Inc., the leading provider
of life, health, property and casualty insurance products in Ashtabula County,
Ohio. Stouffer-Herzog had total assets of $1.0 million and shareholders equity
of $283,000 at the acquisition date. We paid $1.98 million through the issuance
of common stock to the shareholders of Stouffer-Herzog for all the outstanding
shares of Stouffer-Herzog common stock. Stouffer-Herzog will

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operate as a Second Bancorp subsidiary and an affiliate of Second National Bank.
Stouffer-Herzog provides a proven track record of successful operations with
solid management and insurance professionals already in place and performing.
Moreover, Stouffer-Herzog has a strong reputation for integrity and community
commitment and benefits from long-standing relationships with high quality
insurance carriers. As an affiliate of Second National Bank, the capabilities
of Stouffer-Herzog will provide direct benefits to Second National clients who will have access to a diverse
array of insurance products and financial services at highly competitive
prices.

Additional Business StrategiesWealth Management...An Evolution of Traditional and New Capabilities.An
important evolution is taking place at Second National Bank. Our business line
previously identified as the Trust Department is now known as Wealth
Management.

Why the name change? Because many persons perceive Trust as being limited to
planning estates and administering probate.

What exactly is Wealth Management? The mission of Wealth Management is to build
and maintain long-term relationships by coordinating trust, private banking and
investment expertise to protect, manage, and grow the assets of individual and
business clients. Wealth Management is not simply a name change. It is a new
way of doing business in response to changing client needs.

Wealth Management integrates traditional trust products and services with the
financial specialization capabilities of private banking plus opportunity
guidance provided by our Investment Center. Specifically:

Personal Wealth Management services to individual clients of Second National
Bank include:



| |  | Comprehensive planning to establish and realize financial goals.                                                                                 
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Safeguarding and managing the growth of lifetime assets.                                                                                         
| 
| |  | Accommodating the needs of a financially sound retirement.                                                                                       
| 
| |  | Distributing assets in strict accordance with the wishes of each client as
governed by the trust or will created through careful estate planning.

Wealth Management services for both small and large business clients of Second
National Bank include:



| |  | Beneficial asset management                                                                                       
|- |  | ------------------------------------------------------------------------------------------------------------------
| 
| |  | Investment strategies                                                                                             
| 
| |  | Design, implementation and administration of profit sharing, retirement,
pension and other employee benefit plans.

Acting as an agent on behalf of either individual or business clients, Second
National Bank Wealth Management is prepared to accept partial or full
responsibility for managing investments through proven avenues of opportunity.
The goal is to build an investment program utilizing a combination of
investment vehicles to achieve agreed upon goals.

Some components of Wealth Management capabilities are designed for executives,
business owners, professionals and others whose financial service requirements
extend beyond the scope of most bank clients. For those with complex financial
needs, our Private Banking Program offers individualized attention, a high
level of service and specialized banking instruments.

Successful asset and investment management is possible only with the knowledge
that each client has unique needs and objectives. Positive relationships
established through Wealth Management will be built and will mature on the
basis of superior service and results. A high level of personalized service
will ensure that clients have direct access to key decision-making
professionals within Second National Banks Wealth Management business line
structure.

Community Development Banking Becomes a Line of Business as Community
Reinvestment Continues to Make Significant Progress.Second Nationals primary
community development strategy is to provide financing for affordable housing.
Going forward, we plan to specifically enhance our home ownership and mortgage
lending activities in urban markets. To facilitate that objective, Community
Development

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Banking will evolve into a distinct line of business demonstrating
a strong and increasing commitment to better serving the credit needs of our
communities. During 2003, we will expand our community mortgage originators
from one originator to three, housed in Mahoning, Trumbull and Summit Counties.
Those originators will specifically originate residential mortgage
loans for low- and moderate-income families as well as provide educational
programs and financial literacy counseling to potential homebuyers.

Second Nationals commitment to community development efforts through loans,
investments and services continued to strengthen during 2002. Providing
affordable housing opportunities for our host communities was a priority as
indicated by more than $14 million in community development loans. We have also
issued financing commitments totaling more than $12 million in community
development affordable housing projects slated for 2003.

Among the specific projects funded for our clients during 2002:



| |  | Construction of a 40 unit affordable housing project in Mahoning County.               
|- |  | ---------------------------------------------------------------------------------------
| 
| |  | Construction of a 30,000 square foot expansion of a church facility in Mahoning County.
| 
| |  | Construction of an 18,000 square foot community center in Trumbull County.             
| 
| |  | Acquisition financing for nursing homes in Summit, Holmes and Franklin Counties.       
| 
| |  | Improvements to a community educational center in Trumbull County.                     
| 
| |  | Expansion of an economic development corporation in Ashtabula County.                  

Our commitment to our communities was also reflected in financial support of
organizations that provide community services. During 2002 Second National Bank
made investments and commitments totaling more than $1.1 million to help create
affordable housing, new jobs, and other economic development opportunities in
our market areas. Contributions of time and talent have also been a hallmark of
Second Nationals community involvement commitment. Bank officers and
associates participated in numerous community events including minority
business trade fairs, entrepreneurial programs, financial literacy programs,
home buyer seminars, Community Days of Caring with United Way, economic
opportunity mixers and small business workshops.

Survey Shows Improvements in Second National Service Quality. Extensive
surveying of Second National clients was conducted during 2002 to determine if
new account service quality, as well as teller service quality, improved from
the year 2000 to 2002. A total of 261 client interviews were conducted specific
to teller performance and 144 related to personal bankers.

In seven of nine categories profiling personal bankers, clients thought that
Second National had improved or maintained its levels of service quality. 11 of
17 questions received a similar positive response when posed to clients
regarding service quality performance of tellers.

An impressive 99% of clients interviewed stated that they would recommend a
friend to Second National...up from 95% in 2000. 93% of those interviewed said
they would recommend us to a friend based on teller service quality.

A New Relationship-Building Program Focuses on Making Things Right.Our first
priority for successful client relationship building is: Do it right the first
time. Although we are proud of our success rate in properly serving our
clientele, it is a fact of life that mistakes will occur. Now, in addition to
our commitment to avoiding such mistakes, Second National Bank has introduced
the innovative Uh-oh! Better Banking Programsm.

Simply defined, Uh-oh! promises our clients: If we make a mistake, well fix
your problem quickly...plus well give you $5 for the inconvenience!

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Examples of how and when the program might be applicable:



| |  | If a client waits more than 10 minutes in a teller line.                                                                                          
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | If a client does not receive a thank you after a visit or phone call.                                                                           
| 
| |  | If there is a printing error on a clients checks.                                                                                                
| 
| |  | If an error is made on a statement  checking, savings or money market
account, home equity or personal line of credit, trust, or commercial
loan.
| 
| |  | If a client who calls the Bank before 3:00 p.m. does not receive a return
call that same day.                                                     

Uh-oh! is our way of ensuring that we have made things right in our
commitment to build and grow successful long-term client relationships.

The People Making Banking Better®Our commitment to hiring, training and
maintaining world-class human resources was underscored by a myriad of
effective training opportunities developed and coordinated by the Retail Staff
Development Group. In total, 220 training sessions were held in 2002 versus 103
the previous year, encompassing 1,221 participating associates versus 934
during 2001.

The Retail Staff Development area provides education to all Second National
banking centers including the Call Center and Private Banking associates. The
Consumer Lending Department has also taken advantage of specific sessions, as
have several non-retail departments throughout the Bank.

The high quality of individuals at Second National continues to also be evident
outside the working place as numerous associates give freely of their time to
civic and charitable organizations, events and causes.

Operational Actions Continue to Contribute to Efficiency.Second Nationals
Operations Division is charged with the ongoing task of identifying and
implementing new technology that is not only of functional value to our
organization, but truly provides a balance of effectiveness and efficiency as a
means of remaining competitive in a quickly moving business world. Among the
many achievements for 2002:



| |  | Implementation of a Customer Relationship Management (CRM) system through the Banks Intranet module enabling users to
identify a more complete profile of a clients total relationship with Second National. That includes CRM data from the
Investment Center, Wealth Management, Credit Card and Online Banking.                                                                                                              
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Migration of all consumer and mortgage loan payments to an automated environment.                                                                                                                                                                                                                                                                                                                                                 
| 
| |  | Launch of Second National Banks Intranet: BankWeb. Available to all associates this includes a searchable internal phone
directory, access to a forms library, two in-house applications linking information from sales associates to the Operations
Department, links to authorized sites such as the Federated 401(k), United Healthcare, secondnationalbank.com, a 401(k) wizard,
and Second Nationals online banking module.
| 
| |  | A system upgrade replacing our current conventional proof process increasing throughput in the proof area by as much as 65%.                                                                                                                                                                                                                                                                                                      
| 
| |  | Methodology for helping to ensure that client records are clean, current, and are not duplicated throughout our data system.                                                                                                                                                                                                                                                                                                      
| 
| |  | Enhancements to our Advanced Financial Solutions software enabling automatic corrections on rejects on items captured by the
image system through our sorters.                                                                                                                                                                                                                                                                    

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Second Bancorp, Inc. Rates High in Plain Dealer Ranking of Ohio Businesses.
Early in 2002, Second Bancorp, Inc. once again achieved prominence in The Plain
Dealer 100, an annual ranking of Ohio companies. Second
Bancorp ranked 64th among Ohios leading companies.

Market Area
Second Nationals primary market area consists of Trumbull, Ashtabula, Portage,
Jefferson, Mahoning, Summit, Medina, Stark and Cuyahoga counties in the
northeast and east-central portions of Ohio, to the east and south of the
Cleveland metropolitan area. The market areas economy is heavily influenced by
the manufacturing sector with an emphasis on steel, auto manufacturing and a
variety of related and smaller industries. The area has benefited from an
extensive transportation system comprised mainly of railroad and trucking
systems.

Competition
There is significant competition in the financial services industry in
northeast Ohio among commercial banks. As a result of deregulation of the
financial services industry, Second Bancorp also competes with other providers
of financial services such as savings and loan associations, credit unions,
commercial finance companies, brokerage and securities firms, insurance
companies, commercial finance and leasing companies and the mutual fund
industry. Some of Second Bancorps competitors, including certain regional bank
holding companies, which have operations in Second Bancorps market area, have
substantially greater resources than Second Bancorp, and as such, may have
higher lending limits and may offer other services not available through Second
National. Second Bancorp also faces significant competition, particularly with
respect to interest rates paid on deposit accounts, from well-capitalized local
thrift institutions. Second National competes on the basis of rates of interest
charged on loans, the rates of interest paid on funds, the availability of
services and responsiveness to the needs of its customers.

Regulation
Second Bancorp is a one bank financial holding company and is regulated by the
Federal Reserve Bank (the FRB). Second National is a national bank and is
regulated by the Office of the Comptroller of the Currency (the OCC), as well
as the Federal Deposit Insurance Corporation (the FDIC). Dramatic changes
have developed over the past several years regarding minimum capital
requirements for financial institutions. A listing of the minimum requirements
for capital and Second Bancorps capital position as of December 31, 2002 and
2001 are presented in footnote 17 of Item 8; Financial Statements and
Supplementary Data and is hereby incorporated by reference.

Second Bancorp is subject to regulation under the Bank Holding Company Act of
1956, as amended (the Act). The Act requires the prior approval of the
Federal Reserve Board for a bank holding company to acquire or hold more than a
5% voting interest in any bank, and restricts interstate banking activities.
The Act allows interstate bank acquisitions anywhere in the country and
interstate branching by acquisition and consolidation in those states that have
not opted out by January 1, 1997. Among the states where Second Bancorp may
acquire banks are Ohio, Michigan, Indiana, West Virginia and Pennsylvania. The
Act restricts non-banking activities to those, which are determined by the
Federal Reserve Board to be closely related to banking and a proper incident
thereto. The Act does not place territorial restrictions on the activities of
non-bank subsidiaries of bank holding companies. The Act also regulates
transactions between Second Bancorp and Second National and generally prohibits
tie-ins between credit and other products and services.

Second National is subject to regulation under the National Banking Act and is
periodically examined by the OCC and is subject, as a member bank, to the rules
and regulations of the FRB. Second National is an insured institution and
member of the Bank Insurance Fund (BIF) and also has approximately $429
million in deposits acquired through acquisitions of savings and loan
institutions that are insured through the Savings Association Insurance Fund
(SAIF). As such, Second National is also subject to regulation by the FDIC.
Establishment of branches is subject to approval of the OCC and geographic
limits established by state law.

Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act (the GLB Act) established a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms and other financial service providers through the creation of
a financial holding company entity. Bank holding companies that elect to
become financial holding companies have the ability to expand their activities
from those historically permissible for bank holding companies and engage in
activities that are financial in nature or complementary to financial
activities, including securities and insurance activities, sponsoring mutual
funds and investment companies

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and merchant banking. Financial holding
companies are also permitted to acquire, without regulatory approval, a
company, other than a bank or savings association, engaged in activities that
are financial in nature or incidental to activities that are deemed financial
in nature by the Federal Reserve Board.

In order to become a financial holding company, a bank holding company must
file a declaration with the Federal Reserve Bank indicating its desire to
become a financial holding company. In addition, all subsidiary banks of the
bank holding company must be well capitalized, well managed and have at least a
satisfactory rating under the Community Reinvestment Act. Failure to maintain
the well-capitalized standard or the other criteria for a financial holding
company may result in requirements to correct the deficiency or limit
activities to those allowed bank holding companies.

In 2000, Second Bancorp elected to become a financial holding company.

FIRREA
FIRREA restructures the regulation, supervision and deposit insurance of
savings and loan associations and federal savings banks whose deposits were
formerly insured by the Federal Savings and Loans Insurance Corporation
(FSLIC). FSLIC was replaced by the Savings Association Insurance Fund
(SAIF) administered by the FDIC. A separate fund, the Bank Insurance Fund
(BIF), which was essentially a continuation of the FDICs then existing fund,
was established for banks and state savings banks. An acquired thrift generally
would be required to continue its deposit insurance with the SAIF unless
significant exit and entrance fees were paid in connection with a conversion to
BIF insurance.

FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
substantially revised the bank regulatory and funding provisions of the Federal
Deposit Insurance Act and several other federal banking statutes. Among other
things, FDICIA requires federal banking agencies to broaden the scope of
regulatory corrective action taken with respect to banks that do not meet
minimum capital requirements and to take such actions promptly in order to
minimize losses to the FDIC. FDICIA established five capital tiers: well
capitalized; adequately capitalized; undercapitalized; significantly
undercapitalized; and critically undercapitalized and imposes significant
restrictions on the operations of a depository institution that is not in
either of the first two of such categories. A depository institutions capital
tier will depend upon the relationship of its capital to various capital
measures. A depository institution will be deemed to be well capitalized if
it significantly exceeds the minimum level required by regulation for each
relevant capital measure, adequately capitalized if it meets each such
measure, undercapitalized if it is marginally below any such measure,
significantly undercapitalized if it is significantly below any such measure
and critically undercapitalized if it fails to meet any critical capital
level set forth in regulations. A depository institution may be deemed to be in
a capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating or is deemed to be
in an unsafe or unsound condition or to be engaging in unsafe or unsound
practices.

Under regulations adopted under these provisions, for a depository institution
to be well capitalized it must have a total risk-based capital ratio of at
least 10%, a Tier I risk-based capital ratio of at least 6% and a Tier I
leverage ratio of at least 5% and not be subject to any specific capital order
or directive. For a depository institution to be adequately capitalized, it
must have a total risk-based capital ratio of at least 8%, a Tier I risk-based
capital ratio of at least 4% and a Tier I leverage ratio of at least 4% (or in
some cases 3%). Under the regulations, a depository institution will be deemed
to be undercapitalized if the depository institution has a total risk-based
capital ratio that is less than 8%, a Tier I risk-based capital ratio that is
less than 4% or a Tier I leverage ratio of less than 4% (or in some cases 3%).
A depository institution will be deemed to be significantly undercapitalized if
the depository institution has a total risk-based capital ratio that is less
than 6%, a Tier I risk-based capital ratio that is less than 3%, or a Tier I
leverage ratio that is less than 3% and will be deemed to be critically
undercapitalized if it has a ratio of tangible equity to total assets that is
equal to or less than 2%.

FDICIA generally prohibits a depository institution from making a capital
distribution (including payment of dividends) or paying management fees to any
entity that controls the institution if it thereafter would be
undercapitalized. If a depository institution becomes undercapitalized, it will
be generally restricted from borrowing from the Federal Reserve, increasing its
average total assets, making any acquisitions, establishing any branches or
engaging in any new line of business. An undercapitalized institution must
submit an acceptable capital restoration plan to the appropriate federal
banking agency, which plan must, in the opinion of such agency, be based on
realistic assumptions and be likely to succeed in restoring the

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depository institutions capital. In connection with the approval of such a plan, the
holding company of the depository institution must guarantee that the
institution will comply with the plan, subject to a limitation of liability
equal to a portion of the depository institutions assets. If an
undercapitalized depository institution fails to submit an acceptable plan or
fails to implement such a plan, it will be treated as if it is significantly
undercapitalized.

Under FDICIA, bank regulators are directed to require significantly
undercapitalized depository institutions, among other things, to restrict
business activities, raise capital through a sale of stock, merge with another
depository institution and/or take any other action which the agency determines
would better carry out the purposes of FDICIA.

Within 90 days after a depository institution is determined to be critically
undercapitalized, the appropriate federal banking agency must, in most cases,
appoint a receiver or conservator for the institution or take such other action
as the agency determines would better achieve the purposes of FDICIA. In
general, critically undercapitalized depository institutions will be
prohibited from paying principal or interest on their subordinated debt and
will be subject to other substantial restrictions.

FDICIA also contains a variety of other provisions that could affect the
operations of Second Bancorp, including new reporting requirements, regulatory
standards for real estate lending, truth in savings provisions, the
requirement that a depository institution give 90 days prior notice to
customers and regulatory authorities before closing any branch, limitations on
credit exposure between banks, restrictions on loans to a banks insiders and
guidelines governing regulatory examinations.

Deposit Insurance Assessments
The FDIC is authorized to establish separate annual assessment rates for
deposit insurance for members of the BIF and the SAIF. The FDIC may increase
assessment rates for either fund if necessary to restore the funds ratio of
reserves to insured deposits to its target level within a reasonable time and
may decrease such rates if such target level has been met. The FDIC has
established a risk-based assessment system for both BIF and SAIF members. Under
this system, assessments vary based on the risk the institution poses to its
deposit insurance fund. The risk level is determined based on the institutions
capital level and the FDICs level of supervisory concern about the depository
institution.

Based upon its respective level of deposits at December 31, 2002, the projected
BIF and SAIF assessments for Second National for 2003 will be approximately
$211,000.

Interstate Banking and Branching Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
IBBEA) authorized interstate acquisitions of banks and bank holding companies
without geographic constraint beginning September 29, 1995. Beginning June 1,
1997, the IBBEA also authorizes banks to merge with banks located in another
state provided that neither state has opted out of interstate branching
between September 29, 1994 and May 31, 1997. After acquiring interstate
branches through a merger, a bank may establish additional branches in that
state at the same locations as any bank involved in the merger could have
established branches under state and federal law. In addition, a bank may
establish a de novo branch in another state that expressly permits the
establishment of such branches. A bank that establishes a de novo interstate
branch may thereafter establish additional branches on the same basis as a bank
that has established interstate branches through a merger transaction.

If a state opts out of interstate branching, no bank from another state may
establish a branch in that state, whether through a merger or by a de novo
establishment. Pennsylvania, the state in closest proximity to Second National,
has opted to permit interstate branching, creating the possibility of branching
into that state. To date, Second National has taken no action to branch into
Pennsylvania or any other state, however Second National may do so in the
future.

Environmental Regulations
Compliance with federal, state and local provisions regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, have had no material effect on our capital expenditures, earnings
or competitive position.

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Recent Legislation
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002
(the Sarbanes-Oxley Act). The stated goals of the Sarbanes-Oxley Act are to
increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures made pursuant to the securities laws. The proposed changes are
intended to allow shareholders to monitor the performance of companies and
directors more easily and efficiently.

The Sarbanes-Oxley Act generally applies to all companies, both U.S. and
non-U.S., that file or are required to file reports with the SEC under the
Exchange Act. Further, the Sarbanes-Oxley Act includes very specific additional
disclosure requirements and new corporate governance rules, requires the SEC,
securities exchanges and the NASDAQ Stock Market to adopt extensive additional
disclosure, corporate governance and other related rules and mandates further
studies of certain issues by the SEC and the Comptroller General. Given the
extensive role in implementing rules relating to many of the Sarbanes-Oxley
Acts new requirements, the final scope of these requirements remains to be
determined.

The Sarbanes-Oxley Act addresses, among other matters: audit committees;
certification of financial statements by the chief executive officer and the
chief financial officer; the forfeiture of bonuses and profits made by
directors and senior officers in the twelve month period covered by restated
financial statements; a prohibition on insider trading during pension plan
black out periods; disclosure of off-balance sheet transactions; a prohibition
on personal loans to directors and officers (excluding loans by insured
depository institutions the are subject to the insider lending restrictions of
the Federal Reserve Act); expedited filing requirements for stock transaction
reports by officers and director; the formation of a public accounting
oversight board; auditor independence; and various increased criminal penalties
for violations of securities laws.

Employees
The number of full time equivalent employees of Second Bancorp as of December
31, 2002 was approximately 589. Second Bancorp considers its employee relations
to be good. None of the employees are covered by a collective bargaining
agreement.

Web Site Access to United States Securities and Exchange Commission Filings
All reports filed electronically by Second Bancorp Incorporated with the United
States Securities and Exchange Commission (SEC), including the annual report
on Form 10-K, quarterly reports on Form 10-Q and current event reports in Form
8-K, as well as any amendments to those reports, are accessible at no cost
through the Corporations Web site at secondnationalbank.com. These filings are
also accessible on the SECs Web site at www.sec.gov.




Item 2. PROPERTIES

Second Bancorps executive offices are located at Second Nationals main office
building in Warren, Ohio, which is leased by Second National under a long-term
triple net lease agreement with a term, including optional renewals, expiring
on October 31, 2029. Second National has the option to purchase the main office
facility before two optional renewal periods at the fair market value in
existence at that time. Second National owns 10 of its banking center locations
and one administrative building, while Second Nationals 25 other banking
center locations are leased under lease and sublease agreements with remaining
terms of 1 to 20 years. Second National also has leases for two loan production
offices for one year and office space with a remaining lease term of four
years.




Item 3. LEGAL PROCEEDINGS

Second Bancorp is subject to various pending and threatened lawsuits in which
claims for monetary damages are asserted in the ordinary course of business.
While any litigation involves an element of uncertainty, in the opinion of
management, liabilities, if any, arising from such litigation or threat thereof
will not have a material effect on the financial position or results of
operations of Second Bancorp.

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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no special meetings for shareholders since last years annual
meeting.




Item 4 A IDENTIFICATION OF EXECUTIVE OFFICERS

The following table sets forth the names, ages and business experience for the
last five years of each of the executive officers of the Corporation. Each
executive officer of the Corporation is appointed by the Board of Directors on
an annual basis, and serves at the pleasure of the Board.

|                     |  |     |    |                         |  |                                                                                                                                                                                                                                                                                                                                       |  |      |      | 
|-------------------- |  | --- | -- | ----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                     |  |     |    |                         |  |                                                                                                                                                                                                                                                                                                                                       |  | Year
|Name                 |  | Age |    | Position and Experience |  | Appointed                                                                                                                                                                                                                                                                                                                            
|                     |  |     |    |                         |  |                                                                                                                                                                                                                                                                                                                                      
|R. L. (Rick) Blossom |  |     | 55 |                         |  | Chairman, President, Chief Executive
Officer and Director of Second Bancorp
and Chairman, President, Chief Executive
Officer and Director of Second National.
Former Chief Executive Officer and
Director of First National Bank of
Southwestern Ohio and Senior Vice
President and Chief Lending Officer of
First Financial Bancorp. |  |      | 1999 | 
|                    
|David L. Kellerman   |  |     | 45 |                         |  | Treasurer of Second Bancorp and Executive
Vice President, Chief Financial Officer
and Director of Second National.                                                                                                                                                                                                                    |  |      | 1987 | 
|                    
|Christopher Stanitz  |  |     | 54 |                         |  | Executive Vice President and Secretary of
Second Bancorp and Senior Vice President
of Second National.                                                                                                                                                                                                                                |  |      | 1992 | 
|                    
|Thomas W. Allen      |  |     | 58 |                         |  | Executive Officer of Second Bancorp and
Senior Vice President of Second National,
previously Senior Vice President and
Senior Fiduciary Officer for Northern
Indiana for Key Trust Company of Indiana
(1997 to 2000).                                                                                                                 |  |      | 2000 | 
|                    
|Diane C. Bastic      |  |     | 59 |                         |  | Executive Officer of Second Bancorp and
Senior Vice President of Second National.                                                                                                                                                                                                                                                     |  |      | 1985 | 
|                    
|John L. Falatok      |  |     | 45 |                         |  | Executive Officer of Second Bancorp and
Senior Vice President of Second National.
Previously Vice President of Second
National.                                                                                                                                                                                                       |  |      | 2000 | 
|                    
|Myron Filarski       |  |     | 54 |                         |  | Executive Officer of Second Bancorp and
Senior Vice President of Second National.
Former President for Signal Mortgage
(1998-99).                                                                                                                                                                                                     |  |      | 1999 | 
|                    
|Darryl E. Mast       |  |     | 52 |                         |  | Executive Officer of Second Bancorp and
Senior Vice President of Second National.                                                                                                                                                                                                                                                     |  |      | 1986 | 
|                    
|Terry L. Myers       |  |     | 54 |                         |  | Executive Officer of Second Bancorp and
Senior Vice President of Second National.                                                                                                                                                                                                                                                     |  |      | 1986 | 

15



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##### Table of Contents






PART II.




Item 5. MARKET FOR
REGISTRANTS COMMON STOCK AND RELATED SHAREHOLDER MATTERS

Second Bancorps Common Stock trades on The NASDAQ National Market tier of The
NASDAQ Stock Market under the trading symbol SECD. As of February 21, 2003, the
number of shareholders of record of the Common Stock totaled 2,526. The detail
of stock prices and dividend payments are incorporated herein by reference from
Item 7; Managements Discussion and Analysis of Financial Condition and Results
of Operations. Dividend restrictions are detailed in footnote 17 of Item 8;
Second Bancorps Financial Statements and Supplementary Data are incorporated
herein by reference.

Equity Compensation Plan information is incorporated herein by reference to
Second Bancorps definitive proxy statement for the annual meeting of
shareholders to be held April 17, 2003 (the Proxy Statement). Such Proxy
Statement has been filed with the Securities and Exchange Commission on March
5, 2003.

The subsidiary Second Bancorp Capital Trust Is Corporation-obligated
mandatorily redeemable capital securities (Trust Preferred Securities) also
trade on The NASDAQ National Market under the trading symbol SECDP. The
securities began trading September 28, 2001 and in 2001 traded to a high of
$11.25, and a low of $10.10 and closed at $11.00 on December 31, 2001. In 2002,
the securities traded to a high of $11.60, a low of $9.985 and closed at $10.63
on December 31, 2002.

16



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Item 6. SELECTED FINANCIAL DATA

(Dollars in thousands except per share data or as otherwise indicated)

The following is a summary of the quarterly results of operations for the years
ended December 31, 2002 and 2001.

|                                                         |                                                       |          |                    |         |  |              |        |             |  |   |        |      |  |   |        |      | 
|-------------------------------------------------------- | ----------------------------------------------------- | -------- | ------------------ | ------- |  | ------------ | ------ | ----------- |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                                         |                                                       |          | Three Months Ended
|                                                         |                                                       |          |                   
|2002                                                     |                                                       | March 31 |                    | June 30 |  | September 30 |        | December 31
|                                                         |                                                       |          |                    |         |  |              |        |            
|Interest income                                          |                                                       | $        | 27,023             |         |  | $            | 27,104 |             |  | $ | 26,834 |      |  | $ | 26,311 |     
|Interest expense                                         |                                                       |          | 12,866             |         |  |              | 12,701 |             |  |   | 12,880 |      |  |   | 12,365 |     
|Net interest income                                      |                                                       |          | 14,157             |         |  |              | 14,403 |             |  |   | 13,954 |      |  |   | 13,946 |     
|Provision for loan losses                                |                                                       |          | 933                |         |  |              | 1,303  |             |  |   | 1,573  |      |  |   | 2,350  |     
|Other income                                             |                                                       |          | 5,157              |         |  |              | 4,053  |             |  |   | 6,329  |      |  |   | 7,314  |     
|Net security (losses) gains                              |                                                       |          | (193               | )       |  |              |       |             |  |   | 832    |      |  |   | (67    | )   
|Merger-related costs                                     |                                                       |          |                   |         |  |              |       |             |  |   | 124    |      |  |   | 10     |     
|Banking center reconfiguration                           |                                                       |          |                   |         |  |              |       |             |  |   |       |      |  |   | 2,096  |     
|Other expenses                                           |                                                       |          | 11,797             |         |  |              | 11,283 |             |  |   | 11,717 |      |  |   | 12,469 |     
|Income before federal income taxes                       |                                                       |          | 6,391              |         |  |              | 5,870  |             |  |   | 7,701  |      |  |   | 4,268  |     
|Federal income taxes                                     |                                                       |          | 1,708              |         |  |              | 1,517  |             |  |   | 2,165  |      |  |   | 840    |     
|Net income                                               |                                                       |          | 4,683              |         |  |              | 4,353  |             |  |   | 5,536  |      |  |   | 3,428  |     
|Earnings per common share:                               |                                                       |          |                    |         |  |              |        |             |  |   |        |      |  |   |        |     
|                                                         | Basic                                                 |          | $                  | 0.47    |  |              | $      | 0.44        |  |   | $      | 0.56 |  |   | $      | 0.35 | 
|                                                         | Diluted                                               |          |                    | 0.47    |  |              |        | 0.43        |  |   |        | 0.55 |  |   |        | 0.34 | 
|                                                        
|2001                                                     |                                                       | March 31 |                    | June 30 |  | September 30 |        | December 31
|                                                         |                                                       |          |                    |         |  |              |        |            
|Interest income                                          |                                                       | $        | 28,478             |         |  | $            | 28,405 |             |  | $ | 27,880 |      |  | $ | 27,794 |     
|Interest expense                                         |                                                       |          | 16,652             |         |  |              | 16,107 |             |  |   | 15,407 |      |  |   | 14,291 |     
|Net interest income                                      |                                                       |          | 11,916             |         |  |              | 12,298 |             |  |   | 12,473 |      |  |   | 13,503 |     
|Provision for loan losses                                |                                                       |          | 761                |         |  |              | 1,342  |             |  |   | 988    |      |  |   | 1,627  |     
|Other income                                             |                                                       |          | 4,030              |         |  |              | 4,643  |             |  |   | 4,368  |      |  |   | 5,845  |     
|Net security gains (losses)                              |                                                       |          | 529                |         |  |              | (12    | )           |  |   | 123    |      |  |   | 2      |     
|Merger-related costs                                     |                                                       |          |                   |         |  |              |       |             |  |   |       |      |  |   | 305    |     
|Other expenses                                           |                                                       |          | 10,051             |         |  |              | 9,805  |             |  |   | 10,082 |      |  |   | 11,696 |     
|Income before federal income taxes                       |                                                       |          | 5,663              |         |  |              | 5,782  |             |  |   | 5,894  |      |  |   | 5,722  |     
|Federal income taxes                                     |                                                       |          | 1,475              |         |  |              | 1,524  |             |  |   | 1,493  |      |  |   | 1,388  |     
|Net income before cumulative effect of accounting change |                                                       |          | 4,188              |         |  |              | 4,258  |             |  |   | 4,401  |      |  |   | 4,334  |     
|Cumulative effect of accounting change  SFAS No. 133    |                                                       |          | (101               | )       |  |              |       |             |  |   |       |      |  |   |       |     
|Net income                                               |                                                       |          | 4,087              |         |  |              | 4,258  |             |  |   | 4,401  |      |  |   | 4,334  |     
|Earnings per common share: (1)                           |                                                       |          |                    |         |  |              |        |             |  |   |        |      |  |   |        |     
|                                                         | Basicbefore cumulative effect of accounting change   |          | $                  | 0.42    |  |              | $      | 0.42        |  |   | $      | 0.44 |  |   | $      | 0.43 | 
|                                                         | Dilutedbefore cumulative effect of accounting change |          |                    | 0.41    |  |              |        | 0.42        |  |   |        | 0.44 |  |   |        | 0.43 | 
|                                                         | Basic                                                 |          |                    | 0.42    |  |              |        | 0.42        |  |   |        | 0.43 |  |   |        | 0.43 | 
|                                                         | Diluted                                               |          |                    | 0.41    |  |              |        | 0.42        |  |   |        | 0.43 |  |   |        | 0.43 | 



|(1) |  | The sum of the four quarters of earnings per share might not equal the
total earnings per share for the full year due to rounding.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------

17



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##### Table of Contents



This Managements discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and accompanying notes.

For the Years Ended December 31

|                                                         |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |            |  
|-------------------------------------------------------- | -------------------------------------------------------------- | ---- | --------- | ---------- | - | ---- | --------- | ---------- | - | ---- | ---------- | ---------- | - | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|Selected Financial Data                                  |                                                                | 2002 |           | 2001       |   | 2000 |           | 1999       |   | 1998
|                                                         |                                                                |      |           |            |   |      |           |            |   |     
|Results of Operations:                                   |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|                                                         | Interest income                                                |      | $         | 107,272    |   |      | $         | 112,557    |   |      | $          | 116,298    |   |   | $          | 104,582    |   |   | $          | 106,997    |  
|                                                         | Interest expense                                               |      |           | 50,812     |   |      |           | 62,367     |   |      |            | 66,921     |   |   |            | 55,310     |   |   |            | 55,888     |  
|                                                         |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|                                                         | Net interest income                                            |      |           | 56,460     |   |      |           | 50,190     |   |      |            | 49,377     |   |   |            | 49,272     |   |   |            | 51,109     |  
|                                                         | Provision for loan losses                                      |      |           | 6,159      |   |      |           | 4,718      |   |      |            | 7,129      |   |   |            | 3,195      |   |   |            | 10,579     |  
|                                                         | Other income                                                   |      |           | 23,425     |   |      |           | 19,528     |   |      |            | 8,275      |   |   |            | 14,792     |   |   |            | 12,754     |  
|                                                         | Other expense                                                  |      |           | 49,496     |   |      |           | 41,939     |   |      |            | 44,213     |   |   |            | 39,330     |   |   |            | 46,248     |  
|                                                         |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|Income before federal income taxes                       |                                                                |      | 24,230    |            |   |      | 23,061    |            |   |      | 6,310      |            |   |   | 21,539     |            |   |   | 7,036      |           
|Federal income tax expense                               |                                                                |      | 6,230     |            |   |      | 5,880     |            |   |      | 176        |            |   |   | 5,361      |            |   |   | 1,403      |           
|                                                         |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|Net income before cumulative effect of
accounting change |                                                                | $    | 18,000    |            |   | $    | 17,181    |            |   | $    | 6,134      |            |   | $ | 16,178     |            |   | $ | 5,633      |           
|                                                         |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|Cumulative effect of accounting change-SFAS
No.133       |                                                                |      |          |            |   |      | (101      | )          |   |      |           |            |   |   |           |            |   |   |           |           
|                                                         |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|Net income                                               |                                                                | $    | 18,000    |            |   | $    | 17,080    |            |   | $    | 6,134      |            |   | $ | 16,178     |            |   | $ | 5,633      |           
|                                                         |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|Per Common Share Data: (1)                               |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|                                                         | Basic earnings before cumulative effect of
accounting change   |      |           | N/A        |   |      | $         | 1.72       |   |      |            | N/A        |   |   |            | N/A        |   |   |            | N/A        |  
|                                                         | Diluted earnings before cumulative effect of
accounting change |      |           | N/A        |   |      |           | 1.70       |   |      |            | N/A        |   |   |            | N/A        |   |   |            | N/A        |  
|                                                         | Basic earnings                                                 |      | $         | 1.82       |   |      |           | 1.71       |   |      | $          | 0.60       |   |   | $          | 1.52       |   |   | $          | 0.53       |  
|                                                         | Diluted earnings                                               |      |           | 1.79       |   |      |           | 1.69       |   |      |            | 0.60       |   |   |            | 1.51       |   |   |            | 0.52       |  
|                                                         | Cash dividends                                                 |      |           | 0.72       |   |      |           | 0.68       |   |      |            | 0.64       |   |   |            | 0.56       |   |   |            | 0.48       |  
|                                                         | Book value, December 31                                        |      |           | 13.97      |   |      |           | 12.90      |   |      |            | 11.65      |   |   |            | 11.12      |   |   |            | 11.53      |  
|                                                         | Market value, December 31                                      |      |           | 26.50      |   |      |           | 21.61      |   |      |            | 14.50      |   |   |            | 22.38      |   |   |            | 22.25      |  
|Weighted-average shares outstanding (1)                  |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|                                                         | Basic                                                          |      |           | 9,905,832  |   |      |           | 10,013,068 |   |      |            | 10,247,025 |   |   |            | 10,635,852 |   |   |            | 10,655,597 |  
|                                                         | Diluted                                                        |      |           | 10,040,001 |   |      |           | 10,080,005 |   |      |            | 10,271,548 |   |   |            | 10,698,717 |   |   |            | 10,742,622 |  
|Shares outstanding at year-end (1)                       |                                                                |      | 9,762,254 |            |   |      | 9,949,316 |            |   |      | 10,057,110 |            |   |   | 10,458,450 |            |   |   | 10,688,450 |           
|Balance Sheet Data:                                      |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|As of December 31:                                       |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|                                                         | Total assets                                                   |      | $         | 1,894,775  |   |      | $         | 1,680,356  |   |      | $          | 1,546,290  |   |   | $          | 1,537,278  |   |   | $          | 1,430,233  |  
|                                                         | Loans, net of allowance for loan losses                        |      |           | 1,150,196  |   |      |           | 1,105,197  |   |      |            | 1,054,872  |   |   |            | 1,060,493  |   |   |            | 960,114    |  
|                                                         | Deposits                                                       |      |           | 1,195,112  |   |      |           | 1,123,131  |   |      |            | 1,036,135  |   |   |            | 1,097,589  |   |   |            | 1,102,590  |  
|                                                         | Shareholders equity                                           |      |           | 136,334    |   |      |           | 128,299    |   |      |            | 117,197    |   |   |            | 116,347    |   |   |            | 123,273    |  
|Averages:                                                |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|                                                         | Total assets                                                   |      |           | 1,754,156  |   |      |           | 1,595,968  |   |      |            | 1,584,016  |   |   |            | 1,498,946  |   |   |            | 1,464,803  |  
|                                                         | Earning assets                                                 |      |           | 1,642,907  |   |      |           | 1,502,164  |   |      |            | 1,488,334  |   |   |            | 1,405,195  |   |   |            | 1,386,894  |  
|                                                         | Loans                                                          |      |           | 1,121,777  |   |      |           | 1,078,196  |   |      |            | 1,107,948  |   |   |            | 1,005,998  |   |   |            | 938,408    |  
|                                                         | Deposits                                                       |      |           | 1,159,350  |   |      |           | 1,070,439  |   |      |            | 1,091,441  |   |   |            | 1,092,260  |   |   |            | 1,086,074  |  
|                                                         | Shareholders equity                                           |      |           | 134,178    |   |      |           | 124,773    |   |      |            | 114,652    |   |   |            | 121,369    |   |   |            | 126,748    |  
|Ratios:                                                  |                                                                |      |           |            |   |      |           |            |   |      |            |            |   |   |            |            |   |   |            |           
|                                                         | Return on average assets                                       |      |           | 1.03       | % |      |           | 1.09       | % |      |            | 0.39       | % |   |            | 1.08       | % |   |            | 0.38       | %
|                                                         | Return on average common shareholders equity                  |      |           | 13.42      |   |      |           | 13.93      |   |      |            | 5.35       |   |   |            | 13.33      |   |   |            | 4.44       |  
|                                                         | Net interest margin                                            |      |           | 3.56       |   |      |           | 3.49       |   |      |            | 3.46       |   |   |            | 3.68       |   |   |            | 3.84       |  
|                                                         | Efficiency ratio                                               |      |           | 60.81      |   |      |           | 58.35      |   |      |            | 70.67      |   |   |            | 59.45      |   |   |            | 70.11      |  
|                                                         | Dividend pay-out                                               |      |           | 39.53      |   |      |           | 39.80      |   |      |            | 106.26     |   |   |            | 36.68      |   |   |            | 91.53      |  
|                                                         | Average loans to average deposits                              |      |           | 96.76      |   |      |           | 100.72     |   |      |            | 101.51     |   |   |            | 92.10      |   |   |            | 86.40      |  
|                                                         | Allowance for loan losses as a percent of loans                |      |           | 1.51       |   |      |           | 1.49       |   |      |            | 1.42       |   |   |            | 1.04       |   |   |            | 1.11       |  
|                                                         | Net charge-offs as a percent of average loans                  |      |           | 0.47       |   |      |           | 0.47       |   |      |            | 0.28       |   |   |            | 0.27       |   |   |            | 0.92       |  
|                                                         | Non-performing loans to total loans                            |      |           | 1.64       |   |      |           | 0.94       |   |      |            | 0.75       |   |   |            | 0.55       |   |   |            | 0.71       |  
|                                                         | Allowance for loans losses to non-performing
loans             |      |           | 92         |   |      |           | 158        |   |      |            | 191        |   |   |            | 188        |   |   |            | 155        |  
|                                                         | Equity to assets                                               |      |           | 7.17       |   |      |           | 7.64       |   |      |            | 7.58       |   |   |            | 7.57       |   |   |            | 8.62       |  
|                                                         | Tier I leverage ratio                                          |      |           | 7.68       |   |      |           | 8.22       |   |      |            | 7.47       |   |   |            | 8.15       |   |   |            | 8.65       |  



|(1) |  | Prior period amounts have been restated for stock splits and
pooling-of-interests transactions.
|--- |  | -----------------------------------------------------------------------------------------------

18



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##### Table of Contents



The table below details non-GAAP operating results, including the
non-GAAP adjustments to GAAP income for the five years ended December 31:

Selected Financial Data  Non-GAAP Operating Results

|                                                           |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |        | 
|---------------------------------------------------------- | ------------------------------------------------ | ---- | ------- | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|Reconciliation of GAAP vs. non-GAAP results of             |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |       
|operations                                                 |                                                  | 2002 |         | 2001   |  | 2000 |         | 1999   |  | 1998
|                                                           |                                                  |      |         |        |  |      |         |        |  |     
|Net income                                                 |                                                  | $    | 18,000  |        |  | $    | 17,080  |        |  | $    | 6,134   |        |  | $ | 16,178  |        |  | $ | 5,633   |       
|Adjustments to GAAP to reflect non-GAAP operating
results: |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Add non-recurring costs:                                   |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                                           | Merger costs                                     |      |         | 134    |  |      |         | 305    |  |      |         |       |  |   |         |       |  |   |         | 6,657  | 
|                                                           | Banking center reconfiguration                   |      |         | 2,096  |  |      |         |       |  |      |         |       |  |   |         |       |  |   |         |       | 
|Restructuring costs:                                       |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                                           | Interest income-deferred costs on sold mortgages |      |         |       |  |      |         |       |  |      |         | 652    |  |   |         |       |  |   |         |       | 
|                                                           | Provision for loan losses                        |      |         |       |  |      |         |       |  |      |         | 4,100  |  |   |         |       |  |   |         |       | 
|                                                           | Loss on sale of loans                            |      |         |       |  |      |         |       |  |      |         | 3,711  |  |   |         |       |  |   |         |       | 
|                                                           | Loss on sale of securities                       |      |         |       |  |      |         |       |  |      |         | 2,808  |  |   |         |       |  |   |         |       | 
|                                                           | Other expenses                                   |      |         |       |  |      |         |       |  |      |         | 2,609  |  |   |         |       |  |   |         |       | 
|                                                           |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Total adjustments                                          |                                                  |      | 2,230   |        |  |      | 305     |        |  |      | 13,880  |        |  |   |        |        |  |   | 6,657   |       
|Federal income tax expense                                 |                                                  |      | 781     |        |  |      | 107     |        |  |      | 4,858   |        |  |   |        |        |  |   | 1,660   |       
|Add: Cumulative effect of accounting change,
net of tax    |                                                  |      |        |        |  |      | 101     |        |  |      |        |        |  |   |        |        |  |   |        |       
|                                                           |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                                           | Net income                                       |      | $       | 19,449 |  |      | $       | 17,379 |  |      | $       | 15,156 |  |   | $       | 16,178 |  |   | $       | 10,630 | 
|                                                           |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Non-GAAP results of operations:                            |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Interest income                                            |                                                  | $    | 107,272 |        |  | $    | 112,557 |        |  | $    | 116,950 |        |  | $ | 104,582 |        |  | $ | 106,997 |       
|Interest expense                                           |                                                  |      | 50,812  |        |  |      | 62,367  |        |  |      | 66,921  |        |  |   | 55,310  |        |  |   | 55,888  |       
|                                                           |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|                                                           | Net interest income                              |      |         | 56,460 |  |      |         | 50,190 |  |      |         | 50,029 |  |   |         | 49,272 |  |   |         | 51,109 | 
|Provision for loan losses                                  |                                                  |      | 6,159   |        |  |      | 4,718   |        |  |      | 3,029   |        |  |   | 3,195   |        |  |   | 10,579  |       
|Other income                                               |                                                  |      | 23,425  |        |  |      | 19,528  |        |  |      | 14,794  |        |  |   | 14,792  |        |  |   | 12,754  |       
|Other expense                                              |                                                  |      | 47,266  |        |  |      | 41,634  |        |  |      | 41,604  |        |  |   | 39,330  |        |  |   | 39,591  |       
|Income before federal income taxes                         |                                                  |      | 26,460  |        |  |      | 23,366  |        |  |      | 20,190  |        |  |   | 21,539  |        |  |   | 13,693  |       
|Federal income tax expense                                 |                                                  |      | 7,011   |        |  |      | 5,987   |        |  |      | 5,034   |        |  |   | 5,361   |        |  |   | 3,063   |       
|                                                           |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Net income                                                 |                                                  | $    | 19,449  |        |  | $    | 17,379  |        |  | $    | 15,156  |        |  | $ | 16,178  |        |  | $ | 10,630  |       
|                                                           |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Non-GAAP ratios:                                           |                                                  |      |         |        |  |      |         |        |  |      |         |        |  |   |         |        |  |   |         |       
|Return of average assets                                   |                                                  |      | 1.11    | %      |  |      | 1.09    | %      |  |      | 0.96    | %      |  |   | 1.08    | %      |  |   | 0.73    | %     
|Return on average common shareholders equity              |                                                  |      | 14.49   |        |  |      | 13.93   |        |  |      | 13.22   |        |  |   | 13.33   |        |  |   | 8.39    |       
|Net interest margin                                        |                                                  |      | 3.56    |        |  |      | 3.49    |        |  |      | 3.51    |        |  |   | 3.68    |        |  |   | 3.84    |       
|Efficiency ratio                                           |                                                  |      | 58.07   |        |  |      | 58.35   |        |  |      | 62.17   |        |  |   | 59.45   |        |  |   | 60.95   |       

Prior period amounts have been restated for stock splits and
pooling-of-interests transactions.

The Corporation analyzes its performance on a net income basis determined in
accordance with accounting principles generally accepted in the United States,
as well as on a non-GAAP operating basis, referred to in this analysis as
non-GAAP operating results or non-GAAP operating earnings. Operating
earnings and related discussions are presented as supplementary information in
this analysis to enhance the readers understanding of, and highlight trends
in, the Corporations core financial results excluding the nonrecurring effects
of discrete activities and events. Operating earnings should not be viewed as a
substitute for net income and earnings per share as determined in accordance
with accounting principles generally accepted in the United States. Banking
center reconfiguration charges, restructuring charges, merger-related costs and
cumulative effect of accounting change excluded from net income to derive
operating earnings may be significant and may not be comparable to other
companies.

19



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##### Table of Contents






Item 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in thousands except per share data or as otherwise indicated)

Forward Looking Statements
Certain sections of this report contain certain forward-looking statements (as
defined in the Private Securities Litigation Reform Act of 1995). These
forward-looking statements may involve significant risks and uncertainties.
Although the Corporation believes that the expectations reflected in such
forward-looking statements are reasonable, actual results may differ materially
from these results discussed in these forward-looking statements. Risks and
uncertainties that could cause or contribute to such material differences
include, but are not limited to, general economic conditions, interest rate
environment, competitive conditions in the financial services industry, changes
in law, governmental policies and regulations, and rapidly changing technology
affecting financial services.

Results of Operations
Net income for 2002 totaled $18,000 and represents a $920, or a 5.4% increase
over net income for 2001. Net income in 2002 was impacted by a $2,096 expense
for the execution of a banking center reconfiguration strategy. The strategy is
designed to improve the overall growth potential and profitability of the
retail banking center network. Included in the reconfiguration is the sale of
two banking centers in the most remote County, the closure of two facilities,
the consolidation of four facilities into two larger, more accessible
facilities, the relocation of two facilities to larger, more accessible
locations and the de novo opening of a new banking center in a new market. Net
income in 2002 and 2001 were minimally impacted by $134 and $305, respectively
in pre-tax merger costs. The 2002 merger-related costs were related to the
acquisition of Stouffer-Herzog Insurance Agency, which is the first or
foundation agency acquired in a plan to have a regional insurance entity
throughout the Corporations market area. The 2001 merger-related costs were
associated with the acquisition of Commerce Exchange Corporation (Commerce).
The acquisition of Commerce gives the Corporation further access to the
attractive commercial lending market in the suburban Cleveland market.

Also prominent amongst the factors positively impacting 2002 and 2001 earnings
were the higher levels of mortgage banking activities, including the
origination and sale of mortgages into the secondary market. Over $920 million
and nearly $600 million in mortgage loans were originated in 2002 and 2001,
respectively. Nearly $865 and $520 million in residential mortgage loans were
sold in 2002 and 2001, respectively, generating $10.5 and $5.4 million in gains
during those same periods. Also prominent in 2001 was the magnitude of interest
rate changes induced by the Federal Reserve Bank. Despite 11 downward rate
movements in 2001, the Corporations net interest margin was able to improve by
three basis points over 2000s level and steadily improved during the course of
the year. The improvement was due to an increase in commercial loan balances.
The continuation of low interest rates throughout 2002 began placing downward
pressure on the net interest margin in the second half of the year, however the
margin improved by seven basis points over the prior year.

In 2000, a balance sheet restructuring was executed. It was designed to improve
balance sheet flexibility and liquidity, reduce the earnings drag caused by the
large mortgage loan portfolio and improve the net interest margin. The
after-tax impact of the restructuring totaled $9,022. Included in the
restructuring was an additional $4.1 million in provision for loan losses. The
increased provision resulted from a specific analysis of commercial credits and
reflects current managements philosophy of loan analysis. Additionally, $2.8
million in security losses were realized as the Corporation repositioned the
security portfolio and improved overall earning performance. An additional $4.4
million in losses were realized on the disposition of $130 million in low
yielding, fixed rate mortgage loans. The effect of the sale was to minimally
shrink the Corporations balance sheet and reduce exposure to higher cost
Federal Home Loan advances. Net income in 2000 was $6,134. Excluding the
restructuring charges, net income in 2000 was $15,156.

The Corporations return on average assets (ROA) was 1.03%, 1.09% and 0.39%
for 2002, 2001 and 2000, respectively. The total shareholders return on
average equity (ROE) was 13.42%, 13.93% and 5.35% in 2002, 2001 and 2000,
respectively.

20



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##### Table of Contents



Diluted earnings per share were $1.79, $1.69 and $0.60 in 2002, 2001 and 2000,
respectively. The market value of the Corporations common stock, trading under
the NASDAQ symbol of SECD, rebounded from its 2000 lows and increased to $21.61
per share at the end of 2001 and $26.50 at the end of 2002. The stock price
at year-end 2002 represents a price of 189% of book value, up significantly
from 168% and 124% at the end of 2001 and 2000, respectively. The
price/earnings ratio for the stock at year-end 2002 (based on the trailing
twelve months earnings) was 14.8X. Dividends declared in 2002 totaled $0.72
per share compared to $0.68 per share the prior year.

Revenue continues to be provided primarily from interest and fees on loans,
which totaled $80,593, $86,723 and $91,833 in 2002, 2001 and 2000,
respectively. This represents 62%, 66% and 74% of total revenues for those
years. The increase in 2000 was due to the restructuring activities, which
resulted in lower non-interest income for the year. Interest income on
securities is also a major source of revenue, contributing 20%, 19% and 19% of
revenues in 2002, 2001 and 2000, respectively. The Corporation is making steady
improvement in diversifying its revenue source away from net interest income,
primarily through strength in mortgage banking and deposit service charge
activities. Non-interest income (exclusive of securities gains and losses and
restructuring losses) has increased as a percent of net revenues (net interest
income plus non-interest income) from 22% and 27% in 2000 and 2001,
respectively to 29% in 2002.

On a non-GAAP operating basis, which excludes non-recurring items including
merger-related costs in 2002, merger-related costs and cumulative effect of
accounting change in 2001 and restructuring activities in 2000, net income was
$19,449 in 2002, or 12% greater than the $17,379 earned in 2001. Operating
earnings for 2000 were 15,156. Operating performance measures were 1.11%, 1.09%
and 0.96% for ROA, while ROE was 14.49%, 13.93% and 13.22% for 2002, 2001 and
2000, respectively. The operating efficiency ratio was 58.07% in 2002 versus
58.36% in 2001 and 62.17% in 2000. Operating diluted earnings per share were
$1.94, $1.72 and $1.48 for those same periods.

Net Interest Income
Net interest income improved by 12.5% in 2002 as compared to 2001 and totaled
$56,460. The improvement was generated by a 9.4% increase in average earning
assets and a seven basis point improvement in the net interest margin. While
the margin improved to 3.56% in 2002, the continuation of a low interest rate
environment has placed downward pressure on the net interest margin. The net
interest margin for the fourth quarter of 2002 was 3.38% compared to 3.72% for
the first quarter of the year.

During 2001, the net interest income on a fully taxable equivalent (FTE) basis
improved to $52,467 in 2001 due both to a slight improvement in the net
interest margin and an increase in average earning assets. The net interest
margin reached 3.49% in 2001 and improved as the quarters progressed. The rapid
succession of rate reductions initiated by the Federal Reserve Bank muted the
potential improvement in the net interest margin during 2001 as the Corporation
is in a positive interest rate gap position in a one month time frame and in a
negative interest rate gap position in a three month time frame. Average
earning assets were up only 1% in 2001 to $1,502,164 as average loans declined
by $31 million primarily due to the sale of $130 million in real estate loans
during the third quarter restructuring in 2000. Significantly impacting both
net interest income and net interest margin were steadily increasing interest
rates in 2000 resulting from the Federal Reserve Bank monetary tightening and
an inverted yield curve environment. The yield on earning assets reached 7.96%
in 2000, however, the cost of funds increased to 4.96%, holding the net
interest margin to 3.46%.

The relationship between net interest income, FTE net interest income, earning
assets and net interest margin for the past three years follows:

|                                               |  |      |           |      |  |      |           |   |  |   |           |  
|---------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                               |  | 2002 |           | 2001 |  | 2000
|                                               |  |      |           |      |  |     
|Net interest income  per financial statements |  | $    | 56,460    |      |  | $    | 50,190    |   |  | $ | 49,377    |  
|Tax equivalent adjustment                      |  |      | 2,083     |      |  |      | 2,277     |   |  |   | 2,175     |  
|                                               |  |      |           |      |  |      |           |   |  |   |           |  
|Net interest income  FTE                      |  | $    | 58,543    |      |  | $    | 52,467    |   |  | $ | 51,552    |  
|                                               |  |      |           |      |  |      |           |   |  |   |           |  
|Average earning assets                         |  | $    | 1,642,907 |      |  | $    | 1,502,164 |   |  | $ | 1,488,334 |  
|Net interest margin  FTE                      |  |      | 3.56      | %    |  |      | 3.49      | % |  |   | 3.46      | %

21



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##### Table of Contents



Net interest income can be analyzed through the use of the Yields Analysis
table. The table shows a three-year comparison of the average balance of
interest earning assets and interest bearing liabilities along with interest
and yields associated with them.

Yields Analysis

|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|----------------------------------------------------------------------------------- |  | ------- | --------- | -------- |  | ---- | ------- | ------- |  | -------- | ---- | ---- |  | ------- | --------- | -------- |  | ------- | ------- |  |  |  | ---- | ------ |  | - | --------- |  |  | - | ------- |  |  |  | ---- | -
|                                                                                    |  | 2002    |           | 2001     |  | 2000
|                                                                                    |  |         |           |          |  |     
|                                                                                    |  | Average |           |          |  |      |         | Yield/  |  | Average  |      |      |  |         |           | Yield/   |  | Average |         |  |  |  |      | Yield/
|Year Ended December 31                                                              |  | Balance |           | Interest |  | Rate |         | Balance |  | Interest |      | Rate |  | Balance |           | Interest |  | Rate   
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |        
|Assets                                                                              |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Interest earning assets:                                                            |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Taxable loans (1)(3)                                                                |  | $       | 1,104,300 |          |  | $    | 79,671  |         |  |          | 7.21 | %    |  | $       | 1,058,506 |          |  | $       | 85,361  |  |  |  | 8.09 | %      |  | $ | 1,089,484 |  |  |   | 90,819  |  |  |  | 8.34 | %
|Tax-exempt loans (2)                                                                |  |         | 17,477    |          |  |      | 1,419   |         |  |          | 8.12 |      |  |         | 19,690    |          |  |         | 1,680   |  |  |  | 8.53 |        |  |   | 18,464    |  |  |   | 1,536   |  |  |  | 8.32 |  
|Taxable securities                                                                  |  |         | 387,343   |          |  |      | 22,648  |         |  |          | 5.85 |      |  |         | 324,209   |          |  |         | 21,614  |  |  |  | 6.67 |        |  |   | 308,084   |  |  |   | 20,970  |  |  |  | 6.81 |  
|Tax-exempt securities                                                               |  |         | 65,284    |          |  |      | 4,532   |         |  |          | 6.94 |      |  |         | 68,520    |          |  |         | 4,826   |  |  |  | 7.04 |        |  |   | 66,866    |  |  |   | 4,862   |  |  |  | 7.27 |  
|Federal funds sold and other                                                        |  |         | 68,503    |          |  |      | 1,085   |         |  |          | 1.58 |      |  |         | 31,239    |          |  |         | 1,083   |  |  |  | 3.47 |        |  |   | 5,436     |  |  |   | 286     |  |  |  | 5.26 |  
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Total interest earning assets                                                       |  |         | 1,642,907 |          |  |      | 109,355 |         |  |          | 6.66 |      |  |         | 1,502,164 |          |  |         | 114,834 |  |  |  | 7.64 |        |  |   | 1,488,344 |  |  |   | 118,473 |  |  |  | 7.96 |  
|Non-interest earning assets                                                         |  |         | 111,249   |          |  |      |         |         |  |          |      |      |  |         | 93,804    |          |  |         |         |  |  |  |      |        |  |   | 95,682    |  |  |   |         |  |  |  |      |  
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Total                                                                               |  | $       | 1,754,156 |          |  |      |         |         |  |          |      |      |  | $       | 1,595,968 |          |  |         |         |  |  |  |      |        |  | $ | 1,584,016 |  |  |   |         |  |  |  |      |  
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|                                                                                   
|Liabilities and Shareholders
Equity                                                |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  | 
|Interest bearing liabilities:                                                       |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Demand deposits-interest
bearing                                                    |  | $       | 101,222   |          |  |      | 869     |         |  |          | 0.86 |      |  | $       | 90,762    |          |  |         | 1,196   |  |  |  | 1.32 |        |  | $ | 86,818    |  |  |   | 1,290   |  |  |  | 1.49 |  
|Savings deposits                                                                    |  |         | 374,313   |          |  |      | 7,444   |         |  |          | 1.99 |      |  |         | 242,242   |          |  |         | 5,918   |  |  |  | 2.44 |        |  |   | 266,863   |  |  |   | 8,561   |  |  |  | 3.21 |  
|Time deposits                                                                       |  |         | 537,217   |          |  |      | 21,087  |         |  |          | 3.93 |      |  |         | 621,578   |          |  |         | 34,896  |  |  |  | 5.61 |        |  |   | 625,575   |  |  |   | 36,385  |  |  |  | 5.82 |  
|Federal funds purchased
and securities sold under
agreements to repurchase          |  |         | 136,041   |          |  |      | 2,499   |         |  |          | 1.84 |      |  |         | 116,131   |          |  |         | 3,904   |  |  |  | 3.36 |        |  |   | 118,070   |  |  |   | 5,540   |  |  |  | 4.69 |  
|Note payable                                                                        |  |         | 1,335     |          |  |      | 38      |         |  |          | 2.85 |      |  |         | 740       |          |  |         | 47      |  |  |  | 6.35 |        |  |   | 292       |  |  |   | 25      |  |  |  | 8.56 |  
|Other borrowed funds                                                                |  |         | 1,726     |          |  |      | 42      |         |  |          | 2.43 |      |  |         | 2,240     |          |  |         | 90      |  |  |  | 4.02 |        |  |   | 2,532     |  |  |   | 172     |  |  |  | 6.79 |  
|Federal Home Loan Bank
advances                                                     |  |         | 279,998   |          |  |      | 15,900  |         |  |          | 5.70 |      |  |         | 263,719   |          |  |         | 15,567  |  |  |  | 5.90 |        |  |   | 248,648   |  |  |   | 14,948  |  |  |  | 6.01 |  
|Corporation-obligated
mandatorily redeemable
capital securities of
subsidiary trust |  |         | 30,528    |          |  |      | 2,933   |         |  |          | 9.61 |      |  |         | 7,765     |          |  |         | 749     |  |  |  | 9.65 |        |  |   |          |  |  |   |        |  |  |  |     |  
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Total interest bearing
liabilities                                                  |  |         | 1,461,380 |          |  |      | 50,812  |         |  |          | 3.48 |      |  |         | 1,345,177 |          |  |         | 62,367  |  |  |  | 4.64 |        |  |   | 1,348,798 |  |  |   | 66,921  |  |  |  | 4.96 |  
|Non-interest bearing
liabilities:                                                   |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Demand deposits                                                                     |  |         | 146,598   |          |  |      |         |         |  |          |      |      |  |         | 115,857   |          |  |         |         |  |  |  |      |        |  |   | 112,185   |  |  |   |         |  |  |  |      |  
|Accrued expenses and
other liabilities                                              |  |         | 12,000    |          |  |      |         |         |  |          |      |      |  |         | 10,161    |          |  |         |         |  |  |  |      |        |  |   | 8,381     |  |  |   |         |  |  |  |      |  
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Other liabilities                                                                   |  |         | 158,598   |          |  |      |         |         |  |          |      |      |  |         | 126,018   |          |  |         |         |  |  |  |      |        |  |   | 120,566   |  |  |   |         |  |  |  |      |  
|Shareholders equity                                                                |  |         | 134,178   |          |  |      |         |         |  |          |      |      |  |         | 124,773   |          |  |         |         |  |  |  |      |        |  |   | 114,652   |  |  |   |         |  |  |  |      |  
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Total                                                                               |  | $       | 1,754,156 |          |  |      |         |         |  |          |      |      |  | $       | 1,595,968 |          |  |         |         |  |  |  |      |        |  | $ | 1,584,016 |  |  |   |         |  |  |  |      |  
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Net interest earnings (FTE)                                                         |  |         |           |          |  |      | 58,543  |         |  |          |      |      |  |         |           |          |  |         | 52,467  |  |  |  |      |        |  |   |           |  |  |   | 51,552  |  |  |  |      |  
|Taxable equivalent adjustment                                                       |  |         |           |          |  |      | 2,083   |         |  |          |      |      |  |         |           |          |  |         | 2,277   |  |  |  |      |        |  |   |           |  |  |   | 2,175   |  |  |  |      |  
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Net interest income (per
financial statements)                                      |  |         |           |          |  | $    | 56,460  |         |  |          |      |      |  |         |           |          |  | $       | 50,190  |  |  |  |      |        |  |   |           |  |  | $ | 49,377  |  |  |  |      |  
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  
|Net yield on interest
earning assets                                                |  |         |           |          |  |      |         |         |  |          | 3.56 | %    |  |         |           |          |  |         |         |  |  |  | 3.49 | %      |  |   |           |  |  |   |         |  |  |  | 3.46 | %
|                                                                                    |  |         |           |          |  |      |         |         |  |          |      |      |  |         |           |          |  |         |         |  |  |  |      |        |  |   |           |  |  |   |         |  |  |  |      |  



|(1) |  | For purposes of these computations, non-accruing loans are included in
the daily average loan amounts outstanding.                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The tax-exempt income and yields are shown on a tax equivalent basis
using the 35%, 35% and 34% marginal federal tax rates in effect during
2002, 2001 and 2000 respectively.
|   
|(3) |  | Loan fees are included in the interest reported for loans. Those fees
amounted to $3,631, $2,835 and $2,326 in 2002, 2001 and 2000,
respectively.                            

22



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##### Table of Contents



You can further analyze the change in net interest income by separating the
volume and rate impact of the change.

The following table details the breakdown of the major categories affecting the
change:

|                                            |                                                                                     |                  |                       |                  |                       |   |         |        |        |   |         |         |     |   |      |        |   |   |        |        |   |   |        |        |  
|------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------- | --------------------- | ---------------- | --------------------- | - | ------- | ------ | ------ | - | ------- | ------- | --- | - | ---- | ------ | - | - | ------ | ------ | - | - | ------ | ------ | -
|                                            |                                                                                     |                  | 2002 compared to 2001 |                  | 2001 compared to 2000
|Rate / Volume Analysis (1)                  |                                                                                     | Due to Change in |                       | Due to Change in
|                                            |                                                                                     |                  |                       |                 
|                                            |                                                                                     |                  | Volume                |                  | Rate                  |   | Net     |        | Volume |   | Rate    |         | Net
|                                            |                                                                                     |                  |                       |                  |                       |   |         |        |        |   |         |         |    
|Increase (decrease) in FTE interest income: |                                                                                     |                  |                       |                  |                       |   |         |        |        |   |         |         |     |   |      |        |   |   |        |        |   |   |        |       
|                                            | Taxable loans                                                                       |                  | $                     | 3,705            |                       |   | $       | (9,665 | )      |   | $       | (5,960  | )   |   | $    | (2,582 | ) |   | $      | (2,606 | ) |   | $      | (5,188 | )
|                                            | Tax-exempt loans                                                                    |                  |                       | (189             | )                     |   |         | (72    | )      |   |         | (261    | )   |   |      | 102    |   |   |        | 42     |   |   |        | 144    |  
|                                            | Taxable securities                                                                  |                  |                       | 4,209            |                       |   |         | (3,175 | )      |   |         | 1,034   |     |   |      | 1,098  |   |   |        | (454   | ) |   |        | 644    |  
|                                            | Tax-exempt securities                                                               |                  |                       | (228             | )                     |   |         | (66    | )      |   |         | (294    | )   |   |      | 120    |   |   |        | (156   | ) |   |        | (36    | )
|                                            | Federal funds sold                                                                  |                  |                       | 1,292            |                       |   |         | (1,290 | )      |   |         | 2       |     |   |      | 1,358  |   |   |        | (561   | ) |   |        | 797    |  
|                                            |                                                                                     |                  |                       |                  |                       |   |         |        |        |   |         |         |     |   |      |        |   |   |        |        |   |   |        |       
|Total interest income                       |                                                                                     |                  | 8,789                 |                  |                       |   | (14,268 | )      |        |   | (5,479  | )       |     |   | 96   |        |   |   | (3,735 | )      |   |   | (3,639 | )     
|Interest (decrease) in interest expense:    |                                                                                     |                  |                       |                  |                       |   |         |        |        |   |         |         |     |   |      |        |   |   |        |        |   |   |        |       
|                                            | Demand deposits  interest bearing                                                  |                  |                       | 138              |                       |   |         | (465   | )      |   |         | (327    | )   |   |      | 59     |   |   |        | (153   | ) |   |        | (94    | )
|                                            | Savings deposits                                                                    |                  |                       | 3,227            |                       |   |         | (1,701 | )      |   |         | 1,526   |     |   |      | (790   | ) |   |        | (1,853 | ) |   |        | (2,643 | )
|                                            | Time deposits                                                                       |                  |                       | (4,736           | )                     |   |         | (9,073 | )      |   |         | (13,809 | )   |   |      | (232   | ) |   |        | (1,257 | ) |   |        | (1,489 | )
|                                            | Federal funds purchased and securities
sold under agreements to repurchase          |                  |                       | 669              |                       |   |         | (2,074 | )      |   |         | (1,405  | )   |   |      | (91    | ) |   |        | (1,545 | ) |   |        | (1,636 | )
|                                            | Note payable                                                                        |                  |                       | 38               |                       |   |         | (47    | )      |   |         | (9      | )   |   |      | 38     |   |   |        | (16    | ) |   |        | 22     |  
|                                            | Other borrowed funds                                                                |                  |                       | (21              | )                     |   |         | (27    | )      |   |         | (48     | )   |   |      | (20    | ) |   |        | (62    | ) |   |        | (82    | )
|                                            | Federal Home Loan Bank advances                                                     |                  |                       | 902              |                       |   |         | (569   | )      |   |         | 333     |     |   |      | 906    |   |   |        | (287   | ) |   |        | 619    |  
|                                            | Corporation-obligated mandatorily redeemable
capital securities of subsidiary trust |                  |                       | 2,196            |                       |   |         | (12    | )      |   |         | 2,184   |     |   |      | 749    |   |   |        |       |   |   |        | 749    |  
|                                            |                                                                                     |                  |                       |                  |                       |   |         |        |        |   |         |         |     |   |      |        |   |   |        |        |   |   |        |       
|Total interest expense                      |                                                                                     |                  | 2,413                 |                  |                       |   | (13,968 | )      |        |   | (11,555 | )       |     |   | 619  |        |   |   | (5,173 | )      |   |   | (4,554 | )     
|                                            |                                                                                     |                  |                       |                  |                       |   |         |        |        |   |         |         |     |   |      |        |   |   |        |        |   |   |        |       
|Total effect on FTE net interest income     |                                                                                     | $                | 6,376                 |                  |                       | $ | (300    | )      |        | $ | 6,076   |         |     | $ | (523 | )      |   | $ | 1,438  |        |   | $ | 915    |       
|                                            |                                                                                     |                  |                       |                  |                       |   |         |        |        |   |         |         |     |   |      |        |   |   |        |        |   |   |        |       



|(1) |  | The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The rate/volume analysis indicates that, on an FTE basis, the net interest
income increase predominantly as a result of increased volume concentrated in
both loans and securities, while rate changes had a nominally negative impact.
In 2001, the improvement was attributable to improvement in the rate
components, especially a decline in the cost of funding.

Provision For Loan Losses
The provision for loan losses totaled $6,159 during 2002, representing .55% of
average loans. This exceeds the net charge-off rate of .47% of average loans in
2002 due to both the increase in the overall level of non-performing loans and
the increase in average loan balances during the year. The allowance for loan
losses represents 1.51% of loans at year-end 2002. The provision for loan
losses totaled $4,718 in 2001 representing .44% of average loans. The provision
was slightly less than net charge-offs, which were .47% of average loans
primarily due to a decrease in outstanding indirect automobile loans, which
tend to have a higher expected loss experience. With the allowance acquired
from Commerce, the allowance for loan losses represents 1.49% of loans at
year-end 2001. The provision for loan losses was $7,129 in 2000. Included in
the third quarter 2000 restructuring activities was an additional $4.1 million
in provision for loan losses which helped increase the reserve for loan losses
to 1.42% of loans at year-end 2000. The increased provision resulted from a
specific analysis of commercial credits and reflects Managements philosophy of
loan analysis based on the current economic environment. Excluding the third
quarter additional provision, the provision would have been a more normalized .27% of loans.

23



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##### Table of Contents



Non-Interest Income
The Corporation was well positioned to take advantage of the dramatically lower
market rates in 2002 and 2001. Mortgage loan originations increased
significantly, totally over $920 million and nearly $600 million in 2002 and
2001, respectively. Secondary market activities were also very strong and sales
of residential mortgage loans totaled over $860 million and $520 million during
the past two years. Gains from sale of mortgages realized totaled $10.5 million
and $5.4 million during the same two periods. Gains on the sale of SBA loans
generated an additional $600 and $400 in gains during the same two years.
Mortgage activities were significantly less in 2000 when interest rates were
higher and the Corporation did not have the staff or infrastructure to generate
a high volume of mortgages. The gain on the sale of securities totaled $592 in
2002 and was primarily attributable to shortening the duration of the
securities portfolio. The gain on sale of securities totaled $642 in 2001 and
represented gains realized on sales early in 2001 with the proceeds used to
reinvest in longer-maturity, higher-rate securities. Total 2000 non-interest
income was significantly impacted by the loan and security losses realized
during the third quarter restructuring of $3,711 and $2,808, respectively.
Absent the restructuring activity, non-interest income would have totaled
$14,794.

Service charges on deposit accounts improved significantly in both 2002 and
2001, increasing by 9.8% and 20.3% during the two years. The increase was due
to fee changes implemented in 2000 as well as a 5.5% increase in the number of
non interest-bearing demand deposit accounts during 2001 and an additional 1.1%
increase in 2002. Service charges on deposits totaled $5,823 in 2002, $5,302 in
2001 and $4,406 in 2000. Trust fees were lower in both 2002 and 2001 as the
market value of assets declined in both years. Trust fees totaled $2,715 in
2002, $2,870 in 2001 and $3,898 in 2000. Management added several new
experienced, sales-focused professionals to the Trust line of business in 2001
and have active plans for expanding wealth management business relationships
throughout the Corporations market area.

Included in other operating income were valuation allowance charges for
mortgage servicing rights. The valuation allowance charges totaled $2,984 in
2002, $810 in 2001 and $0 in 2000. Also included in other operating income was
the amortization of mortgage servicing rights, which totaled $4,704 in 2002,
$1,212 in 2001 and $765 in 2000.

Non-Interest Expense
Corporate expenses increased by 18% in 2002 and totaled $49,496. The increase
included certain non-recurring expenses for merger-related activities and the
banking center reconfiguration. Excluding those items, expenses would have
totaled $47,266 and would have represented a 13.5% increase on a pro forma
operating basis. The increase in costs was primarily attributable to an
increase in salary and benefit costs. These cost increased due to a combination
of factors including 1) a full year of expenses related to the Commerce
acquisition and a partial year for the Stouffer-Herzog acquisition, 2) an
increase in mortgage lending staff to facilitate the processing, underwriting,
closing, sale and servicing of the increased volume of loans and 3) an increase
in incentive payouts due to increased production activities. Salaries and
benefits totaled $26,345 in 2002, $21,544 in 2001 and $20,817 in 2000. Expense
control allowed for a 5% decline in costs from 2000 to 2001. On an operating
basis, expenses were essentially flat between the two years. The two categories
that realized increases in 2001, salaries and benefits and net occupancy, were
held to 3% and 2% increases, respectively. Included in the 2000 expenses were
professional service costs incurred to facilitate restructuring and
reengineering activities. Also in 2000, equipment costs increased by 17% due to
an increase in the investment into technology (both hardware and software
designed to make the Corporation more efficient) and its related service
contracts. The amortization of goodwill and other intangibles declined in both
periods presented below due to the accelerated nature of the amortization. The
adoption of SFAS No. 142 resulted in a $158 reduction in amortization expense
for goodwill in 2002, however that reduction was offset by increased core
deposit and customer list intangible amortization resulting from the Commerce
and Stouffer-Herzog acquisitions. The following table details the percentage
change in each non-interest expense category over the past three years:

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##### Table of Contents



|                                             |  |                |    |                |  |  |     |  
|-------------------------------------------- |  | -------------- | -- | -------------- |  |  | --- | -
|Percentage Change                            |  | 2002 over 2001 |    | 2001 over 2000
|                                             |  |                |    |               
|Salaries and benefits                        |  |                | 22 | %              |  |  | 3   | %
|Net occupancy                                |  |                | 5  |                |  |  | 2   |  
|Equipment                                    |  |                |   |                |  |  | (2  | )
|Professional services                        |  |                | 20 |                |  |  | (49 | )
|Assessment on deposits and other taxes       |  |                | (9 | )              |  |  | (8  | )
|Amortization of goodwill & other intangibles |  |                | 26 |                |  |  | (32 | )
|Other expenses                               |  |                | 4  |                |  |  | (13 | )

Income Taxes
The provision for income taxes was $6,230, $5,880 and $176 in 2002, 2001 and
2000, respectively. The effective tax rate for the Corporation was 25.7%, 25.5%
and 2.8% during the same periods. The reduction in the effective tax rate in
2000 was due to the reduced net income due to restructuring activities. The
Corporation utilizes tax-exempt loans and securities as well as bank owned life
insurance and low-income housing tax credits to minimize the impact of taxes on
earnings.

Balance Sheet
The balance sheet totaled nearly $1.9 billion as of December 31, 2002. This
represents a 12.8% increase in period end footings. Average assets increased by
9.9% during 2002, led by a 119% increase in average temporary investments, a
15% increase in average securities and a 4% increase in average loans. The
increase in securities and temporary investments was due to a build up in
liquidity for the planned sale of two banking centers with approximately $90
million in deposits. The sale was closed after year-end. Period end deposit
balances increased by 6.4% in 2002, with core deposits, which include both
interest-bearing and non interest-bearing demand deposits and savings accounts,
increasing by 30.7%. The shift in balances towards core funding is a function
of both the low interest rate environment, which tends to create a demand for
these funds in the market as well as the increased internal focus placed on
core deposit generation and retention. One particular product that was
successful in 2002 was a premium priced Your Best Interest MMDA account. The
success of the product allowed savings balances to increase by 46.6% during
2002.

Average assets grew minimally (up .8%) in 2001 after increasing by 5.7% in
2000. The growth rate for 2001 was adversely affected by the bulk sale of $130
million in residential real estate loans in the third quarter of 2000 along
with further declines in residential mortgage loans in 2001 due to advancing
pre-payments and strong secondary market activities. Additional loan balance
reductions occurred in indirect automobile loan balances. Underwriting
standards were strengthened during the 2001 and new loan volume and outstanding
balances declined as a result. Commercial loan growth reached 20.7% in 2001 and
was aided by the acquisition of $93 million in loans from Commerce. In 2001,
core deposit balances (both interest-bearing and non interest-bearing demand
deposit and savings accounts) experienced strong growth, reflecting
Managements focus on improving the net interest margin and reducing reliance
on higher cost funding. A re-energized deposit line-up, increased advertising,
internal incentives and the Commerce acquisition combined to allow core deposit
balances to increase by 18.8% over the course of 2001. Even excluding the
Commerce acquisition, core deposits increased by 9.4%. The number of non
interest-bearing demand deposit accounts increased by 5.5% (excluding acquired
Commerce accounts) in 2001, allowing for a greater potential for increased fee
income in future years. Also, a lower interest rate environment typically
accompanies deposit movement to more liquid accounts. The improvement in these
core deposit balances allowed the Corporation to de-emphasize as planned the
higher cost time deposit balances as a source of funding. Time deposits
increased by only .6% during 2001, however excluding the time deposits acquired
from Commerce, time deposit balances declined by 8.4%. Over the long-term,
financial institutions are expecting slower deposit growth rates due to
increased competition from non-traditional alternatives, especially mutual
funds. However, in the near-term financial institutions have an opportunity for
deposit market share improvement due to the low interest rate environment.

Earning AssetsSecurities.The securities portfolio of the Corporation is used to provide an
adequate rate of return to the Corporation along with appropriate levels of
liquidity and pledging and as a tool for efficient tax management and interest
rate risk management. The accounting treatment for the securities portfolio is
determined by the Corporations intent regarding particular security holdings.
Purchases in longer maturity ranges that provided yield enhancement-included
purchases of tax-exempt securities, which provide the additional benefit of tax
reduction.

25



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##### Table of Contents



The securities portfolio totaled $523,669 as of December 31, 2002 and is
classified entirely as available-for-sale. U.S. agency and municipal holding
remained relatively unchanged from the prior year-end. Corporate balances
declined by over $20 million as holdings in this sector were deemphasized.
Mortgage-backed securities increased by over $120 million during 2002 and
included $100 million in a leveraging transaction completed just prior to
year-end 2002. The leveraging transaction was funded primarily by FHLB advances
and will provide an estimated 1.7% net spread to income with nominal interest
rate risk. The securities portfolio totaled $417,496 as of December 31, 2001.
That balance represents a 9.3% increase over the prior year-end. For 2001, the
growth in securities was concentrated in mortgage-backed securities, including
collateralized mortgage obligations that helped improve the earnings
performance characteristics of the portfolio. The securities portfolio totaled
$382,098 as of December 31, 2000.

The average yield on the portfolio is 6.0% as of December 31, 2002, down 70
basis points from the prior year-end. During 2002 and 2001, the Corporation
realized gains on security sales of $592 and $642, respectively. During 2000,
the Corporation realized $2,399 in net losses on the sale of securities,
primarily during the restructuring activities. While rates have continued to
remain low throughout the year, the Corporation now has an unrealized gain
position for the portfolio of $12.0 million versus $5.4 million the prior
year-end. It is anticipated that the Corporation will continue to move to
shorten the average duration of the portfolio as rates are at historic lows.

Summary yield and maturity information regarding the available-for-sale
securities portfolios on December 31 follows. Yields are calculated on a fully
taxable equivalent basis using the marginal federal income tax rate of 35% for
2002.

|                                                                     |       |      |            |        |  |       |     |          |            |          |            |        |  |   |         |        | 
|-------------------------------------------------------------------- | ----- | ---- | ---------- | ------ |  | ----- | --- | -------- | ---------- | -------- | ---------- | ------ |  | - | ------- | ------ | 
|Book Value                                                           |       | 2002 |            | 2002   |  | 2001  |     | 2000    
|                                                                     |       |      |            |        |  |       |     |         
|                                                                     |       |      | Available- |        |  |       |     |          | Available- |          | Available-
|                                                                     |       |      | For-Sale   |        |  | Yield |     | For-Sale |            | For-Sale
|                                                                     |       |      |            |        |  |      
|U. S. Treasury and other U. S. Government
agencies and corporations: |       |      |            |        |  |       |     |          |            |          |            |        |  |   |         |       
|Under 1 year                                                         |       | $    | 2,193      |        |  |       | 5.8 | %        |            | $        | 1,527      |        |  | $ | 7,322   |       
|1 to 5 years                                                         |       |      | 3,171      |        |  |       | 4.5 |          |            |          | 5,413      |        |  |   | 28,128  |       
|5 to 10 years                                                        |       |      | 14,252     |        |  |       | 6.2 |          |            |          | 22,108     |        |  |   | 16,292  |       
|Over 10 years                                                        |       |      | 10,144     |        |  |       | 2.5 |          |            |          |           |        |  |   |        |       
|                                                                     |       |      |            |        |  |       |     |          |            |          |            |        |  |   |         |       
|                                                                     | Total |      |            | 29,760 |  |       |     | 4.7      |            |          |            | 29,048 |  |   |         | 51,742 | 
|Obligations of states and political subdivisions:                    |       |      |            |        |  |       |     |          |            |          |            |        |  |   |         |       
|Under 1 year                                                         |       |      | 310        |        |  |       | 7.2 |          |            |          | 1,498      |        |  |   | 1,076   |       
|1 to 5 years                                                         |       |      | 16,222     |        |  |       | 7.4 |          |            |          | 19,858     |        |  |   | 13,458  |       
|5 to 10 years                                                        |       |      | 41,491     |        |  |       | 7.1 |          |            |          | 29,785     |        |  |   | 38,896  |       
|Over 10 years                                                        |       |      | 8,904      |        |  |       | 7.1 |          |            |          | 17,069     |        |  |   | 13,406  |       
|                                                                     |       |      |            |        |  |       |     |          |            |          |            |        |  |   |         |       
|                                                                     | Total |      |            | 66,927 |  |       |     | 7.2      |            |          |            | 68,210 |  |   |         | 66,836 | 
|Corporate:                                                           |       |      |            |        |  |       |     |          |            |          |            |        |  |   |         |       
|Under 1 year                                                         |       |      |           |        |  |       |    |          |            |          | 3,524      |        |  |   | 3,790   |       
|1 to 5 years                                                         |       |      | 5,749      |        |  |       | 7.5 |          |            |          | 13,650     |        |  |   | 20,558  |       
|5 to 10 years                                                        |       |      | 6,787      |        |  |       | 7.5 |          |            |          | 15,368     |        |  |   | 7,947   |       
|Over 10 years                                                        |       |      | 55,522     |        |  |       | 7.0 |          |            |          | 57,245     |        |  |   | 38,123  |       
|                                                                     |       |      |            |        |  |       |     |          |            |          |            |        |  |   |         |       
|                                                                     | Total |      |            | 68,058 |  |       |     | 7.1      |            |          |            | 89,787 |  |   |         | 70,418 | 
|Mortgage-backed securities                                           |       |      | 333,258    |        |  |       | 5.7 |          |            |          | 211,096    |        |  |   | 175,294 |       
|Equity securities                                                    |       |      | 25,666     |        |  |       | 4.6 |          |            |          | 19,355     |        |  |   | 17,808  |       
|                                                                     |       |      |            |        |  |       |     |          |            |          |            |        |  |   |         |       
|Total securities                                                     |       | $    | 523,669    |        |  |       | 6.0 | %        |            | $        | 417,496    |        |  | $ | 382,098 |       
|                                                                     |       |      |            |        |  |       |     |          |            |          |            |        |  |   |         |       

Mortgage-backed securities have various stated maturities through November
2032. The estimated weighted-average maturity of this segment of the portfolio
is 5.6 years.

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##### Table of Contents



Loans
Listed below is the Corporations loan distribution at the end of each of the
last five years:

|                          |  |      |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |         | 
|------------------------- |  | ---- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | ------- | 
|                          |  | 2002 |           | 2001 |  | 2000 |           | 1999 |  | 1998
|                          |  |      |           |      |  |      |           |      |  |     
|Commercial                |  | $    | 542,693   |      |  | $    | 508,579   |      |  | $    | 421,229   |  |  | $ | 413,097   |  |  | $ | 373,244 | 
|Consumer                  |  |      | 322,840   |      |  |      | 316,097   |      |  |      | 302,881   |  |  |   | 216,173   |  |  |   | 230,561 | 
|Real estate mortgage      |  |      | 249,945   |      |  |      | 247,221   |      |  |      | 300,526   |  |  |   | 402,468   |  |  |   | 346,081 | 
|Real estate construction  |  |      | 52,313    |      |  |      | 49,995    |      |  |      | 45,453    |  |  |   | 39,924    |  |  |   | 20,967  | 
|                          |  |      |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |         | 
|Balance as of December 31 |  | $    | 1,167,791 |      |  | $    | 1,121,892 |      |  | $    | 1,070,089 |  |  | $ | 1,071,662 |  |  | $ | 970,853 | 
|                          |  |      |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |         | 

|                         |  |      |     |      |  |      |     |      |  |      |     |   |  |  |     |   |  |  |     |  
|------------------------ |  | ---- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | - |  |  | --- | -
|Percentage distribution  |  | 2002 |     | 2001 |  | 2000 |     | 1999 |  | 1998
|                         |  |      |     |      |  |      |     |      |  |     
|Commercial               |  |      | 46  | %    |  |      | 45  | %    |  |      | 40  | % |  |  | 39  | % |  |  | 38  | %
|Consumer                 |  |      | 28  |      |  |      | 28  |      |  |      | 28  |   |  |  | 20  |   |  |  | 24  |  
|Real estate mortgage     |  |      | 22  |      |  |      | 22  |      |  |      | 28  |   |  |  | 37  |   |  |  | 36  |  
|Real estate construction |  |      | 4   |      |  |      | 5   |      |  |      | 4   |   |  |  | 4   |   |  |  | 2   |  
|                         |  |      |     |      |  |      |     |      |  |      |     |   |  |  |     |   |  |  |     |  
|Total                    |  |      | 100 | %    |  |      | 100 | %    |  |      | 100 | % |  |  | 100 | % |  |  | 100 | %
|                         |  |      |     |      |  |      |     |      |  |      |     |   |  |  |     |   |  |  |     |  

An analysis of maturity and interest rate sensitivity of commercial loans as of
December 31, 2002 follows:

|                       |  |          |        |            |  |            |         |       |  |   |         |  |  |   |         | 
|---------------------- |  | -------- | ------ | ---------- |  | ---------- | ------- | ----- |  | - | ------- |  |  | - | ------- | 
|                       |  | One Year |        | One to     |  | Over       |         |       |  |  
|                       |  | Or Less  |        | Five Years |  | Five Years |         | Total
|                       |  |          |        |            |  |            |         |      
|Fixed rate             |  | $        | 1,719  |            |  | $          | 45,110  |       |  | $ | 67,792  |  |  | $ | 114,621 | 
|Variable rate          |  |          | 74,496 |            |  |            | 95,128  |       |  |   | 258,448 |  |  |   | 428,072 | 
|                       |  |          |        |            |  |            |         |       |  |   |         |  |  |   |         | 
|Total commercial loans |  | $        | 76,215 |            |  | $          | 140,238 |       |  | $ | 326,240 |  |  | $ | 542,693 | 
|                       |  |          |        |            |  |            |         |       |  |   |         |  |  |   |         | 

The Corporation emphasizes on-balance sheet growth in direct consumer and
commercial balances. The Corporation emphasizes real estate lending through
its branch network, reaching a broad range of customers, as well as through the
use of mortgage loan originators and correspondent lender relationships.
Generally, the loans sold into the secondary mortgage market make funds
available for reuse in mortgage or other lending activities, generate a net
gain (including origination fee income) from the sale, limit the interest rate
risk caused by holding long-term, fixed-rate loans and build a portfolio of
serviced loans which generate fee income for the Corporation. The serviced
portfolio of mortgages totaled $1,320 million and $813 million as of December
31, 2002 and 2001, respectively.

Commercial loans are generated through a calling program targeting medium-sized
companies. The Corporation is also generating an increasing volume of Small
Business Administration (SBA) loans. The Corporation sells the guaranteed
portion of the SBA loans originated. The sales generated $639 and $436 in net
revenues, including $185 and $144 in revenues from the value of the servicing
retained in 2002 and 2001, respectively. The amount of SBA loans being serviced
by the Corporation totaled approximately $16.4 million and $13.1 million at
December 31, 2002 and 2001, respectively.

The Corporations commercial loans are granted to customers within the
immediate trade area of the Corporation. The mix is diverse, covering a wide
range of borrowers. The table below details the stratification of commercial
loan balances at the end of 2002:

|                       |  |        |         | 
|---------------------- |  | ------ | ------- | 
|Stratification         |  | Amount
|                       |  |       
|Under $1 million       |  | $      | 351,066 | 
|From $1 to $5 million  |  |        | 170,182 | 
|From $5 to $10 million |  |        | 21,445  | 
|Over $10 million       |  |        |        | 
|                       |  |        |         | 
|Total                  |  | $      | 542,693 | 
|                       |  |        |         | 

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The Corporation monitors and controls concentrations within a particular
industry or segment. As of December 31, 2002, the Corporation had a
concentration in commercial real estate loans totaling approximately $367
million, approximately 67.7% of which were owner-occupied businesses, including
nursing homes, retail and fast-food restaurants within the Corporations market
area. The table below details as of December 31, 2002 the industry
concentrations by SIC code that exceed 10% of tier I capital:

|                          |  |          |      |        |  |   |        | 
|------------------------- |  | -------- | ---- | ------ |  | - | ------ | 
|Industry                  |  | SIC Code |      | Amount
|                          |  |          |      |       
|Non-residential buildings |  |          | 6512 |        |  | $ | 75,358 | 
|Restaurants  retail      |  |          | 5812 |        |  |   | 23,705 | 
|Apartments                |  |          | 6513 |        |  |   | 16,679 | 
|Collection services       |  |          | 7322 |        |  |   | 15,998 | 
|Motel/Hotels              |  |          | 7011 |        |  |   | 14,859 | 
|Nursing homes             |  |          | 8051 |        |  |   | 13,651 | 

Asset Quality
The allowance for loan losses is analyzed in the table below:

|                                                                  |                          |   |        |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |       | 
|----------------------------------------------------------------- | ------------------------ | - | ------ | ----- | ---- | - | ------ | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                                                  |                          |   | 2002   |       | 2001 |   | 2000   |       | 1999 |   | 1998  
|                                                                  |                          |   |        |       |      |   |        |       |      |   |       
|Balance at January 1                                              |                          | $ | 16,695 |       |      | $ | 15,217 |       |      | $ | 11,169 |       |  | $ | 10,739 |       |  | $ | 8,837  |      
|Charge-offs:                                                      |                          |   |        |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|                                                                  | Commercial               |   |        | 2,593 |      |   |        | 2,486 |      |   |        | 1,702 |  |   |        | 2,430 |  |   |        | 6,734 | 
|                                                                  | Real estate mortgage     |   |        | 242   |      |   |        | 175   |      |   |        | 164   |  |   |        | 86    |  |   |        | 820   | 
|                                                                  | Real estate construction |   |        | 97    |      |   |        |      |      |   |        |      |  |   |        |      |  |   |        |      | 
|                                                                  | Consumer                 |   |        | 3,652 |      |   |        | 3,810 |      |   |        | 2,194 |  |   |        | 1,961 |  |   |        | 3,055 | 
|                                                                  |                          |   |        |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|                                                                  |                          |   | 6,584  |       |      |   | 6,471  |       |      |   | 4,060  |       |  |   | 4,477  |       |  |   | 10,609 |      
|Recoveries:                                                       |                          |   |        |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|                                                                  | Commercial               |   |        | 857   |      |   |        | 707   |      |   |        | 533   |  |   |        | 901   |  |   |        | 1,213 | 
|                                                                  | Real estate mortgage     |   |        | 10    |      |   |        | 5     |      |   |        | 8     |  |   |        | 4     |  |   |        | 50    | 
|                                                                  | Real estate construction |   |        |      |      |   |        |      |      |   |        |      |  |   |        |      |  |   |        |      | 
|                                                                  | Consumer                 |   |        | 458   |      |   |        | 641   |      |   |        | 438   |  |   |        | 807   |  |   |        | 669   | 
|                                                                  |                          |   |        |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|                                                                  |                          |   | 1,325  |       |      |   | 1,353  |       |      |   | 979    |       |  |   | 1,712  |       |  |   | 1,932  |      
|Net charge-offs                                                   |                          |   | 5,259  |       |      |   | 5,118  |       |      |   | 3,081  |       |  |   | 2,765  |       |  |   | 8,677  |      
|Acquired reserves                                                 |                          |   |       |       |      |   | 1,878  |       |      |   |       |       |  |   |       |       |  |   |       |      
|Provision for loan losses charged to operations                   |                          |   | 6,159  |       |      |   | 4,718  |       |      |   | 7,129  |       |  |   | 3,195  |       |  |   | 10,579 |      
|                                                                  |                          |   |        |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|Balance at December 31                                            |                          | $ | 17,595 |       |      | $ | 16,695 |       |      | $ | 15,217 |       |  | $ | 11,169 |       |  | $ | 10,739 |      
|                                                                  |                          |   |        |       |      |   |        |       |      |   |        |       |  |   |        |       |  |   |        |      
|Allowance for loan losses as a percentage
of year-end loans       |                          |   | 1.51   | %     |      |   | 1.49   | %     |      |   | 1.42   | %     |  |   | 1.04   | %     |  |   | 1.11   | %    
|Allowance for loan losses as a percentage
of non-performing loans |                          |   | 92     | %     |      |   | 158    | %     |      |   | 191    | %     |  |   | 188    | %     |  |   | 155    | %    

Net charge-offs as a percent of average loans by major loan category are shown
below:

|                                       |  |      |      |      |  |      |      |      |  |      |      |   |  |  |      |   |  |  |      |  
|-------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | - |  |  | ---- | -
|                                       |  | 2002 |      | 2001 |  | 2000 |      | 1999 |  | 1998
|                                       |  |      |      |      |  |      |      |      |  |     
|Commercial                             |  |      | 0.34 | %    |  |      | 0.44 | %    |  |      | 0.29 | % |  |  | 0.40 | % |  |  | 1.55 | %
|Real estate mortgage                   |  |      | 0.08 | %    |  |      | 0.04 | %    |  |      | 0.04 | % |  |  | 0.02 | % |  |  | 0.23 | %
|Real estate construction               |  |      | 0.03 | %    |  |      | 0.00 | %    |  |      | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | %
|Consumer                               |  |      | 1.02 | %    |  |      | 1.22 | %    |  |      | 0.68 | % |  |  | 0.53 | % |  |  | 0.98 | %
|Total net charge-offs to average loans |  |      | 0.47 | %    |  |      | 0.47 | %    |  |      | 0.28 | % |  |  | 0.27 | % |  |  | 0.92 | %

The allowance for loan losses has increased steadily from 1998 to 2002 as
outstanding loan balances increased and the risk characteristics of the
portfolios shifted from lower risk residential estate loans to higher risk
consumer and commercial loans. The allowance for loan losses was $17,585, or
1.51% of loans as of December 31, 2002. The allowance represents 92% of non-
performing loans, which is lower than the coverage of non-performing loans at
the end of the previous four years. With over $3 million of the non-performing
loans balances as of December 31, 2002 represented by residential real estate
loans, the allowance for loan losses, in Managements opinion is adequate to
absorb losses inherent with the loan portfolios. Commercial loan charge-offs
decreased to .43% of commercial loans, representing a more normalized level of
loss experience. The .29% commercial charge-off rate in 2000 represented the

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low point for these charge-offs for the past five years. Consumer charge-offs
increased slightly from 2001 due to increased losses per vehicle due to a soft
resell market and an increase in voluntary surrender of vehicles. The
underwriting standards include, among other factors, a reduced level of loan
advance to vehicle value. The underwriting standards have resulted in a decline
in new loan origination and a subsequent decline in the indirect automobile
concentration within the consumer loan portfolio. Indirect vehicle loans
totaled $127 million at the end of 2002 as compared to $132 million as of
December 31, 2001.

The following presents a breakdown of the loan loss allowance by loan category
for each of the last five years:

|                         |  |      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|Loan Category            |  | 2002 |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                         |  |      |        |      |  |      |        |      |  |     
|Commercial               |  | $    | 12,040 |      |  | $    | 11,673 |      |  | $    | 9,927  |  |  | $ | 7,449  |  |  | $ | 7,351  | 
|Consumer                 |  |      | 4,577  |      |  |      | 4,762  |      |  |      | 5,161  |  |  |   | 2,587  |  |  |   | 1,952  | 
|Real estate mortgage     |  |      | 736    |      |  |      | 260    |      |  |      | 129    |  |  |   | 1,133  |  |  |   | 1,436  | 
|Real estate construction |  |      | 242    |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|                         |  |      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total                    |  | $    | 17,595 |      |  | $    | 16,695 |      |  | $    | 15,217 |  |  | $ | 11,169 |  |  | $ | 10,739 | 
|                         |  |      |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 

The Corporations loan portfolios are subject to varying degrees of credit
risk. Credit risk is mitigated through portfolio diversification, limiting
exposure to any single industry or customer (see the Loan section above for
discussion on the commercial loan portfolios balance stratification and
industry concentration). The determination of the allowance for loan losses is
based on Managements evaluation of the potential losses in the loan portfolio
considering, among other relevant factors, repayment status, borrowers ability
to repay, collateral and current foreseeable economic conditions. The valuation
methodology has been consistently applied since 2000, when current Management
applied a more conservative view to the assumptions utilized in determining the
specific reserves to be allocated to each credit. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, economic conditions that may affect the borrowers ability to repay
(including the timing of future payments), overall quality, analysis of prior
and current loss experience and a review of specific problem loans. The
allowance reflects expected losses resulting from the analysis of specific
credits and historical loss experience for each loan category. The Bank
utilizes its internal loan gradings for commercial loans in conjunction with
historical loss experience for loans of each grade level and current economic
trends as parts of its analysis in determining the adequacy of its allowance
for loan losses. The allowance for loan losses is calculated using a written,
systematic methodology approved by a committee of the Banks Board of
Directors. The methodology includes specific allocations for known and
potential impaired loans; identified concentrations of credit; unfunded,
legally binding commitments to lend; economic trends; collateral value trends;
new loan volume, and delinquent and non-accrual loan balances. The Banks
trailing eight-quarter net charge-off experience is utilized to determine the
appropriate general allocations. The methodology is consistently applied on a
monthly basis and a summary report presented for ratification to the Banks
Board of Directors.

Non-accrual loans are loans that are no longer accruing interest at the
discretion of Management. This occurs when Management determines that the
borrower can no longer service the debt, but the loan is adequately secured
with collateral or the borrower is able to repay the principal of the loan in
the future.

For the year ended December 31, 2002, interest income that would have been
earned under the original terms of the loans classified in non-accrual and
restructured loans amounted to $1,229 and $398 in 2002 and 2001, respectively.
No interest income was realized on these loans for 2002 or 2001, respectively.

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Below is a table listing the non-accrual, past due and restructured loans at
the end of the last five years. Past due loans are loans over 90 days past due
and still accruing interest.

|                             |  |      |        |      |  |      |        |      |  |      |       |   |  |   |       |   |  |   |       |  
|---------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ----- | - |  | - | ----- | -
|                             |  | 2002 |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                             |  |      |        |      |  |      |        |      |  |     
|Non-accrual loans            |  | $    | 13,123 |      |  | $    | 5,004  |      |  | $    | 4,699 |   |  | $ | 2,743 |   |  | $ | 4,130 |  
|Past due loans               |  |      | 5,692  |      |  |      | 5,304  |      |  |      | 3,239 |   |  |   | 3,132 |   |  |   | 2,725 |  
|Restructured loans           |  |      | 378    |      |  |      | 258    |      |  |      | 43    |   |  |   | 52    |   |  |   | 61    |  
|                             |  |      |        |      |  |      |        |      |  |      |       |   |  |   |       |   |  |   |       |  
|Total                        |  | $    | 19,193 |      |  | $    | 10,566 |      |  | $    | 7,981 |   |  | $ | 5,927 |   |  | $ | 6,916 |  
|                             |  |      |        |      |  |      |        |      |  |      |       |   |  |   |       |   |  |   |       |  
|Percent of loans at year end |  |      | 1.64   | %    |  |      | 0.94   | %    |  |      | 0.75  | % |  |   | 0.55  | % |  |   | 0.71  | %
|Other real estate owned      |  | $    | 1,371  |      |  | $    | 1,399  |      |  | $    | 902   |   |  | $ | 281   |   |  | $ | 79    |  

Loans 30 to 89 days past due, where the monthly payment is more than 30 days
past due but less than 89 days past the payment date, excluding non-accrual and
restructured loans included in the table above, amounted to $8,334 or 0.71% of
outstanding loans as of December 31, 2002, as compared to $9,740 or 0.87% of
loans on December 31, 2001. Loans then current where some concerns existed as
to the ability of the borrower to comply with loan repayment terms approximated
$43,095 at December 31, 2002 and $62,429 at December 31, 2001. Management
closely monitors such loans.

The provision for loan losses represents the charge to income necessary to
adjust the allowance for loan losses to an amount the represents Managements
assessment of the estimated probable loan losses inherent in the loan portfolio
that have been incurred at each balance sheet date. All lending activity
contains associated risks of loan losses that are a necessary element of
business activity. The provision for loan losses for 2002 was $6,159, compared
to $4,718 for 2001 and $7,129 in 2000. The changes in the provision for loan
losses were attributable to changes in net charge-offs, increasing
non-performing loans and the recognition of changes in the current risk
factors. In 2000, the Corporation additionally underwent a more stringent
review of specific problem loans, which necessitated the addition of $4,100 in
additional provision during the third quarter of that year.

Servicing Assets
The valuation of mortgage servicing assets is performed by an independent third
party. The critical factors and assumptions used in the valuation as of
December 31, 2002 were a discount rate of 9.04%, PSA of 380, weighted average
coupon of 6.60%, weighted average servicing fee of .257%, remaining term of 293
months, delinquency of 1.9%, a cost per loan of $45 and other income per loan
of $30.

At December 31, 2002, key economic assumptions and the sensitivity of the
current fair value of mortgage servicing assets to immediate 10% and 20%
adverse changes in those assumptions are presented in the table that follows.
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10% variation in assumptions
generally cannot be extrapolated because the relationship of the change in the
assumption to the change in fair value may not be linear. Also, the effect of a
variation in a particular assumption on the fair value of the
mortgage-servicing asset is calculated independently without changing any other
assumption. In reality, changes in one factor may result in changes in another
(for example, changes in the prepayment rate estimates could result in changes
in the discount rates), which might magnify or counteract the sensitivities.

|                                               |  |   |        |  
|---------------------------------------------- |  | - | ------ | -
|Fair value                                     |  | $ | 11,967 |  
|Expected weighted average life (in years)      |  |   | 3.6    |  
|Prepayment rate (annual PSA)                   |  |   | 380    |  
|Decrease in fair value from 10% adverse change |  | $ | 725    |  
|Decrease in fair value from 20% adverse change |  | $ | 1,323  |  
|Discount rate                                  |  |   | 9.04   | %
|Decrease in fair value from 10% adverse change |  | $ | 308    |  
|Decrease in fair value from 20% adverse change |  | $ | 558    |  

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Funding Sources
Deposits

The average amounts of deposits are summarized below:

|                                     |  |      |           |      |  |      |           |  |  |   |           | 
|------------------------------------ |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                     |  | 2002 |           | 2001 |  | 2000
|                                     |  |      |           |      |  |     
|Demand deposits-non-interest bearing |  | $    | 146,598   |      |  | $    | 115,857   |  |  | $ | 112,185   | 
|Demand deposits-interest bearing     |  |      | 101,222   |      |  |      | 90,762    |  |  |   | 86,818    | 
|Savings deposits                     |  |      | 374,313   |      |  |      | 242,242   |  |  |   | 266,863   | 
|Time deposits                        |  |      | 537,217   |      |  |      | 621,578   |  |  |   | 625,575   | 
|                                     |  |      |           |      |  |      |           |  |  |   |           | 
|Total                                |  | $    | 1,159,350 |      |  | $    | 1,070,439 |  |  | $ | 1,091,441 | 
|                                     |  |      |           |      |  |      |           |  |  |   |           | 

Average deposits increased slightly in 2002 after a slight decrease in 2001. In
2002, increases in average non-interest bearing and interest bearing demand
deposit balances coupled with the increase in MMDA savings accounts offset the
decline in time deposit balances. In 2001, loan balance reductions, primarily
residential real estate loans allowed the Corporation to reduce balances in
higher cost time deposits and be aggressive in pricing down other savings
accounts during the period of falling interest rates, resulting in some runoff.

The following is a maturity distribution for the $506,378 of time deposits
outstanding as of December 31, 2002:

|           |      |  |       |         | 
|---------- | ---- |  | ----- | ------- | 
|           | 2003 |  | $     | 294,117 | 
|           | 2004 |  |       | 127,501 | 
|           | 2005 |  |       | 63,674  | 
|           | 2006 |  |       | 10,301  | 
|           | 2007 |  |       | 8,284   | 
|Thereafter |      |  | 2,481 |        

On December 31, 2002, time deposits over $100 totaled $82,451. The Bank
continues to maintain strong relationships with the various public entities
centered in the primary markets of the Bank which contributes to the balance of
time deposits over $100. The decrease in these balances is due primarily to
declining interest rates. The maturity schedule for time deposits over $100 as
of December 31, 2002, is given in the table below:

|             |                  |      |        |        |  |   |         |        | 
|------------ | ---------------- | ---- | ------ | ------ |  | - | ------- | ------ | 
|Maturing in: |                  | 2002 |        | 2001  
|             |                  |      |        |       
|             | 3 months or less |      | $      | 17,194 |  |   | $       | 84,107 | 
|             | 3 to 6 months    |      |        | 9,463  |  |   |         | 30,085 | 
|             | 6 to 12 months   |      |        | 21,237 |  |   |         | 9,995  | 
|             | Over 12 months   |      |        | 34,557 |  |   |         | 2,809  | 
|             |                  |      |        |        |  |   |         |       
|Total        |                  | $    | 82,451 |        |  | $ | 126,996 |       
|             |                  |      |        |        |  |   |         |       

Other Sources of Funds
The Corporation has the availability to borrow $33 million from correspondent
banks as overnight federal funds purchased. There were $0 federal funds
purchased at December 31, 2002, while $0 and $29 million were outstanding at
December 31, 2001 and 2000, respectively. The Corporation has repurchase
agreements with corporate customers and local municipalities. These borrowings
have an overnight maturity and are collateralized with U. S. Treasury and
government agency securities, including agency-issued mortgage-backed
securities with a market value of $161,998 and $107,160 as of December 31, 2002
and 2001, respectively. The Corporation continuously pledges collateral for
these borrowings at an amount exceeding the outstanding balance. The securities
are held in the Corporations safekeeping account at the Federal Reserve Bank.
Although there were no repurchase agreements with approved brokers outstanding
at December 31, 2002, the Corporation previously maintained such balances,
which were collateralized by U. S. Treasury and government agency securities
held by the broker.

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The following table summarizes certain information relative to these
borrowings:

|                                                           |  |      |         |      |  |      |         |   |  |   |         |  
|---------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                           |  | 2002 |         | 2001 |  | 2000
|                                                           |  |      |         |      |  |     
|Outstanding at December 31                                 |  | $    | 138,796 |      |  | $    | 107,279 |   |  | $ | 100,895 |  
|Weighted-average interest rate at December 31              |  |      | 1.56    | %    |  |      | 3.58    | % |  |   | 4.49    | %
|Maximum amount outstanding as of any month end             |  | $    | 178,536 |      |  | $    | 133,743 |   |  | $ | 120,026 |  
|Average amount outstanding                                 |  | $    | 134,374 |      |  | $    | 109,476 |   |  | $ | 105,850 |  
|Approximate weighted-average interest rate during the year |  |      | 1.84    | %    |  |      | 3.40    | % |  |   | 4.50    | %

The repurchase agreement program provides a sweep feature on the customers
primary business account along with competitive market rates of interest for
their excess funds. The success of this product reflects the strong emphasis
the Bank places on offering competitive products coupled with personalized
service to the small-to mid-size businesses operating in the Banks various
markets. Federal funds purchased and securities sold under agreements to
repurchase averaged $136,041 in 2002 with the majority of the average balances
representing the retail sweep product.

The Corporation also has available to it unsecured lines of credit with
correspondent banks totaling $20 million. The lines of credit are renewable
annually and bear interest at a floating rate based on several indices As of
December 31, 2002; the Corporation had utilized $7 million in borrowings under
these lines. There were no balances outstanding on the lines at the end of
2001.

The Corporation also has access to federal tax deposits on a daily basis. After
being deposited by customers, the tax deposits are held at the Corporation up
to a self-imposed limit of $6 million until they are drawn upon by the federal
government. The balance of these funds was $3,863 and $5,853 as of December 31,
2002 and 2001, respectively.

The Bank also is a member of the Federal Home Loan Bank (FHLB) system and
utilizes the various advance programs offered by the FHLB. The funds are drawn
from the FHLB for various terms through 2007 and are utilized to provide
long-term funding to offset the interest rate risk inherent with holding
long-term, fixed-rate mortgages as well as funding for specific leveraging
activities. The balances of these advances were $365,844 and $275,152 as of
December 31, 2002 and 2001, respectively.

Most recently, the Corporation has utilized the issuance of
corporation-obligated manditorily redeemable securities of subsidiary trust,
more commonly known as trust preferred securities, to raise additional funding.
The securities are traded under the symbol SECDP on the NASDAQ National Market
System. The Corporation raised $32 million in these securities in 2001,
primarily to fund the Commerce acquisition. The securities qualify as Tier I
capital for regulatory purposes and also bear interest that is tax deductible
to the Corporation.

Capital
The shareholders equity increased to $136,334 at December 31, 2002 from
$128,299 a year earlier. The increase was attributable to retention of earnings
as well as the increase in market values for the available-for-sale securities.
The increase was partially offset by the treasury share repurchase activities.
The impact of the change in unrealized market value adjustment on securities
available-for-sale, net of tax resulted in a net unrealized gain position
within other comprehensive income of $7,838 at December 31, 2002.

In 2001, total shareholders equity increased to $128,299 at December 31, 2001
from $117,197 a year earlier. The increase was attributable to the increase in
market values for the available-for-sale securities. The increase offset the
treasury share repurchase activities. The impact of the change in unrealized
market value adjustment on securities available-for-sale, net of tax resulted
in a net unrealized gain position of $3,505 at December 31, 2001.

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Total shares in treasury were 304,500 as of December 31, 1999. The number of
shares authorized for repurchase was increased to 600,000 on April 20, 2000.
The 600,000-share repurchase was completed on October 11, 2000. On October 12,
2000, the Board of Directors authorized the repurchase of up to 2% of
outstanding shares on an annual basis. In 2001, the Corporation repurchased
approximately 152,000 shares and the authorization to repurchase up to 2% of
outstanding shares was renewed. As of December 31, 2001, there were 883,494
shares in treasury and another 133,756 remaining shares to be repurchased under
the current authorization. In 2002, the Board of Directors authorized an
additional 500,000 shares for repurchase, supplementing the annual 2%
repurchase authorization. During 2002, 395,515 shares had been repurchased
bringing the total shares in treasury to 1,279,009 as of December 31, 2002.

The Corporation has consistently had qualifying capital under the risk-based
capital requirements in excess of those required to meet the well-capitalized
standards. For further details on capital ratios, see Note 17.

The Corporation trades under the symbol SECD on the NASDAQ National Market
System. The total market capitalization of the Corporation was approximately
$259 million at December 31, 2002. The table below lists the high and low
trading prices for the common stock by quarter for the last three years.

|                   |      |       |     |        |  |       |     |        |  |      |     |       |  |  |     |       |  |  |     |       | 
|------------------ | ---- | ----- | --- | ------ |  | ----- | --- | ------ |  | ---- | --- | ----- |  |  | --- | ----- |  |  | --- | ----- | 
|Quarter            |      | First |     | Second |  | Third |     | Fourth |  | Year
|                   |      |       |     |        |  |       |     |        |  |     
|2002:              |      |       |     |        |  |       |     |        |  |      |     |       |  |  |     |       |  |  |     |      
|                   | High |       | $   | 25.03  |  |       | $   | 28.39  |  |      | $   | 28.32 |  |  | $   | 28.12 |  |  | $   | 28.39 | 
|                   | Low  |       |     | 20.50  |  |       |     | 24.25  |  |      |     | 23.53 |  |  |     | 24.51 |  |  |     | 20.50 | 
|Dividends Declared |      |       | .18 |        |  |       | .18 |        |  |      | .18 |       |  |  | .18 |       |  |  | .72 |      
|2001:              |      |       |     |        |  |       |     |        |  |      |     |       |  |  |     |       |  |  |     |      
|                   | High |       | $   | 18.75  |  |       | $   | 23.00  |  |      | $   | 22.89 |  |  | $   | 22.36 |  |  | $   | 23.00 | 
|                   | Low  |       |     | 13.75  |  |       |     | 16.55  |  |      |     | 17.00 |  |  |     | 18.45 |  |  |     | 13.75 | 
|Dividends Declared |      |       | .17 |        |  |       | .17 |        |  |      | .17 |       |  |  | .17 |       |  |  | .68 |      
|2000:              |      |       |     |        |  |       |     |        |  |      |     |       |  |  |     |       |  |  |     |      
|                   | High |       | $   | 22.31  |  |       | $   | 18.13  |  |      | $   | 16.31 |  |  | $   | 16.94 |  |  | $   | 22.31 | 
|                   | Low  |       |     | 17.06  |  |       |     | 12.25  |  |      |     | 13.75 |  |  |     | 12.13 |  |  |     | 12.13 | 
|Dividends Declared |      |       | .16 |        |  |       | .16 |        |  |      | .16 |       |  |  | .16 |       |  |  | .64 |      

The Corporations price for its common stock increased by 23% in 2002 to finish
the year at $26.50 with a trading range of $20.50 to $28.39 per share. Steady
improvement in the common stock price paralleled the Corporations improved
financial performance. Bank stock prices in general were subject to downward
pressure in 2000 with the increase in market rates associated with Federal Open
Market Committee activities and rebounded in 2002 and 2001 as market rates
declined. Book value per common share was $13.91 and $12.90 at December 31,
2002 and 2001, respectively.

The Corporation has historically paid cash dividends on a quarterly basis and
has periodically paid stock dividends at the discretion of the Board of
Directors. The payment and amount of future dividends on the common stock will
be determined by the Board of Directors. The payment will depend on, among
other things, earnings, financial condition and cash requirements of the
Corporation at the time that such payment is considered, and on the ability of
the Corporation to receive dividends from the Bank, the amount of which is
subject to regulatory limitations. For 2002, 2001 and 2000, the dividend-payout
ratio for the Corporation was 39.5%, 39.8% and 106.3%, respectively. The
unusually high dividend payout ratios for 2000 were attributable to the impact
of restructuring activities.

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Liquidity
Management of the Corporations liquidity position is necessary to ensure that
funds are available to meet the cash flow needs of depositors and borrowers as
well as the operating cash needs of the Corporation. Funds are available from
a number of sources including maturing securities, payments made on loans, the
acquisition of new deposits, the sale of packaged loans, borrowing from the
FHLB and overnight lines of credit of over $33 million through correspondent
banks. The parent company has three major sources of funding including
dividends from the Bank, $20 million in unsecured lines of credit with
correspondent banks, which are renewable annually, and access to the capital
markets. The net cash provided by operating activities for 2002, 2001 and 2000
were approximately $39 million, $22 million and $16 million, respectively.
Management does not expect future cash flows available from operations to be
materially different from the cash flow experience of the prior three years.
Factors affecting cash flows from investing or financing activities are not
expected to have a significant negative impact and foreseeable future
liquidity. As discussed in Note 17, the Bank is subject to regulation and may
be limited in its ability to pay dividends to the parent company. Accordingly,
consolidated cash flows may not represent cash available to common
shareholders.

Market Risk Management
Market risk is the risk of economic loss from adverse changes in the fair value
of financial instruments due to changes in (a) interest rates, (b) foreign
exchange rates or (c) other factors that relate to market volatility of the
rate, index or price underlying the financial instrument. The Corporations
market risk is composed primarily of interest rate risk. The Corporations
Asset/Liability Committee (ALCO) is responsible for reviewing the interest rate
sensitivity position of the Corporation and establishing policies to monitor
and limit the exposure to interest rate risk. Since nearly the Corporations
entire interest rate risk exposure relates to the financial instrument activity
of the Bank, the Banks Board of Directors review the policies and guidelines
established by ALCO.

The primary objective of asset/liability management is to provide an optimum
and stable net interest margin, after-tax return on assets and return on equity
capital, as well as adequate liquidity and capital. Interest rate risk is
monitored through the use of two complementary measures: dynamic gap analysis
and earnings simulation models. While each of the measurement techniques has
limitations, taken together they represent a reasonably comprehensive tool for
measuring the magnitude of interest rate risk inherent in the Corporation.

The dynamic gap analysis measures the amount of repricing risk associated with
the balance sheet at a specific point in time. Expected cash flows from fixed
rate instruments are defined utilizing contractual maturities and anticipated
cash flows through early repayment of loans, early calls and paydowns of
securities and early withdrawals of deposits. Variable rate instruments
repricing frequencies are categorized according to their earliest repricing
opportunity. Core deposits with non-contractual maturities are included in the
gap repricing distributions based on historical patterns of pricing behavior.

The earnings simulation model forecasts earnings for a one-year horizon frame
under a variety of interest rate scenarios. Management evaluates the impact of
the various rate simulations against earnings in a stable interest rate
environment. The most recent model projects net income would decrease by 0.1%
if interest rates would immediately fall by 125 basis points and increase by
19.0% if interest rates would immediately rise by 200 basis points. At December
31, 2001 the model projected net income would decrease by 4.7% if interest
rates would immediately fall by 200 basis points and would increase by 2.0% if
interest rates would immediately rise by 200 basis points. The projected
changes in net income include the projected changes in net interest income from
the table below as well as projected changes in income from gains on sale of
mortgage loans and projected adjustments to mortgage servicing assets and
associated derivatives. Management believes this asset sensitive position for
the one-year time horizon is within acceptable levels of risk tolerance. The
earnings simulation model includes assumptions about how the various components
of the balance sheet and rate structure are likely to react through time in
different interest rate environments. These assumptions are derived from
historical analysis and Managements outlook. Also include are estimates and
assumptions regarding the impact to earnings from changes in the valuation
allowance for servicing assets, gains on sale of mortgage loans and changes in
the volume of interest rate floors.

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The following table shows the projected changes in net interest income and the
economic value of equity based on a series of interest rate shocks:

|                     |  |                     |      |                          |  |  |       |   
|-------------------- |  | ------------------- | ---- | ------------------------ |  |  | ----- | --
|Rate Shock Scenario  |  | Net Interest Income |      | Economic Value of Equity
|                     |  |                     |      |                         
|Down 125             |  |                     | (6.4 | )%                       |  |  | (20.1 | )%
|Up 200               |  |                     | 8.9  | %                        |  |  | 10.8  | % 
|Board approved limit |  |                     | (10  | )%                       |  |  | (30   | )%

The economic value of equity is a measure used to determine the risk of changes
to the value of equity from interest rate changes and incorporates the duration
of assets and liabilities as well as their sensitivity to interest rate
changes.

Interest rate sensitivity is managed through the use of security portfolio
management techniques, the use of fixed rate long-term borrowings from the
FHLB, the establishment of rate and term structures for time deposits and
loans, the sale of long-term fixed rate mortgages through the secondary
mortgage market and interest rate swaps, caps and floors.

Critical Accounting Policies
The Corporation has established various accounting policies, which govern the
application of accounting principles generally accepted in the United States in
the preparation of the Companys financial statements. The significant
accounting principles of the Corporation are described in the notes to the
consolidated financial statements. Certain accounting policies involve
significant judgments and assumptions by Management, which have a material
impact on the carrying value of certain assets and liabilities; Management
considers such accounting policies to be critical accounting policies. The
judgments and assumptions used by Management are based on historical experience
and other factors, which are believed to be reasonable under the circumstances.
Because of the nature of the judgments and assumptions made by Management,
actual results could differ from these judgments and estimates, which could
have a material impact on the carrying value of assets and liabilities and the
results of operations of the Corporation.

Allowance for Loan Losses
The Corporation believes the allowance for loan losses is a critical accounting
policy that requires the most significant judgments and estimates used in
preparation of its consolidated financial statements. Refer to the section
entitled Asset Quality and the section Allowance for Loan Losses and Impaired
Loans within Note 1, Significant Accounting Policies, for a detailed
description of the Corporations estimation process and methodology related to
the allowance for loan losses.

Valuation of Mortgage Servicing Assets
The Corporation believes the valuation of mortgage servicing assets is a
critical accounting policy that requires significant estimates in preparation
of its consolidated financial statements. The Company recognizes as separate
assets the value of mortgage servicing rights, whether those rights are
acquired through loan origination activities or through purchase activities.
Refer to the section entitled Servicing Assets and the section Mortgage
Servicing Assets within Note 1, Significant Accounting Policies and Note 12,
Servicing Assets, for a detailed description of the Companys process and
methodology.

Pension Expense
The Corporation believes that the actuarial assumptions used to calculate the
Corporations pension expense is a critical accounting policy that utilizes
estimates in its preparation of its consolidated financial statements. The
assumptions utilized include the discount rate and expected return on plan
assets. The Corporation intends to lower the expected return on plan assets to
9.0% in 2003 and the change is expected to increase pension expense by $75.
Total pension expense in 2003 is expected to be $1,125 as compared to $616 in
2002 and $289 in 2001.

FASB 91  Deferral of Fees
The Corporation believes that SFAS No. 91  Deferral of fees is a critical
accounting policy that utilizes estimates in its preparation of its
consolidated financial statements. The Company accounts for loan origination
and commitment fees and certain direct loan origination cost by deferring the
net fees, or net costs, and amortizing them as an adjustment of the related
loans yield. Refer to the section entitled Loans within Note 1, Significant
Accounting Policies, for a detailed description of the Companys process and
methodology.

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Contractual Obligations and Commitments
As disclosed in the Notes to the Consolidated Financial Statements, the
Corporation has certain obligations and commitments to make future payments
under contracts. At December 31, 2002, the aggregate contractual obligations
and commitments are:

|                                                       |       |       |         |         |  |           |        |        |  |         |        |        |  |   |         |         | 
|------------------------------------------------------ | ----- | ----- | ------- | ------- |  | --------- | ------ | ------ |  | ------- | ------ | ------ |  | - | ------- | ------- | 
|Contractual obligations                                |       |       |         |         |  | Less than |        | 1-5    |  | After 5
|Principal due by period                                |       | Total |         | 1 Year  |  | Years     |        | Years 
|                                                       |       |       |         |         |  |           |        |       
|Long-term debt                                         |       | $     | 396,339 |         |  | $         | 10,000 |        |  | $       | 65,844 |        |  | $ | 320,495 |        
|Annual rental commitments under non-
cancelable leases |       |       | 17,426  |         |  |           | 2,431  |        |  |         | 6,621  |        |  |   | 8,374   |        
|                                                       |       |       |         |         |  |           |        |        |  |         |        |        |  |   |         |        
|                                                       | Total |       | $       | 413,765 |  |           | $      | 12,431 |  |         | $      | 72,465 |  |   | $       | 328,869 | 
|                                                       |       |       |         |         |  |           |        |        |  |         |        |        |  |   |         |        

|                                              |  |       |         |        |  |           |         |       |  |         |        |  |  |   |     | 
|--------------------------------------------- |  | ----- | ------- | ------ |  | --------- | ------- | ----- |  | ------- | ------ |  |  | - | --- | 
|Amount of commitment                          |  |       |         |        |  | Less than |         | 1-5   |  | After 5
|Expiration by period                          |  | Total |         | 1 Year |  | Years     |         | Years
|                                              |  |       |         |        |  |           |         |      
|Commitments to lend  commercial              |  | $     | 162,892 |        |  | $         | 156,861 |       |  | $       | 6,031  |  |  | $ |    | 
|Commitments to lend  residential real estate |  |       | 32,231  |        |  |           | 32,231  |       |  |         |       |  |  |   |    | 
|Commitments to lend  consumer                |  |       | 68,967  |        |  |           | 68,967  |       |  |         |       |  |  |   |    | 
|Standby letters of credit                     |  |       | 18,020  |        |  |           | 2,632   |       |  |         | 15,125 |  |  |   | 263 | 
|                                              |  |       |         |        |  |           |         |       |  |         |        |  |  |   |     | 
|Total                                         |  | $     | 282,110 |        |  | $         | 260,691 |       |  | $       | 21,156 |  |  | $ | 263 | 
|                                              |  |       |         |        |  |           |         |       |  |         |        |  |  |   |     | 

There are no recourse provisions with third parties or balances recorded for
the standby letters of credit at December 31, 2002.




Item 7 (a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information included under the caption Market Risk Management presented
in Item 7 above.

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Item 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

SECOND BANCORP INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollars in thousands except per share data or as otherwise indicated)

As of December 31

|                                                                                    |                                                                                                                 |                                            |           |           |           |   |           |           |           | 
|----------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                                                    |                                                                                                                 | 2002                                       |           | 2001     
|ASSETS                                                                              |                                                                                                                 |                                            |           |          
|Cash and due from banks                                                             |                                                                                                                 | $                                          | 60,822    |           |           | $ | 40,837    |          
|Federal funds sold and temporary investments                                        |                                                                                                                 |                                            | 61,449    |           |           |   | 24,016    |          
|Securities available-for-sale (at market value)                                     |                                                                                                                 |                                            | 523,669   |           |           |   | 417,496   |          
|Loans                                                                               |                                                                                                                 |                                            | 1,167,791 |           |           |   | 1,121,892 |          
|Less allowance for loan losses                                                      |                                                                                                                 |                                            | 17,595    |           |           |   | 16,695    |          
|                                                                                    |                                                                                                                 |                                            |           |           |           |   |           |          
|Net loans                                                                           |                                                                                                                 |                                            | 1,150,196 |           |           |   | 1,105,197 |          
|Premises and equipment                                                              |                                                                                                                 |                                            | 16,632    |           |           |   | 16,416    |          
|Accrued interest receivable                                                         |                                                                                                                 |                                            | 8,762     |           |           |   | 10,272    |          
|Goodwill and intangible assets                                                      |                                                                                                                 |                                            | 20,422    |           |           |   | 17,856    |          
|Servicing assets                                                                    |                                                                                                                 |                                            | 12,403    |           |           |   | 8,722     |          
|Other assets                                                                        |                                                                                                                 |                                            | 40,420    |           |           |   | 39,544    |          
|                                                                                    |                                                                                                                 |                                            |           |           |           |   |           |          
|                                                                                    | Total assets                                                                                                    |                                            | $         | 1,894,775 |           |   | $         | 1,680,356 |          
|                                                                                    |                                                                                                                 |                                            |           |           |           |   |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                                |                                                                                                                 |                                            |           |           |           |   |           |          
|Deposits:                                                                           |                                                                                                                 |                                            |           |           |           |   |           |          
|                                                                                    | Demandnon-interest bearing                                                                                     |                                            | $         | 179,714   |           |   | $         | 144,953   |          
|                                                                                    | Demandinterest bearing                                                                                         |                                            |           | 103,583   |           |   |           | 105,221   |          
|                                                                                    | Savings                                                                                                         |                                            |           | 405,437   |           |   |           | 276,628   |          
|                                                                                    | Time deposits                                                                                                   |                                            |           | 506,378   |           |   |           | 596,329   |          
|                                                                                    |                                                                                                                 |                                            |           |           |           |   |           |          
|                                                                                    |                                                                                                                 | Total deposits                             |           |           | 1,195,112 |   |           |           | 1,123,131 | 
|Federal funds purchased and securities sold under agreements to repurchase          |                                                                                                                 |                                            | 138,796   |           |           |   | 107,279   |          
|Note payable                                                                        |                                                                                                                 |                                            | 7,000     |           |           |   |          |          
|Other borrowed funds                                                                |                                                                                                                 |                                            | 3,863     |           |           |   | 5,853     |          
|Federal Home Loan Bank advances                                                     |                                                                                                                 |                                            | 365,844   |           |           |   | 275,152   |          
|Accrued expenses and other liabilities                                              |                                                                                                                 |                                            | 17,331    |           |           |   | 10,200    |          
|Corporation-obligated mandatorily redeemable capital securities of subsidiary trust |                                                                                                                 |                                            | 30,495    |           |           |   | 30,442    |          
|                                                                                    |                                                                                                                 |                                            |           |           |           |   |           |          
|                                                                                    | Total liabilities                                                                                               |                                            |           | 1,758,441 |           |   |           | 1,552,057 |          
|Shareholders equity:                                                               |                                                                                                                 |                                            |           |           |           |   |           |          
|                                                                                    | Common stock, no par value; 30,000,000 shares authorized; 11,041,263 and 10,832,810
shares issued, respectively |                                            |           | 41,763    |           |   |           | 37,453    |          
|                                                                                    | Treasury stock; 1,279,009 and 883,494 shares, respectively                                                      |                                            |           | (27,180   | )         |   |           | (16,798   | )        
|                                                                                    | Other comprehensive income                                                                                      |                                            |           | 6,656     |           |   |           | 3,434     |          
|                                                                                    | Retained earnings                                                                                               |                                            |           | 115,095   |           |   |           | 104,210   |          
|                                                                                    |                                                                                                                 |                                            |           |           |           |   |           |          
|                                                                                    |                                                                                                                 | Total shareholders equity                 |           |           | 136,334   |   |           |           | 128,299   | 
|                                                                                    |                                                                                                                 |                                            |           |           |           |   |           |          
|                                                                                    |                                                                                                                 | Total liabilities and shareholders equity |           | $         | 1,894,775 |   |           | $         | 1,680,356 | 
|                                                                                    |                                                                                                                 |                                            |           |           |           |   |           |          

See Notes to Consolidated Financial Statements

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SECOND BANCORP INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Income
(Dollars in thousands except per share data or as otherwise indicated)

For the Years Ended December 31

|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |            |  
|----------------------------------------------------------------------------------- | ----------------------------------------------------- | ---- | ------ | ---------- |  | ---- | ------ | ---------- |  | - | ------ | ---------- | -
|                                                                                    |                                                       | 2002 |        | 2001       |  | 2000
|INTEREST INCOME                                                                     |                                                       |      |        |            |  |     
|Loans (including fees):                                                             |                                                       |      |        |            |  |      |        |            |  |   |        |           
|                                                                                    | Taxable                                               |      | $      | 79,671     |  |      | $      | 85,631     |  |   | $      | 90,819     |  
|                                                                                    | Exempt from federal income taxes                      |      |        | 922        |  |      |        | 1,092      |  |   |        | 1,014      |  
|Securities:                                                                         |                                                       |      |        |            |  |      |        |            |  |   |        |           
|                                                                                    | Taxable                                               |      |        | 22,648     |  |      |        | 21,614     |  |   |        | 20,970     |  
|                                                                                    | Exempt from federal income taxes                      |      |        | 2,946      |  |      |        | 3,137      |  |   |        | 3,209      |  
|Federal funds sold and other                                                        |                                                       |      | 1,085  |            |  |      | 1,083  |            |  |   | 286    |           
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|                                                                                    | Total interest income                                 |      |        | 107,272    |  |      |        | 112,557    |  |   |        | 116,298    |  
|INTEREST EXPENSE                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|Deposits                                                                            |                                                       |      | 29,400 |            |  |      | 42,010 |            |  |   | 46,236 |           
|Federal funds purchased and securities sold under agreements to repurchase          |                                                       |      | 2,499  |            |  |      | 3,904  |            |  |   | 5,540  |           
|Note payable                                                                        |                                                       |      | 38     |            |  |      | 47     |            |  |   | 25     |           
|Other borrowed funds                                                                |                                                       |      | 42     |            |  |      | 90     |            |  |   | 172    |           
|Federal Home Loan Bank advances                                                     |                                                       |      | 15,900 |            |  |      | 15,567 |            |  |   | 14,948 |           
|Corporation-obligated mandatorily redeemable capital securities of
subsidiary trust |                                                       |      | 2,933  |            |  |      | 749    |            |  |   |       |           
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|                                                                                    | Total interest expense                                |      |        | 50,812     |  |      |        | 62,367     |  |   |        | 66,921     |  
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|Net interest income                                                                 |                                                       |      | 56,460 |            |  |      | 50,190 |            |  |   | 49,377 |           
|Provision for loan losses                                                           |                                                       |      | 6,159  |            |  |      | 4,718  |            |  |   | 7,129  |           
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|Net interest income after provision for loan losses                                 |                                                       |      | 50,301 |            |  |      | 45,472 |            |  |   | 42,248 |           
|NON-INTEREST INCOME                                                                 |                                                       |      |        |            |  |      |        |            |  |   |        |           
|Service charges on deposit accounts                                                 |                                                       |      | 5,823  |            |  |      | 5,302  |            |  |   | 4,406  |           
|Trust fees                                                                          |                                                       |      | 2,715  |            |  |      | 2,870  |            |  |   | 3,898  |           
|Net security gains (losses)                                                         |                                                       |      | 592    |            |  |      | 642    |            |  |   | (2,399 | )         
|Gain (loss) on sale of loans                                                        |                                                       |      | 11,136 |            |  |      | 5,814  |            |  |   | (2,001 | )         
|Trading (losses) gains                                                              |                                                       |      | (20    | )          |  |      | 19     |            |  |   | (335   | )         
|Other operating income                                                              |                                                       |      | 3,179  |            |  |      | 4,881  |            |  |   | 4,706  |           
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|                                                                                    | Total non-interest income                             |      |        | 23,425     |  |      |        | 19,528     |  |   |        | 8,275      |  
|NON-INTEREST EXPENSE                                                                |                                                       |      |        |            |  |      |        |            |  |   |        |           
|Salaries and employee benefits                                                      |                                                       |      | 26,345 |            |  |      | 21,544 |            |  |   | 20,817 |           
|Net occupancy                                                                       |                                                       |      | 4,480  |            |  |      | 4,263  |            |  |   | 4,191  |           
|Equipment                                                                           |                                                       |      | 3,898  |            |  |      | 3,891  |            |  |   | 3,985  |           
|Professional services                                                               |                                                       |      | 2,139  |            |  |      | 1,776  |            |  |   | 3,476  |           
|Assessment on deposits and other taxes                                              |                                                       |      | 1,397  |            |  |      | 1,542  |            |  |   | 1,684  |           
|Amortization of goodwill and other intangibles                                      |                                                       |      | 475    |            |  |      | 377    |            |  |   | 555    |           
|Merger-related costs                                                                |                                                       |      | 134    |            |  |      | 305    |            |  |   |       |           
|Banking center reconfiguration                                                      |                                                       |      | 2,096  |            |  |      |       |            |  |   |       |           
|Other operating expenses                                                            |                                                       |      | 8,532  |            |  |      | 8,241  |            |  |   | 9,505  |           
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|                                                                                    | Total non-interest expense                            |      |        | 49,496     |  |      |        | 41,939     |  |   |        | 44,213     |  
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|Income before federal income taxes                                                  |                                                       |      | 24,230 |            |  |      | 23,061 |            |  |   | 6,310  |           
|Income tax expense (benefit):                                                       |                                                       |      |        |            |  |      |        |            |  |   |        |           
|                                                                                    | Current                                               |      |        | 5,567      |  |      |        | 4,050      |  |   |        | 1,415      |  
|                                                                                    | Deferred                                              |      |        | 663        |  |      |        | 1,830      |  |   |        | (1,239     | )
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|Total federal income tax expense                                                    |                                                       |      | 6,230  |            |  |      | 5,880  |            |  |   | 176    |           
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|Net income before cumulative effect of accounting change                            |                                                       | $    | 18,000 |            |  | $    | 17,181 |            |  | $ | 6,134  |           
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|Cumulative effect of accounting change, net of tax  SFAS No. 133                   |                                                       |      |       |            |  |      | (101   | )          |  |   |       |           
|Net income                                                                          |                                                       | $    | 18,000 |            |  | $    | 17,080 |            |  | $ | 6,134  |           
|                                                                                    |                                                       |      |        |            |  |      |        |            |  |   |        |           
|Earnings per common share:                                                          |                                                       |      |        |            |  |      |        |            |  |   |        |           
|                                                                                    | Basicbefore cumulative effect of accounting change   |      | $      | 1.82       |  |      | $      | 1.72       |  |   | $      | 0.60       |  
|                                                                                    | Dilutedbefore cumulative effect of accounting change |      | $      | 1.79       |  |      | $      | 1.70       |  |   | $      | 0.60       |  
|                                                                                    | Basic                                                 |      | $      | 1.82       |  |      | $      | 1.71       |  |   | $      | 0.60       |  
|                                                                                    | Diluted                                               |      | $      | 1.79       |  |      | $      | 1.69       |  |   | $      | 0.60       |  
|Average common shares outstanding:                                                  |                                                       |      |        |            |  |      |        |            |  |   |        |           
|                                                                                    | Basic                                                 |      |        | 9,905,832  |  |      |        | 10,013,068 |  |   |        | 10,247,025 |  
|                                                                                    | Diluted                                               |      |        | 10,040,001 |  |      |        | 10,080,005 |  |   |        | 10,271,548 |  

See Notes to Consolidated Financial Statements

38



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##### Table of Contents



SECOND BANCORP INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Shareholders Equity

(Dollars in thousands except per share data or as otherwise indicated)

|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |   | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------- | - | ------ | - | -------- | - | ------------- | - | -------- | - | ------------- | - | ------ | - | ------- | ------ | - | - | ------- | ------ | - | - | ------ | - | 
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   | Other         |   |        |   |         |        |   |   |         |        |   |   |       
|                                                                                                                                                            |                               |   | Common |   | Treasury |   | Comprehensive |   | Retained |   | Comprehensive
|                                                                                                                                                            |                               |   | Stock  |   | Stock    |   | Income        |   | Earnings |   | Total         |   | Income
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |       
|Balance, January 1, 2000                                                                                                                                    |                               | $ | 36,966 |   |          | $ | (7,140        | ) |          | $ | (7,791        | ) |        | $ | 94,312  |        |   | $ | 116,347 |        |   |   |        |  
|Comprehensive income:                                                                                                                                       |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|Net income                                                                                                                                                  |                               |   |        |   |          |   |               |   |          |   |               |   |        |   | 6,134   |        |   |   | 6,134   |        |   | $ | 6,134  |  
|Change in unrealized gain on securities of $10,019,
net of reclassification adjustment for losses included
in net income of $2,399 and net of tax of
$4,346 |                               |   |        |   |          |   |               |   |          |   | 8,072         |   |        |   |         |        |   |   | 8,072   |        |   |   | 8,072  |  
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|Comprehensive income                                                                                                                                        |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   | $ | 14,206 |  
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|Cash dividends declared:                                                                                                                                    |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|                                                                                                                                                            | Common stock ($.64 per share) |   |        |   |          |   |               |   |          |   |               |   |        |   |         | (6,518 | ) |   |         | (6,518 | ) |   |        |   | 
|Purchase of treasury stock                                                                                                                                  |                               |   |        |   |          |   | (6,807        | ) |          |   |               |   |        |   |         |        |   |   | (6,807  | )      |   |   |        |  
|Net common stock issueddividend
reinvestment and stock option plans                                                                                        |                               |   | (31    | ) |          |   |               |   |          |   |               |   |        |   |         |        |   |   | (31     | )      |   |   |        |  
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |  
|Balance, December 31, 2000                                                                                                                                  |                               |   | 36,935 |   |          |   | (13,947       | ) |          |   | 281           |   |        |   | 93,928  |        |   |   | 117,197 |        |   |   |        |  
|Comprehensive income:                                                                                                                                       |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|Net income                                                                                                                                                  |                               |   |        |   |          |   |               |   |          |   |               |   |        |   | 17,080  |        |   |   | 17,080  |        |   | $ | 17,080 |  
|Change in other comprehensive income
employee benefit plans, net of tax $38                                                                                 |                               |   |        |   |          |   |               |   |          |   | (71           | ) |        |   |         |        |   |   | (71     | )      |   |   | (71    | )
|Change in unrealized gain on securities of $5,602, net
of reclassification adjustment for gains included in
net income of $642 and net of tax of $1,736     |                               |   |        |   |          |   |               |   |          |   | 3,224         |   |        |   |         |        |   |   | 3,224   |        |   |   | 3,224  |  
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|Comprehensive income                                                                                                                                        |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   | $ | 20,233 |  
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|Cash dividends declared:                                                                                                                                    |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|                                                                                                                                                            | Common stock ($.68 per share) |   |        |   |          |   |               |   |          |   |               |   |        |   |         | (6,798 | ) |   |         | (6,798 | ) |   |        |   | 
|Purchase of treasury stock                                                                                                                                  |                               |   |        |   |          |   | (2,851        | ) |          |   |               |   |        |   |         |        |   |   | (2,851  | )      |   |   |        |  
|Common stock issueddividend
reinvestment and stock option plans                                                                                            |                               |   | 518    |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   | 518     |        |   |   |        |  
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |  
|Balance, December 31, 2001                                                                                                                                  |                               |   | 37,453 |   |          |   | (16,798       | ) |          |   | 3,434         |   |        |   | 104,210 |        |   |   | 128,299 |        |   |   |        |  
|Comprehensive income:                                                                                                                                       |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|Net income                                                                                                                                                  |                               |   |        |   |          |   |               |   |          |   |               |   |        |   | 18,000  |        |   |   | 18,000  |        |   | $ | 18,000 |  
|Change in other comprehensive
income-employee benefit
plans, net of tax of $598                                                                             |                               |   |        |   |          |   |               |   |          |   | (1,111        | ) |        |   |         |        |   |   | (1,111  | )      |   |   | (1,111 | )
|Change in unrealized gain on
securities of $7,258, net of
reclassification
adjustment for gains included in
net income of $592 and net of
tax of $2,333     |                               |   |        |   |          |   |               |   |          |   | 4,333         |   |        |   |         |        |   |   | 4,333   |        |   |   | 4,333  |  
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|Comprehensive income                                                                                                                                        |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   | $ | 21,222 |  
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|Tax benefit on stock option exercise                                                                                                                        |                               |   | 554    |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   | 554     |        |   |   |        |  
|Cash dividends declared:                                                                                                                                    |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |   |   |        |  
|                                                                                                                                                            | Common stock ($.72 per share) |   |        |   |          |   |               |   |          |   |               |   |        |   |         | (7,115 | ) |   |         | (7,115 | ) |   |        |   | 
|Purchase of treasury stock                                                                                                                                  |                               |   |        |   |          |   | (10,382       | ) |          |   |               |   |        |   |         |        |   |   | (10,382 | )      |   |   |        |  
|Common stock issueddividend
reinvestment and stock
option plans                                                                                            |                               |   | 3,756  |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   | 3,756   |        |   |   |        |  
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |  
|Balance, December 31, 2002                                                                                                                                  |                               | $ | 41,763 |   |          | $ | (27,180       | ) |          | $ | 6,656         |   |        | $ | 115,095 |        |   | $ | 136,334 |        |   |   |        |  
|                                                                                                                                                            |                               |   |        |   |          |   |               |   |          |   |               |   |        |   |         |        |   |   |         |        |  

See Notes to Consolidated Financial Statements

39



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##### Table of Contents



SECOND BANCORP INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Dollars in thousands except per share data or as otherwise indicated)

For the Years Ended December 31

|                                                                                  |                                                                                                       |      |        |          |   |      |        |          |   |   |       |          |  
|--------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ---- | ------ | -------- | - | ---- | ------ | -------- | - | - | ----- | -------- | -
|                                                                                  |                                                                                                       | 2002 |        | 2001     |   | 2000
|OPERATING ACTIVITIES                                                              |                                                                                                       |      |        |          |   |     
|Net income                                                                        |                                                                                                       | $    | 18,000 |          |   | $    | 17,080 |          |   | $ | 6,134 |         
|Adjustments to reconcile net income to net cash provided by operating
activities: |                                                                                                       |      |        |          |   |      |        |          |   |   |       |         
|                                                                                  | Provision for loan losses                                                                             |      |        | 6,159    |   |      |        | 4,718    |   |   |       | 7,129    |  
|                                                                                  | Depreciation of equipment                                                                             |      |        | 3,354    |   |      |        | 3,487    |   |   |       | 3,444    |  
|                                                                                  | Amortization of goodwill and other intangibles                                                        |      |        | 475      |   |      |        | 377      |   |   |       | 556      |  
|                                                                                  | Amortization of servicing assets                                                                      |      |        | 4,861    |   |      |        | 1,320    |   |   |       | 868      |  
|                                                                                  | Amortization (accretion) of investment discount and premium                                           |      |        | 5        |   |      |        | (441     | ) |   |       | 185      |  
|                                                                                  | Increase in allowance for servicing assets                                                            |      |        | 2,984    |   |      |        | 810      |   |   |       |         |  
|                                                                                  | Deferred income taxes (benefit)                                                                       |      |        | 663      |   |      |        | 1,830    |   |   |       | (1,239   | )
|                                                                                  | Net securities (gains) losses                                                                         |      |        | (592     | ) |      |        | (642     | ) |   |       | 2,399    |  
|                                                                                  | Other (gains) losses, net                                                                             |      |        | (8,730   | ) |      |        | (5,796   | ) |   |       | 2,046    |  
|                                                                                  | Decrease (increase) in interest receivable                                                            |      |        | 1,510    |   |      |        | 1,463    |   |   |       | (1,904   | )
|                                                                                  | (Decrease) increase in interest payable                                                               |      |        | (579     | ) |      |        | (975     | ) |   |       | 476      |  
|                                                                                  | Originations of loans held-for-sale                                                                   |      |        | (865,470 | ) |      |        | (527,498 | ) |   |       | (83,888  | )
|                                                                                  | Proceeds from sale of loans held-for-sale                                                             |      |        | 874,189  |   |      |        | 527,041  |   |   |       | 81,890   |  
|                                                                                  | Net change in other assets & other liabilities                                                        |      |        | 1,681    |   |      |        | (483     | ) |   |       | (2,355   | )
|                                                                                  |                                                                                                       |      |        |          |   |      |        |          |   |   |       |         
|                                                                                  | Net cash provided by operating activities                                                             |      |        | 38,510   |   |      |        | 22,291   |   |   |       | 15,741   |  
|INVESTING ACTIVITIES                                                              |                                                                                                       |      |        |          |   |      |        |          |   |   |       |         
|                                                                                  | Proceeds from maturities of securities-available-for-sale                                             |      |        | 188,675  |   |      |        | 143,976  |   |   |       | 31,765   |  
|                                                                                  | Proceeds from sales of securities-available-for-sale                                                  |      |        | 253,852  |   |      |        | 76,420   |   |   |       | 138,831  |  
|                                                                                  | Purchases of securities-available-for-sale                                                            |      |        | (541,411 | ) |      |        | (234,001 | ) |   |       | (175,273 | )
|                                                                                  | Cash paid for acquisition of Commerce Exchange Corporation, net of
cash acquired                      |      |        |         |   |      |        | (24,522  | ) |   |       |         |  
|                                                                                  | Net (decrease) increase in loans                                                                      |      |        | (62,684  | ) |      |        | 36,232   |   |   |       | (1,508   | )
|                                                                                  | Net increase in premises and equipment                                                                |      |        | (3,559   | ) |      |        | (1,812   | ) |   |       | (2,956   | )
|                                                                                  |                                                                                                       |      |        |          |   |      |        |          |   |   |       |         
|                                                                                  | Net cash used by investing activities                                                                 |      |        | (165,127 | ) |      |        | (3,707   | ) |   |       | (9,141   | )
|FINANCING ACTIVITIES                                                              |                                                                                                       |      |        |          |   |      |        |          |   |   |       |         
|                                                                                  | Net increase (decrease) in demand deposits, interest bearing demand and
savings deposits              |      |        | 161,932  |   |      |        | 41,534   |   |   |       | (28,556  | )
|                                                                                  | Net decrease in time deposits                                                                         |      |        | (89,951  | ) |      |        | (49,657  | ) |   |       | (32,898  | )
|                                                                                  | Net increase (decrease) in federal funds purchased and securities
sold under agreements to repurchase |      |        | 31,517   |   |      |        | (27,896  | ) |   |       | 23,363   |  
|                                                                                  | Increase (decrease) in note payable                                                                   |      |        | 7,000    |   |      |        | (1,000   | ) |   |       | (3,000   | )
|                                                                                  | Net (decrease) increase in borrowings                                                                 |      |        | (1,990   | ) |      |        | 3,299    |   |   |       | (3,576   | )
|                                                                                  | Net advances from Federal Home Loan Bank                                                              |      |        | 90,692   |   |      |        | 23,419   |   |   |       | 51,457   |  
|                                                                                  | Issuance of Corporation-obligated mandatorily redeemable capital
securities of subsidiary trust       |      |        |         |   |      |        | 30,429   |   |   |       |         |  
|                                                                                  | Cash dividends                                                                                        |      |        | (7,115   | ) |      |        | (6,798   | ) |   |       | (6,518   | )
|                                                                                  | Purchase of treasury stock                                                                            |      |        | (10,382  | ) |      |        | (2,851   | ) |   |       | (6,807   | )
|                                                                                  | Net issuance of common stock                                                                          |      |        | 2,332    |   |      |        | 518      |   |   |       | (31      | )
|                                                                                  |                                                                                                       |      |        |          |   |      |        |          |   |   |       |         
|                                                                                  | Net cash provided by (used by) financing activities                                                   |      |        | 184,035  |   |      |        | 10,997   |   |   |       | (6,566   | )
|                                                                                  |                                                                                                       |      |        |          |   |      |        |          |   |   |       |         
|                                                                                  | Increase in cash and cash equivalents                                                                 |      |        | 57,418   |   |      |        | 29,581   |   |   |       | 34       |  
|                                                                                  | Cash and cash equivalents at beginning of year                                                        |      |        | 64,853   |   |      |        | 35,272   |   |   |       | 35,238   |  
|                                                                                  |                                                                                                       |      |        |          |   |      |        |          |   |   |       |         
|                                                                                  | Cash and cash equivalents at end of year                                                              |      | $      | 122,271  |   |      | $      | 64,853   |   |   | $     | 35,272   |  
|                                                                                  |                                                                                                       |      |        |          |   |      |        |          |   |   |       |         

Supplementary Cash Flow Information:

Cash paid for:



|1) |  | Federal income taxes  $5,600, $5,650 and $2,810 for the 12 months ended
December 31, 2002, 2001 and 2000, respectively and
|-- |  | ---------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | Interest  $47,273, $63,342 and $66,867 for the 12 months ended December
31, 2002, 2001 and 2000, respectively.            

See Notes to Consolidated Financial Statements

40



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##### Table of Contents



Notes to Consolidated Financial Statements

1. Significant Accounting Policies

Nature of Operations
Second Bancorp Incorporated (the Corporation) is a one-bank holding company
with its most significant subsidiary being The Second National Bank of Warren
(the Bank), headquartered in Warren, Ohio, with 35 banking centers operating in
northeast Ohio. In addition to general retail and commercial banking, the Bank
engages in trust and mortgage banking activities and other financially related
businesses. A second operating subsidiary is Stouffer-Herzog Insurance Agency,
which sells a wide range of property, casualty, life and health insurance
products in northeast Ohio. The Corporation also maintains another subsidiary,
Second Bancorp Capital Trust I, which was established in 2001 to facilitate
raising Tier I eligible capital in the form of corporation-obligated
mandatorily redeemable capital securities of subsidiary trust for the primary
purpose of funding our acquisition of Commerce Exchange Corporation (see Note
3). Additional non-operating subsidiaries include Second National Capital
Corporation and Second National Financial Company, LLC, which were formed in
2002 to facilitate a capital conversion plan for the subsidiary Bank.

The accounting policies followed by the Corporation conform to accounting
principles generally accepted in the United States and to general practices
within the banking industry. The following is a description of the more
significant accounting policies:

Principles of Consolidation
Significant inter-company balances and transactions between the Corporation and
its subsidiaries have been eliminated. Certain prior year amounts have
been reclassified to conform to the current year presentation.

Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires Management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from these estimates.

Business Combinations
Business combinations, which have been accounted for under the
pooling-of-interests method of accounting, require the assets,
liabilities, shareholders equity and operations of the merged entity to
be retroactively combined with the Corporations respective accounts at
recorded value. Prior period financial statements have been restated to
give effect to business combinations accounted for under this method.
Business combinations, which have been accounted for under the purchase
method of accounting, include the results of operations of the acquired
business from the date of acquisition. Net assets of the company were
recorded at their estimated fair value as of the date of acquisition.

Cash Equivalents
Cash equivalents include amounts due from banks and federal funds sold and
temporary investments. Generally, federal funds are purchased and sold for
periods of less than thirty days.

Securities
Debt and equity securities are classified as held-to-maturity,
available-for-sale, or trading. Securities classified as held-to-maturity are
measured at amortized or historical cost, whereas securities available-for-sale
and trading are carried at their estimated fair value. Adjustments to fair
value of the securities available-for-sale, in the form of unrealized holding
gains and losses, are excluded from earnings and reported net of tax as a
separate component of shareholders equity. Adjustments to fair value of
securities classified as trading are included in earnings. Management
determines the appropriate classification of debt securities at the time of
purchase and reevaluates such designation as of each balance sheet date. Debt
securities are classified as held-to-maturity when the Corporation has the
positive intent and ability to hold the securities to maturity.
Available-for-sale securities offer Management flexibility to sell securities
to fund liquidity and manage the Corporations interest rate risk.

The amortized cost of the debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, probable call date, or, in the case of mortgage-backed
securities, over the estimated life of the security. Such amortization is
included in interest income from securities. Interest and dividends are
included in interest income from securities. Realized gains and losses, and
declines in value judged to be other than temporary are included in net
securities gains (losses). The cost of securities sold is based on the specific
identification method.

Loans
Loans are stated at the principal amounts outstanding, net of unearned income
and unamortized deferred costs. Interest on loans is accrued and credited to
operations based upon the principal amount outstanding. Premiums on acquired
loans have been deducted from the related interest income and are amortized
over the remaining useful life of the loans acquired. The accrual of interest
income generally is discontinued when a loan becomes, in Managements opinion,
doubtful of being collectible. When interest accruals are discontinued,
interest credited to income for the current year is reversed and interest
accrued in prior years is charged to the allowance for loan losses.

The Corporation accounts for loan origination and commitment fees and certain
direct loan origination costs by deferring the net fees, or net costs, and
amortizing them as an adjustment of the related loans yield. The Corporation
is amortizing these amounts over terms up to the contractual life of the
related loans. Net unamortized deferred costs, primarily representing costs of
acquiring indirect automobile loans, were $3,643 and $3,683 at December 31,
2002 and 2001, respectively.

Loans Held-for-sale
From time to time, the Corporation will sell loans it originated, primarily
mortgages. The loans are reclassified as held-for-sale and are recorded at the
lower of aggregate cost or market value.

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Allowance for Loan Losses and Impaired Loans
The allowance for loan losses is maintained at a level believed adequate by
Management to absorb potential losses in the loan portfolio. Managements
determination of the adequacy of the allowance is based upon an evaluation of
the collectibility of the loans. These evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, current
economic conditions that may affect the borrowers ability to repay (including
the timing of future payments), overall quality, analysis of prior and current
loss experience and a review of specific problem loans. The allowance reflects
expected losses resulting from the analysis of individual loans, developed
through specific credit allocations for individual loans and historical loss
experience for each loan category. The specific credit allocations are based on
a regular analysis of all loans and commitments over a specific dollar amount
where the internal credit rating is at or below a predetermined classification
level. The historical loan loss component is determined statistically using a
loss migration analysis that examines loss experience and the related internal
grading of loans charged off. The allowance also includes components for
concentrations, loan volume and specific economic conditions of the markets in
which the Corporation operates. The determinations arrived at inherently
involve a high degree of uncertainty and that knowledge of the loans loss
characteristics may be incomplete. Loan losses are charged off against the
allowance, while recoveries of amounts previously charged off are credited to
the allowance. A provision for loan losses is charged to operations based on
Managements periodic evaluation of these and other pertinent factors.

Certain loans are accounted for under Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan,
as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures. These standards address the accounting for
certain loans when it is probable that amounts due pursuant to the contractual
terms of the loan will not be collected. This evaluation is inherently
subjective and requires Management to make estimates regarding the amounts and
timing of future cash flows expected to be received on impaired loans that
could be susceptible to change. To determine the amount of impaired loans, the
Corporation analyzes the expected cash flows of non-accrual loans. To the
extent that the expected cash flows are less than the amounts due according to
the contractual terms of an individual loan, the loan balance is included as
impaired loans. A specific allowance is maintained on impaired loans when the
net present value of expected cash flows after considering collateral and other
credit enhancements is less than the carrying amount of the loan.

Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization for premises and equipment,
including costs related to developing or obtaining software for internal use,
is computed generally by the straight-line method over their useful lives.
Original estimated useful lives for premises and equipment range from 3 to 10
years. Leasehold improvements are amortized over the shorter of the terms of
the respective leases or the estimated useful lives.

Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair
value of the net assets acquired. On January 1, 2002, the Corporation adopted
SFAS No. 142, Goodwill and Other Intangible Assets. Under the provisions of
SFAS No. 142, goodwill is no longer ratably amortized into the income statement
over an estimated life but rather is tested at least annually for impairment.

Intangible Assets
Other intangible assets represent purchased assets that also lack physical
substance but can be distinguished from goodwill because of contractual or
other legal rights or because the asset is capable of being sold or exchanged
either on its own or in combination with a related contract, asset or
liability. Intangible assets resulting from the excess of the purchase
price over net identifiable tangible assets acquired through acquisitions are
specifically identified when determinable. The resulting core deposit and
customer list intangibles are amortized both on an accelerated basis and on a
straight-line basis over the estimated useful life. Original estimated useful
lives for the intangibles range from 10 to 18 years.

Mortgage Servicing Assets
The Corporation recognizes as separate assets the value of mortgage servicing
rights, whether those rights are acquired through loan origination
activities or through purchase activities. Mortgage servicing assets are
carried at the lower of initial carrying amount, adjusted for
amortization, or fair estimated value. Management stratifies servicing
assets based on term, pass-through rate and method of acquisition.
Capitalized mortgage servicing assets are amortized on an accelerated
basis over the estimated life of the loans sold. Management evaluates the
recoverability of the mortgage servicing assets in relation to the impact
of actual and anticipated loan portfolio prepayments, foreclosures and
delinquency experience.

Deposits
Discounts and premiums on acquired deposits have been deducted or added
respectively from the related interest expense and are being accreted or
amortized over the remaining useful life of the deposits.

Stock Options
At December 31, 2002, the Corporation had two stock-based compensations plans,
which are more fully described in Note 21. The Corporation accounts for those
plans under recognition and measurement principles of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and
related Interpretations. Under APB No. 25, because the exercise price of the
Corporations employee stock options equals the market price of the underlying
stock on the date of the grant, no compensation expense is recognized.

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Non-GAAP information regarding net income and earnings per share is required by
SFAS No. 123, Accounting for Stock-Based Compensation and has been determined
as if the Corporation had accounted for its employee stock options under the
fair value method of that Statement. Under the fair-value based method,
compensation cost is measured at the grant date based upon the value of the
award and recognized over the service period. For purposes of the non-GAAP
disclosures, the estimated fair value of the option is amortized to expense
over the options vesting period. The Corporations non-GAAP information
follows:

|                                                                                                                                                 |                     |   |                         |      |      |   |        |      |  |   |       |      | 
|------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------- | - | ----------------------- | ---- | ---- | - | ------ | ---- |  | - | ----- | ---- | 
|                                                                                                                                                 |                     |   | Years Ended December 31
|                                                                                                                                                 |                     |   |                        
|                                                                                                                                                 |                     |   | 2002                    |      | 2001 |   | 2000  
|                                                                                                                                                 |                     |   |                         |      |      |   |       
|Net income, as reported                                                                                                                          |                     | $ | 18,000                  |      |      | $ | 17,080 |      |  | $ | 6,134 |     
|Deduct: Total stock-based compensation
expense determined under fair-value
based method for all awards (see note 21),
net of related tax effects |                     |   | (585                    | )    |      |   | (418   | )    |  |   | (337  | )   
|                                                                                                                                                 |                     |   |                         |      |      |   |        |      |  |   |       |     
|Non-GAAP net income                                                                                                                              |                     | $ | 17,415                  |      |      | $ | 16,662 |      |  | $ | 5,797 |     
|                                                                                                                                                 |                     |   |                         |      |      |   |        |      |  |   |       |     
|Earnings per share:                                                                                                                              |                     |   |                         |      |      |   |        |      |  |   |       |     
|                                                                                                                                                 | Basic-as reported   |   | $                       | 1.82 |      |   | $      | 1.71 |  |   | $     | 0.60 | 
|                                                                                                                                                 | Basic-non-GAAP      |   | $                       | 1.76 |      |   | $      | 1.66 |  |   | $     | 0.57 | 
|                                                                                                                                                 | Diluted-as reported |   | $                       | 1.79 |      |   | $      | 1.69 |  |   | $     | 0.60 | 
|                                                                                                                                                 | Diluted-non-GAAP    |   | $                       | 1.73 |      |   | $      | 1.65 |  |   | $     | 0.56 | 

Treasury Stock
Acquisitions of treasury stock are recorded on the cost method with the full
amount of the cash paid deducted from shareholders equity.

Derivative Instruments
As part of managing the Corporations interest rate risk, a variety of
financial instruments may, from time to time, be used to hedge fair values and
to alter the cash flow characteristics of certain on-balance sheet instruments.
The derivative financial instruments used primarily consist of interest rate
caps, floors and swaps.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
requires companies to recognize all derivative instruments as either assets or
liabilities in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e. unrealized gains or losses) of a
derivative instrument depends on whether it has been designated and qualifies
as part of a hedging relationship and further, on the type of hedging
relationship. For those derivative instruments that are designated and qualify
as hedging instruments, the Corporation must designate the hedging instruments,
based upon the exposure being hedged, as either a fair value hedge or a cash
flow hedge.

For derivative instruments that are designated and qualify as a fair value
hedge (i.e. hedging the exposure to changes in the fair value of an asset or a
liability or an identified portion thereof that is attributable to a particular
risk), the change in fair value of the derivative instrument and the change in
fair value of the hedged item attributable to the hedged risk is recorded on
the balance sheet with the corresponding entry recognized in other income or other
expense. The adjustment to the hedged item is included in the basis of the
hedged item, while the fair value of the derivative instrument is recorded in
other assets/other liabilities. Accrual of cash receipts or payments related to
the derivative instrument is recorded in interest income or interest expense,
depending on the hedged item. Upon termination of a derivative instrument prior
to maturity, the aforementioned basis adjustment to the hedged item is
amortized/accreted into interest income or interest expense over the remaining
life of the hedged item using the effective interest method. Should the hedged
item be sold, mature or be extinguished prior to the maturity date of the
derivative instrument, the derivative instruments change in fair value
subsequent to sale, maturity or extinguishment of the hedged item will be
recorded in other income or other expense.

For derivative instruments that are designated and qualify as a cash flow hedge
(i.e. hedging the exposure to variability in expected future cash flows that is
attributable to a particular risk), the effective portion of the gain or loss
on the derivative instrument is reported as a component of other comprehensive
income and reclassified into interest income or interest expense in the same
period or periods during which the hedged item affects interest income or
interest expense. The remaining gain or loss of the derivative instrument in
excess of the cumulative change in the present value of future cash flows of
the hedged item, if any, is ineffectiveness and is recognized in other
income/other expense during the period of change. Upon termination of a
derivative instrument prior to maturity, the aforementioned adjustment to other
comprehensive income is amortized/accreted into interest income or interest
expense over the remaining term of the hedge relationship using the effective
interest method. Should the hedged item be sold, mature or extinguished prior
to the end of the hedge relationship or a forecasted transaction is probable of
not occurring, the aforementioned amounts in other comprehensive income are
reclassified to interest income or interest expense and the derivative
instruments change in fair value from that point forward will be recorded in
other income or other expense.

For derivative instruments not designated as hedging instruments, the gain or
loss is recognized in other income or other expense during the period of
change.

Prior to the adoption of SFAS No. 133, the Corporation utilized derivative
financial instruments (interest rate swaps, caps and floors) to manage interest
rate risk, hedge market values and alter the cash flow characteristics of
certain on-balance sheet instruments. The derivative financial instruments were
linked with a specific asset or liability or a group of related assets or
liabilities and had a high degree of correlation with the associated balance
sheet item during the hedge period. Net interest income or expense on
derivative contracts used for interest rate risk management is accrued.
Deferred amounts are amortized into interest income or expensed over either the
remaining original life of the derivative financial instrument or the expected
life of the associated asset or liability. Unrealized gains or losses were not
recognized on the balance sheet.

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Marketing Costs
All marketingrelated costs, including advertising costs are expensed as
incurred. Marketing costs expensed in 2002, 2001 and 2000 were $1.4 million,
$1.6 million and $1.4 million, respectively.

Federal Income Taxes
Deferred federal income taxes are provided for differences between tax and
financial statement bases of assets and liabilities at year-end. Deferred
taxes are recognized using the liability method, whereby tax rates are
applied to cumulative temporary differences based on when and how they are
expected to affect the tax return. Deferred tax assets and liabilities are
adjusted for tax rate changes. The statutory rate in effect for a
particular year is used to determine after-tax components of other
comprehensive income included in the statements of changes in
shareholders equity.

2. Recent Accounting Pronouncements

Asset Retirement Obligations
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires an entity to record a liability for an
obligation associated with the retirement of an asset at the time the liability
is incurred by capitalizing the cost as part of the carrying value of the
related asset and depreciating it over the remaining useful life of that asset.
The standard is effective for the Corporation beginning January 1, 2003, and
its adoption is not expected to have a material impact on the Corporations
results of operations, financial position or liquidity.

Accounting for Long-Lived Assets
SFAS No. 144, Accounting for Long-Lived Assets to be Disposed of, was issued
in October 2001 and addresses how to account for
long-lived assets and how to account for long-lived assets that an entity plans
to dispose of either through sale, abandonment, exchange or a distribution to
owners. The new standard supercedes SFAS No. 121, which addressed asset
impairment, and certain provisions of APB Opinion 30 related to reporting the
effects of the disposal of a business segment and requires expected future
operating losses from discontinued operations to be recorded in the period in
which the losses are incurred rather than the measurement date. Under SFAS No.
144, more dispositions may qualify for discontinued operations treatment in the
income statement. The provisions of SFAS No. 144 became effective for the
Corporation January 1, 2002 and do not have a material impact on the
Corporations results of operations, financial position or liquidity.

Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13 and Technical Corrections
SFAS No. 145 rescinded SFAS No. 4, 44 and 64 and is effective for financial
statements issued for fiscal years beginning after May 15, 2002. Any gain or
loss on extinguishment of debt that was classified as an extraordinary item in
prior periods presented that does not meet the criteria in APB 30 for
classification as an extraordinary item should be reclassified. Certain
provisions of SFAS No. 145 related to SFAS No. 13 are effective for
transactions occurring after May 15, 2002. All other provisions of SFAS 145
will be effective for financial statements issued on or after May 15, 2002.
SFAS 145 did not and is not expected to have a material impact on the Corporations results of operations,
financial position or liquidity.

Accounting for Costs Associated with Exit or Disposal Activities
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, was issued in June 2002 and replaces Emerging Issues Task Force
Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). The provisions of SFAS No. 146 address the accounting and
reporting for one-time employee termination benefits, certain contract
termination costs and other costs associated with exit or disposal activities
such as facility closings or consolidations and employee relocations. SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged.

The Corporation will adopt SFAS No. 146 prospectively as of January 1, 2003.

Acquisitions of Certain Financial Institutions
SFAS No. 147, Acquisitions of Certain Financial Institutions, was issued in
October 2002. SFAS No. 147 clarified the accounting for intangible assets and
goodwill in conjunction with the acquisition of certain financial institutions.
SFAS No. 147 also amends SFAS No. 144, (see above) to include in its scope
long-term customer relationship intangible assets of financial institutions
such as core deposit intangible assets. The provisions of SFAS No. 147 became
effective October 1, 2002 and did not have a material impact on the
Corporations results of operations, financial position or liquidity.

Accounting for Stock-Based Compensation
On December 31, 2002, SFAS No. 148,  Accounting for Stock-Based
Compensation-Transition and Disclosure-an Amendment of FASB Statement 123, was
issued. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition to adopting SFAS
No. 123s fair value method of accounting for stock-based employee
compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No.
123 and APB Opinion No. 28 Interim Financial Reporting, to require disclosure
in the summary of significant accounting policies of the effects of an entitys
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
SFAS No. 148 is effective for fiscal years ending after December 15, 2002 and
early application is permitted for the transition provisions. Interim pro forma
disclosures are required for interim periods beginning after December 15, 2002.

The Corporation is evaluating whether to transition to SFAS No. 123 fair value
method of accounting for stock based compensation. The disclosure requirements
of SFAS No. 148 are reflected in Note 1Significant Accounting PoliciesStock
Options.

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Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
On November 25, 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN No. 45) which expands on the
accounting guidance of Statements No. 5, 57 and 107 and incorporates without
change the provisions of FASB Interpretation No. 34, which is being superseded.

FIN No. 45, which is applicable to public and non-public entities, will
significantly change current practice in the accounting for, and disclosure of,
guarantees. Each guarantee meeting the characteristics described in FIN No. 45
is to be recognized and initially measured at fair value, which will be a
change from current practice for most entities. In addition, guarantors will be
required to make significant new disclosures, even if the likelihood of the
guarantor making payments under the guarantee is remote, which represents
another change from current general practice.

FIN No. 45s disclosure requirements are effective for financial statements of
interim or annual periods ending after December 15, 2002, while the initial
recognition and initial measurement provisions are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002.

The Corporation has included FIN No. 45s required disclosures in Note 24. FIN
No. 45 recognition and measurement provisions are not expected to have a
material impact on the Corporations results of operations, financial position
or liquidity once adopted by the Corporation on January 1, 2003.

Consolidation of Variable Interest Entities
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46),
Consolidation of Variable Interest Entities. The objective of this
interpretation is to provide guidance on how to identify a variable interest
entity (VIE) and determine when the assets, liabilities, non-controlling
interests and results of operations of a VIE need to be included in a companys
consolidated financial statements. A company that holds variable interests in
an entity will need to consolidate the entity if the companys interest in the
VIE is such that the company will absorb a majority of the VIEs expected loss
and/or receive a majority of the entitys expected residual returns, if they
occur. FIN No. 46 also requires additional disclosures by primary beneficiaries
and other significant variable interest holders. The provisions of this
interpretation became effective upon issuance. As of December 31, 2002, the
Corporation was not party to any VIEs. The Corporation is currently assessing
the impact, if any, the interpretation will have on results of operation,
financial position, or liquidity, as it applies to other areas within the
Corporation.

3. Mergers, acquisitions and reconfiguration

On October 5, 2001, the Corporation acquired Commerce Exchange Corporation
(Commerce), a $111 million asset bank holding company headquartered in
Beachwood, Ohio, in a transaction accounted for as a purchase under SFAS No.
141. Goodwill of $13.7 million was recorded in connection with the acquisition. Additionally, a core deposit intangible asset of $3.0 million was
recorded and is being amortized on a straight-line basis over 109 months.
Second Bancorp paid $26.9 million to the
shareholders of Commerce for all the outstanding shares of Commerce common
stock. Commerces sole subsidiary, Commerce Exchange Bank, was merged into
Second National, and its two locations are being operated as Second National
banking centers. Merger expenses incurred in 2001 as a result of the Commerce
acquisition totaled $305 and consisted primarily of insurance, supplies and
personnel-related costs.

Subsequent to the acquisition, goodwill was adjusted upward by $744 due to the
specific identification of a deferred tax liability and other acquired assets.

The condensed balance sheet at fair value of Commerce as of the acquisition
date was as follows:

|                              |                                        |   |         |        | 
|----------------------------- | -------------------------------------- | - | ------- | ------ | 
|Assets:                       |                                        |   |         |       
|                              | Cash and due from banks                |   | $       | 2,407  | 
|                              | Investments                            |   |         | 15,739 | 
|                              | Loans (net of allowance of $1,878)     |   |         | 91,419 | 
|                              | Other assets                           |   |         | 1,336  | 
|                              |                                        |   |         |       
|Total assets                  |                                        | $ | 110,901 |       
|                              |                                        |   |         |       
|Liabilities and capital:      |                                        |   |         |       
|                              | Deposits                               |   | $       | 94,721 | 
|                              | Other borrowings and other liabilities |   |         | 5,578  | 
|                              | Capital                                |   |         | 10,602 | 
|                              |                                        |   |         |       
|Total liabilities and capital |                                        | $ | 110,901 |       
|                              |                                        |   |         |       

In order to finance the acquisition of Commerce, the Corporation sold, through
Second Bancorp Capital Trust I (a newly formed subsidiary), $32 million of
9.00% corporation-obligated mandatorily redeemable capital securities of
subsidiary trust (Trust Preferred Securities). The proceeds of the offering
of the Trust Preferred Securities were used by the Trust to purchase, from the
Company, Subordinated Debentures due December 31, 2031. The Company used the
proceeds from the offering of the Subordinated Debentures to fund the $26.9
acquisition cost for Commerce Exchange Corporation. The remaining net proceeds
are being used to repay outstanding debt and to fund the Companys continuing
repurchase of its common stock. For further information, refer to Note 16.

On September 4, 2002, the Corporation acquired Stouffer-Herzog Insurance Agency
(Stouffer-Herzog), an insurance agency located in Ashtabula, Ohio, in a
transaction accounted for as a purchase under SFAS No. 141. Goodwill of $1.3
million was recorded in connection with the acquisition. Additionally, a
customer list intangible asset of $978 was recorded and is being amortized on a
straight-line basis over 18 years. Second Bancorp paid $1.98 million through
the issuance of common stock to the shareholders of Stouffer-Herzog for all
the outstanding shares of Stouffer-Herzog common stock. Merger expenses
incurred in 2002 as a result of the Stouffer-Herzog acquisition totaled $134
and consisted primarily of consulting fees.

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The condensed balance sheet at fair value of Stouffer-Herzog as of the
acquisition date was as follows:

|                              |                         |   |       |     | 
|----------------------------- | ----------------------- | - | ----- | --- | 
|Assets:                       |                         |   |       |    
|                              | Cash and due from banks |   | $     | 395 | 
|                              | Other assets            |   |       | 636 | 
|                              |                         |   |       |    
|Total assets                  |                         | $ | 1,031 |    
|                              |                         |   |       |    
|Liabilities and capital:      |                         |   |       |    
|                              | Current liabilities     |   | $     | 599 | 
|                              | Long-term liabilities   |   |       | 149 | 
|                              | Capital                 |   |       | 283 | 
|                              |                         |   |       |    
|Total liabilities and capital |                         | $ | 1,031 |    
|                              |                         |   |       |    

Net income in 2002 was impacted by a $2,096 expense for the execution of a
banking center reconfiguration strategy. The strategy is designed to improve
the overall growth potential and profitability of the retail banking center network. The cost recognized in 2002
included the costs to close two facilities, the costs to close four facilities
that will be consolidated into two larger, more accessible facilities and the
costs to close two facilities, which are being relocated to larger, more
accessible locations. The strategy also includes the sale of two remote banking
centers which closed in February 2003 and the opening of a new banking center
in a new market, projected to occur in 2003.

4. Restrictions on Cash and Due from Bank Accounts

The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The average amounts of those reserve balances for the years ended
December 31, 2002 and 2001 were approximately $1,988 and $1,967, respectively,
which represents compensating balances for services provided by the Federal
Reserve Bank.

5. Securities

The following is a summary of securities:

|                                                                                              |                                     |      |           |         |            |        |            |        |        |           |        |        |   |   |         |         | 
|--------------------------------------------------------------------------------------------- | ----------------------------------- | ---- | --------- | ------- | ---------- | ------ | ---------- | ------ | ------ | --------- | ------ | ------ | - | - | ------- | ------- | 
|                                                                                              |                                     |      |           |         |            |        | Gross      |        | Gross  | Estimated
|                                                                                              |                                     |      | Amortized |         | Unrealized |        | Unrealized |        | Market
|December 31, 2002                                                                             |                                     | Cost |           | Gains   |            | Losses |            | Value 
|                                                                                              |                                     |      |           |         |            |        |            |       
|Available for Sale:                                                                           |                                     |      |           |         |            |        |            |        |        |           |        |        |   |   |         |        
|U. S. Treasury securities and obligations of other
U. S. government agencies and corporations |                                     | $    | 28,438    |         |            | $      | 1,322      |        |        | $         |       |        |   | $ | 29,760  |        
|Obligations of states and political subdivisions                                              |                                     |      | 63,485    |         |            |        | 3,482      |        |        |           | (40    | )      |   |   | 66,927  |        
|Corporate securities                                                                          |                                     |      | 68,068    |         |            |        | 2,709      |        |        |           | (2,719 | )      |   |   | 68,058  |        
|Mortgage-backed securities                                                                    |                                     |      | 326,011   |         |            |        | 7,247      |        |        |           |       |        |   |   | 333,258 |        
|                                                                                              |                                     |      |           |         |            |        |            |        |        |           |        |        |   |   |         |        
|                                                                                              | Total debt securities               |      |           | 486,002 |            |        |            | 14,760 |        |           |        | (2,759 | ) |   |         | 498,003 | 
|Equity securities                                                                             |                                     |      | 25,641    |         |            |        | 107        |        |        |           | (82    | )      |   |   | 25,666  |        
|                                                                                              |                                     |      |           |         |            |        |            |        |        |           |        |        |   |   |         |        
|                                                                                              | Total available-for-sale securities |      | $         | 511,643 |            |        | $          | 14,867 |        |           | $      | (2,841 | ) |   | $       | 523,669 | 
|                                                                                              |                                     |      |           |         |            |        |            |        |        |           |        |        |   |   |         |        

|                                                                                              |                                     |      |           |         |            |        |            |       |        |           |        |        |   |   |         |         | 
|--------------------------------------------------------------------------------------------- | ----------------------------------- | ---- | --------- | ------- | ---------- | ------ | ---------- | ----- | ------ | --------- | ------ | ------ | - | - | ------- | ------- | 
|                                                                                              |                                     |      |           |         |            |        | Gross      |       | Gross  | Estimated
|                                                                                              |                                     |      | Amortized |         | Unrealized |        | Unrealized |       | Market
|December 31, 2001                                                                             |                                     | Cost |           | Gains   |            | Losses |            | Value
|                                                                                              |                                     |      |           |         |            |        |            |      
|Available for Sale:                                                                           |                                     |      |           |         |            |        |            |       |        |           |        |        |   |   |         |        
|U. S. Treasury securities and obligations of other
U. S. government agencies and corporations |                                     | $    | 27,940    |         |            | $      | 1,137      |       |        | $         | (29    | )      |   | $ | 29,048  |        
|Obligations of states and political subdivisions                                              |                                     |      | 67,068    |         |            |        | 1,476      |       |        |           | (333   | )      |   |   | 68,211  |        
|Corporate securities                                                                          |                                     |      | 89,924    |         |            |        | 1,737      |       |        |           | (1,874 | )      |   |   | 89,787  |        
|Mortgage-backed securities                                                                    |                                     |      | 207,883   |         |            |        | 4,145      |       |        |           | (933   | )      |   |   | 211,095 |        
|                                                                                              |                                     |      |           |         |            |        |            |       |        |           |        |        |   |   |         |        
|                                                                                              | Total debt securities               |      |           | 392,815 |            |        |            | 8,495 |        |           |        | (3,169 | ) |   |         | 398,141 | 
|Equity securities                                                                             |                                     |      | 19,288    |         |            |        | 159        |       |        |           | (92    | )      |   |   | 19,355  |        
|                                                                                              |                                     |      |           |         |            |        |            |       |        |           |        |        |   |   |         |        
|                                                                                              | Total available-for-sale securities |      | $         | 412,103 |            |        | $          | 8,654 |        |           | $      | (3,261 | ) |   | $       | 417,496 | 
|                                                                                              |                                     |      |           |         |            |        |            |       |        |           |        |        |   |   |         |        

Accumulated unrealized gain in other comprehensive income, net of tax is
$7,838, $3505 and $281 for the years ended December 31, 2002, 2001 and 2000,
respectively.

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There were no holdings of trading securities at December 31, 2002 and 2001. The
amortized cost and estimated market value of securities at December 31, 2002 by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.

|                                    |  |           |         |           |  |   |         | 
|----------------------------------- |  | --------- | ------- | --------- |  | - | ------- | 
|                                    |  |           |         | Estimated
|                                    |  | Amortized |         | Market   
|                                    |  | Cost      |         | Value    
|                                    |  |           |         |          
|Under 1 year                        |  | $         | 2,479   |           |  | $ | 2,503   | 
|1 to 5 years                        |  |           | 23,734  |           |  |   | 25,142  | 
|5 to 10 years                       |  |           | 58,627  |           |  |   | 62,530  | 
|Over 10 years                       |  |           | 75,151  |           |  |   | 74,570  | 
|                                    |  |           |         |           |  |   |         | 
|                                    |  |           | 159,991 |           |  |   | 164,745 | 
|Mortgage-backed securities          |  |           | 326,011 |           |  |   | 333,258 | 
|Equity securities                   |  |           | 25,641  |           |  |   | 25,666  | 
|                                    |  |           |         |           |  |   |         | 
|Total available-for-sale securities |  | $         | 511,643 |           |  | $ | 523,669 | 
|                                    |  |           |         |           |  |   |         | 

Information relating to sales of available-for-sale securities for the three
years ended December 31, 2002 is as follows:

|                                                     |  |      |         |      |  |      |        |  |  |   |         |  
|---------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------ |  |  | - | ------- | -
|                                                     |  | 2002 |         | 2001 |  | 2000
|                                                     |  |      |         |      |  |     
|Proceeds from sales of available-for-sale
securities |  | $    | 253,852 |      |  | $    | 76,420 |  |  | $ | 138,831 |  
|                                                     |  |      |         |      |  |      |        |  |  |   |         |  
|Gross realized gains                                 |  | $    | 2,120   |      |  | $    | 724    |  |  | $ | 961     |  
|Gross realized losses                                |  |      | 1,528   |      |  |      | 82     |  |  |   | 3,360   |  
|Income tax associated with net gains (losses)        |  |      | 207     |      |  |      | 225    |  |  |   | (816    | )
|                                                     |  |      |         |      |  |      |        |  |  |   |         |  
|After tax gains (losses)                             |  | $    | 385     |      |  | $    | 417    |  |  | $ | (1,583  | )
|                                                     |  |      |         |      |  |      |        |  |  |   |         |  
|Impact on earnings per share                         |  | $    | 0.04    |      |  | $    | 0.04   |  |  | $ | (0.15   | )
|                                                     |  |      |         |      |  |      |        |  |  |   |         |  

At December 31, 2002 and 2001, securities with a carrying value of $364,973 and
$252,074, respectively, were pledged to secure repurchase agreements, deposits
of public funds and for other purposes.

6. Loans

Loans consist of the following:

|                         |  |      |           |      |  |   |           | 
|------------------------ |  | ---- | --------- | ---- |  | - | --------- | 
|December 31              |  | 2002 |           | 2001
|                         |  |      |           |     
|Commercial               |  | $    | 542,691   |      |  | $ | 508,579   | 
|Consumer                 |  |      | 322,841   |      |  |   | 316,097   | 
|Real estate mortgage     |  |      | 249,946   |      |  |   | 247,221   | 
|Real estate construction |  |      | 52,313    |      |  |   | 49,995    | 
|                         |  |      |           |      |  |   |           | 
|Total                    |  | $    | 1,167,791 |      |  | $ | 1,121,892 | 
|                         |  |      |           |      |  |   |           | 

The Bank also has granted loans to officers and directors of both the
Corporation and the Bank and their associates (Related Party Loans). Related
party loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions
with unrelated persons. The aggregate dollar amounts of these loans were $8,841
and $14,045 at December 31, 2002 and 2001, respectively. New loans and advances
totaled $727 and payments were $1,728 in 2002. Loans to directors who left the
Corporation in 2002 totaled $4,203. During 2002, the Bank leased one of
its banking centers from a partnership that is 50% owned by a director emeritus
of the Corporation. The fair market annual rental rate on the lease totals
$40 and expires in 2004.

7. Asset Quality

Allowance for Loan Losses
Changes in the allowance for loan losses for each of the last three years ended
December 31 were as follows:

|                                                      |                 |   |        |        |      |   |        |        |   |   |        |        |  
|----------------------------------------------------- | --------------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------ | -
|                                                      |                 |   | 2002   |        | 2001 |   | 2000  
|                                                      |                 |   |        |        |      |   |       
|Balance at beginning of year                          |                 | $ | 16,695 |        |      | $ | 15,217 |        |   | $ | 11,169 |       
|Charge-offs                                           |                 |   | (6,584 | )      |      |   | (6,471 | )      |   |   | (4,059 | )     
|Recoveries                                            |                 |   | 1,325  |        |      |   | 1,353  |        |   |   | 978    |       
|                                                      |                 |   |        |        |      |   |        |        |   |   |        |       
|                                                      | Net charge-offs |   |        | (5,259 | )    |   |        | (5,118 | ) |   |        | (3,081 | )
|Provision for loan losses                             |                 |   | 6,159  |        |      |   | 4,718  |        |   |   | 7,129  |       
|Acquired provision balances                           |                 |   |       |        |      |   | 1,878  |        |   |   |       |       
|                                                      |                 |   |        |        |      |   |        |        |   |   |        |       
|Balance at end of year                                |                 | $ | 17,595 |        |      | $ | 16,695 |        |   | $ | 15,217 |       
|                                                      |                 |   |        |        |      |   |        |        |   |   |        |       
|Allowance for loan losses as a percent
of total loans |                 |   | 1.51   | %      |      |   | 1.49   | %      |   |   | 1.42   | %     
|                                                      |                 |   |        |        |      |   |        |        |   |   |        |       

Non-accrual, Past-due and Restructured Loans (Non-performing Loans)
Non-accrual loans are loans that are no longer accruing interest at the
discretion of Management. This occurs when Management determines that the
borrower can no longer service the debt, but the loan is adequately secured
with collateral or the borrower will be able to repay the principal of the loan
in the future. Past-due loans are loans with principal payments more than 90
days past due. Both interest and principal are expected to be repaid.
Restructured loans include loans whose original terms were redesigned to allow
the customer to remain current and repay the loan. Also listed is other real
estate owned which represents real estate acquired through the default of
loans. The Banks practice is to carry other real estate owned at the lower of
cost or fair market value, less estimated costs to sell.

|                                         |  |      |        |      |  |   |        |  
|---------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|December 31                              |  | 2002 |        | 2001
|                                         |  |      |        |     
|Non-accrual loans                        |  | $    | 13,123 |      |  | $ | 5,004  |  
|Past-due loans                           |  |      | 5,692  |      |  |   | 5,304  |  
|Restructured loans                       |  |      | 378    |      |  |   | 258    |  
|                                         |  |      |        |      |  |   |        |  
|Total                                    |  | $    | 19,193 |      |  | $ | 10,566 |  
|                                         |  |      |        |      |  |   |        |  
|Percent of total loans at year end       |  |      | 1.64   | %    |  |   | 0.94   | %
|Other real estate owned (net of reserve) |  | $    | 1,371  |      |  | $ | 1,399  |  

Interest income that would have been earned under the original terms of the
loans classified in non-accrual and restructured loans in the above schedule
amounted to $1,229 and $398 in 2002 and 2001, respectively. No interest income
was realized on these loans for 2002 or 2001, respectively. Loans that were
considered to be impaired under SFAS No. 114 totaled $13,123 and $5,004 as of
December 31, 2002 and 2001, respectively, all of which were included in
non-performing assets as of those dates. The average balance of impaired loans
was $8,114 in 2002 and $4,888 in 2001. The related allowance allocated to
impaired loans for 2002 and 2001 was $3,829 and $2,169, respectively.

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8. Significant Concentration of Credit Risk

Most of the Banks business activity is with customers located within the state
of Ohio. As of December 31, 2002, the Bank had a concentration in commercial
real estate loans totaling approximately $366,623, approximately 67.7% of which
were owner-occupied businesses, including restaurants and nursing homes within
the Banks market area. Of the $366,623 of commercial real estate loans, $3,674
or 1.00% were on non-accrual status as of December 31, 2002.

9. Fair Values of Financial Instruments

SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires
that the Corporation disclose estimated fair values for its financial
instruments. The market value of securities, as presented in Note 5, is based primarily upon quoted market
prices. For substantially all other financial instruments, the fair values are
Managements estimates of the values at which the instruments could be
exchanged in a transaction between willing parties. In accordance with SFAS No.
107, fair values are based on estimates using present value and other valuation
techniques in instances where quoted prices are not available. These techniques
are significantly affected by the assumptions used, including discount rates
and estimates of future cash flows. As such, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, further, may
not be realizable in an immediate settlement of the instruments. SFAS No. 107
also excludes certain items from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent, and should not be
construed to represent, the underlying value of the Corporation.

The following table presents the estimates of fair value of financial
instruments:

|             |                                                                              |  |                   |           |                   |  |          |           |       |  |   |           |   |  |   |           | 
|------------ | ---------------------------------------------------------------------------- |  | ----------------- | --------- | ----------------- |  | -------- | --------- | ----- |  | - | --------- | - |  | - | --------- | 
|             |                                                                              |  | December 31, 2002 |           | December 31, 2001
|             |                                                                              |  |                   |           |                  
|             |                                                                              |  | Carrying          |           | Fair              |  | Carrying |           | Fair 
|             |                                                                              |  | Value             |           | Value             |  | Value    |           | Value
|             |                                                                              |  |                   |           |                   |  |          |           |      
|Assets:      |                                                                              |  |                   |           |                   |  |          |           |       |  |   |           |   |  |   |          
|             | Cash and cash equivalents                                                    |  | $                 | 122,271   |                   |  | $        | 122,271   |       |  | $ | 64,853    |   |  | $ | 64,853    | 
|             | Securities                                                                   |  |                   | 523,669   |                   |  |          | 523,669   |       |  |   | 417,496   |   |  |   | 417,496   | 
|             | Loans                                                                        |  |                   | 1,167,791 |                   |  |          | 1,166,701 |       |  |   | 1,121,892 |   |  |   | 1,142,376 | 
|             | Allowance for loan losses                                                    |  |                   | (17,595   | )                 |  |          |          |       |  |   | (16,695   | ) |  |   |          | 
|             | Servicing assets                                                             |  |                   | 12,403    |                   |  |          | 12,403    |       |  |   | 8,722     |   |  |   | 9,253     | 
|             | Interest rate floor                                                          |  |                   | 375       |                   |  |          | 375       |       |  |   |          |   |  |   |          | 
|Liabilities: |                                                                              |  |                   |           |                   |  |          |           |       |  |   |           |   |  |   |          
|             | Demand deposits-non-interest bearing                                         |  |                   | 179,714   |                   |  |          | 179,714   |       |  |   | 144,953   |   |  |   | 144,953   | 
|             | Demand deposits-interest bearing                                             |  |                   | 103,583   |                   |  |          | 103,583   |       |  |   | 105,221   |   |  |   | 105,221   | 
|             | Savings deposits                                                             |  |                   | 405,437   |                   |  |          | 405,437   |       |  |   | 276,628   |   |  |   | 276,628   | 
|             | Time deposits                                                                |  |                   | 506,378   |                   |  |          | 518,121   |       |  |   | 596,329   |   |  |   | 602,870   | 
|             | Federal funds purchased and securities sold
under agreements to repurchase   |  |                   | 138,796   |                   |  |          | 138,796   |       |  |   | 107,279   |   |  |   | 107,279   | 
|             | Note payable                                                                 |  |                   | 7,000     |                   |  |          | 7,000     |       |  |   |          |   |  |   |          | 
|             | Other borrowed funds                                                         |  |                   | 3,863     |                   |  |          | 3,863     |       |  |   | 5,853     |   |  |   | 5,853     | 
|             | FHLB advances                                                                |  |                   | 365,844   |                   |  |          | 405,984   |       |  |   | 275,152   |   |  |   | 323,222   | 
|             | Corporation-obligated mandatorily redeemable
obligations of subsidiary trust |  |                   | 30,495    |                   |  |          | 35,389    |       |  |   | 30,442    |   |  |   | 33,514    | 
|             | Interest rate swap liability                                                 |  |                   | 258       |                   |  |          | 258       |       |  |   | 247       |   |  |   | 247       | 

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Fair value estimates, methods and assumptions are set forth below for the
Corporations financial instruments:

Cash and Cash Equivalents
The carrying amounts reported in the balance sheet for cash and cash
equivalents approximate those assets fair value.

Securities
Fair values for securities are based on quoted market prices, where available.
If quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.

Loans
Variable-rate loans that reprice frequently are assumed to have a
short-duration period, yielding a fair value that approximates the carrying
value. The fair values for other loans are estimated using a discounted cash
flow calculation.

Servicing Assets
The fair value of servicing assets was determined via an independent valuation
from a third party. Included in the valuation were assumptions regarding
prepayment speeds, discount rates, servicing costs, delinquency, ancillary
income and foreclosure costs arrived at from third party sources and internal
historical records.

Interest Rate Floor
The fair values disclosed are from quoted market prices determined by the floor
counterparty.

Deposit Liabilities
The fair values disclosed for demand deposits and interest bearing demand and
savings deposit accounts are, by definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The carrying
amounts for time deposits are estimated using a discounted cash flow
calculation. Variable-rate time deposits that reprice frequently are assumed to
have a short-duration period, yielding a fair value that approximates the
carrying value.

Federal Funds Purchased, Securities Sold Under Agreements to Repurchase and
Other Short-Term Borrowings
The carrying amounts of federal funds purchased, securities sold under
agreements to repurchase and other short-term borrowings approximate their fair
values.

FHLB Advances
The fair value for the FHLB advances was determined using a discounted cash
flow calculation.

Corporation-Obligated Mandatorily Redeemable Obligations of Subsidiary Trust
The fair value for the Corporation-obligated mandatorily redeemable obligations
of subsidiary trust was based on market prices of comparable instruments.

Interest Rate Swap Liability
The fair value represents the estimated amounts the Corporation would receive
or pay to terminate the contracts, taking into account current interest rates.

10. Premises and Equipment

The following is a summary of bank premises and equipment accounts as of
December 31:

|                                          |  |      |        |      |  |   |        | 
|----------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                          |  | 2002 |        | 2001
|                                          |  |      |        |     
|Land and buildings                        |  | $    | 7,993  |      |  | $ | 6,437  | 
|Leasehold improvements                    |  |      | 9,558  |      |  |   | 10,491 | 
|Furniture and equipment                   |  |      | 28,923 |      |  |   | 27,147 | 
|                                          |  |      |        |      |  |   |        | 
|                                          |  |      | 46,474 |      |  |   | 44,075 | 
|Less:                                     |  |      |        |      |  |   |        | 
|Accumulated depreciation and amortization |  |      | 29,842 |      |  |   | 27,659 | 
|                                          |  |      |        |      |  |   |        | 
|Total                                     |  | $    | 16,632 |      |  | $ | 16,416 | 
|                                          |  |      |        |      |  |   |        | 

11. Goodwill and Intangible Assets

The carrying amount for goodwill and intangible assets as of December 31 is as
follows:

|                         |  |      |        |      |  |   |        | 
|------------------------ |  | ---- | ------ | ---- |  | - | ------ | 
|                         |  | 2002 |        | 2001
|                         |  |      |        |     
|Goodwill                 |  | $    | 16,708 |      |  | $ | 14,645 | 
|Core deposit intangible  |  |      | 2,764  |      |  |   | 3,211  | 
|Customer list intangible |  |      | 950    |      |  |   |       | 
|                         |  |      |        |      |  |   |        | 
|Total                    |  | $    | 20,422 |      |  | $ | 17,856 | 
|                         |  |      |        |      |  |   |        | 

Core deposit intangible accumulated amortization as of December 31, 2002 is
$6,871. Core deposit intangible amortization expense for 2002 and 2001 was $447
and $190, respectively. Amortization expense for the customer list intangible
was $28 in 2002.

Future core deposit intangible and customer list intangible amortization
expense is as follows for the years ended December 31:

|     |  |              |     |               |  |   |    | 
|---- |  | ------------ | --- | ------------- |  | - | -- | 
|     |  | Core Deposit |     | Customer List
|     |  | Intangible   |     | Intangible   
|     |  |              |     |              
|2003 |  | $            | 417 |               |  | $ | 83 | 
|2004 |  |              | 350 |               |  |   | 79 | 
|2005 |  |              | 344 |               |  |   | 74 | 
|2006 |  |              | 340 |               |  |   | 70 | 
|2007 |  |              | 336 |               |  |   | 67 | 

The changes to the carrying amount of goodwill are as follows:

|                                        |  |      |        |      |  |   |        |  
|--------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                        |  | 2002 |        | 2001
|                                        |  |      |        |     
|Balance at January 1                    |  | $    | 14,645 |      |  | $ | 1,154  |  
|Goodwill acquired during the year       |  |      | 1,319  |      |  |   | 13,678 |  
|Adjustments for specific identification |  |      | 744    |      |  |   |       |  
|Impairment                              |  |      |       |      |  |   |       |  
|Amortization expense                    |  |      |       |      |  |   | (187   | )
|                                        |  |      |        |      |  |   |        |  
|Balance at December 31                  |  | $    | 16,708 |      |  | $ | 14,645 |  
|                                        |  |      |        |      |  |   |        |  

As of December 31, 2002, goodwill was allocated to the Corporations lines of
business as follows: Mortgage $0; Commercial $11,611; Retail $3,778; Parent and
other $1,319.

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12. Servicing Assets

Servicing assets consisted of the following as December 31, 2002 and 2001:

|                          |  |      |        |      |  |   |       | 
|------------------------- |  | ---- | ------ | ---- |  | - | ----- | 
|                          |  | 2002 |        | 2001
|                          |  |      |        |     
|Mortgage servicing assets |  | $    | 11,967 |      |  | $ | 8,313 | 
|Other servicing assets    |  |      | 436    |      |  |   | 409   | 
|                          |  |      |        |      |  |   |       | 
|Total                     |  | $    | 12,403 |      |  | $ | 8,722 | 
|                          |  |      |        |      |  |   |       | 

At December 31, 2002, 2001 and 2000, the Corporation serviced mortgage loans
for others totaling $1,319,645, $812,774 and $472,120, respectively. Following
is an analysis of the activity for capitalized mortgage loan servicing assets
during the years ending December 31:

|                              |  |      |        |      |  |      |        |   |  |   |       |  
|----------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ----- | -
|                              |  | 2002 |        | 2001 |  | 2000
|                              |  |      |        |      |  |     
|Balance at
January 1          |  | $    | 8,313  |      |  | $    | 4,065  |   |  | $ | 3,490 |  
|Additions                     |  |      | 11,342 |      |  |      | 6,270  |   |  |   | 1,340 |  
|Sales                         |  |      |       |      |  |      |       |   |  |   |      |  
|Amortizations                 |  |      | (4,704 | )    |  |      | (1,212 | ) |  |   | (765  | )
|Change in valuation allowance |  |      | (2,984 | )    |  |      | (810   | ) |  |   |      |  
|                              |  |      |        |      |  |      |        |   |  |   |       |  
|Balance at December 31        |  | $    | 11,967 |      |  | $    | 8,313  |   |  | $ | 4,065 |  
|                              |  |      |        |      |  |      |        |   |  |   |       |  

The fair value of mortgage servicing assets is estimated by calculating the
present value of estimated future cash flows, taking into consideration several
different variables including discount rate, investor type, product type,
interest rate, escrow balances, delinquencies, servicing fees and costs and
prepayment speeds. The expected and actual rate of mortgage loan prepayments
is the most significant factor affecting the value of mortgage servicing
assets. The risk characteristics used to stratify the recognized servicing
assets include method of origination and interest rate. The fair value of the
servicing assets was $11,967, $8,844 and $5,385 as of December 31, 2002,
2001 and 2000, respectively. Following is an analysis of the aggregate changes
in the valuation allowances for mortgage servicing assets for the years ended
December 31:

|                       |  |      |       |      |  |      |     |  |  |   |   | 
|---------------------- |  | ---- | ----- | ---- |  | ---- | --- |  |  | - | - | 
|                       |  | 2002 |       | 2001 |  | 2000
|                       |  |      |       |      |  |     
|Balance at January 1   |  | $    | 810   |      |  | $    |    |  |  | $ |  | 
|Additions              |  |      | 2,984 |      |  |      | 810 |  |  |   |  | 
|Reductions             |  |      |      |      |  |      |    |  |  |   |  | 
|                       |  |      |       |      |  |      |     |  |  |   |   | 
|Balance at December 31 |  | $    | 3,794 |      |  | $    | 810 |  |  | $ |  | 
|                       |  |      |       |      |  |      |     |  |  |   |   | 

At December 31, 2002, key economic assumptions and the sensitivity of the
current fair value of mortgage servicing assets to immediate 10% and 20%
adverse changes in those assumptions are presented in the table that follows.
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a 10% variation in assumptions
generally cannot be extrapolated because the relationship of the change in the
assumption to the change in fair value may not be linear. Also, the effect of a
variation in a particular assumption on the fair value of the mortgage
servicing assets is calculated independently without changing any other
assumption. In reality, changes in one factor may result in changes in another
(for example, changes in prepayment rate estimates could result in changes in
the discount rates), which might magnify or counteract the
sensitivities.

|                                          |                                                |  |  |  |   |       |        |   | 
|----------------------------------------- | ---------------------------------------------- |  |  |  | - | ----- | ------ | - | 
|Fair value                                |                                                |  |  |  |   | $     | 11,967 |  
|Expected weighted average life (in years) |                                                |  |  |  |   |       | 3.6    |  
|Prepayment rate (annual PSA)              |                                                |  |  |  |   |       | 380    |  
|                                          | Decrease in fair value from 10% adverse change |  |  |  | $ | 725   |       
|                                          | Decrease in fair value from 20% adverse change |  |  |  | $ | 1,323 |       
|Discount rate                             |                                                |  |  |  |   |       | 9.04   | %
|                                          | Decrease in fair value from 10% adverse change |  |  |  | $ | 308   |       
|                                          | Decrease in fair value from 20% adverse change |  |  |  | $ | 558   |       

The Corporation also services Small Business Administration (SBA) loans for
others totaling $16,414 and $13,112 as of December 31, 2002 and 2001,
respectively. Amounts capitalized as originated servicing assets were $185,
$144, and $191 in 2002, 2001 and 2000, respectively. Capitalized servicing
assets amortized were $157, $108 and $103 in 2002, 2001 and 2000, respectively.

13. Federal Funds Purchased and
Securities Sold Under Agreements to Repurchase

The Corporation has the availability to borrow $33 million from correspondent
banks as overnight federal funds purchased. There were no federal funds
purchased at December 31, 2002 or 2001. The Corporation has repurchase
agreements with corporate customers and local municipalities. These borrowings
have an overnight maturity and are collateralized with U. S. Treasury and
government agency securities, including agency-issued mortgage-backed
securities with a market value of $161,998 and $107,160 as of December 31, 2002
and 2001, respectively. The securities are held in the Corporations
safekeeping account at the Federal Reserve Bank. Although there were no
repurchase agreements with approved brokers outstanding at December 31, 2002,
the Corporation previously maintained such balances, which were collateralized
by U. S. Treasury and government agency securities held by the broker. The
following table summarizes certain information relative to these borrowings:

|                                                           |  |      |         |      |  |   |         |  
|---------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                                           |  | 2002 |         | 2001
|                                                           |  |      |         |     
|Outstanding at December 31                                 |  | $    | 138,796 |      |  | $ | 107,279 |  
|Weighted-average interest rate at December 31              |  |      | 1.56    | %    |  |   | 3.58    | %
|Maximum amount outstanding as of any
month end             |  | $    | 178,536 |      |  | $ | 133,743 |  
|Average amount outstanding                                 |  | $    | 134,374 |      |  | $ | 109,476 |  
|Approximate weighted-average interest rate
during the year |  |      | 1.84    | %    |  |   | 3.40    | %

14. Notes Payable

As of December 31, 2002, the Corporation had $20 million in unsecured lines of
credit with two correspondent banks. The lines are renewable annually and bear
interest at a floating rate based on several indices including LIBOR, federal
funds or prime rate. As of December 31, 2002, the Corporation had $7 million in
outstanding notes payable to a correspondent bank. There were no outstanding
balances for notes payable as of Dec. 31, 2001.

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15. Other Borrowed Funds and
Federal Home Loan Bank Advances

The Corporation has a Treasury Note Option Agreement with the Federal
Government, which allows the Corporation to hold funds deposited by customers
for treasury and tax payments to the Government up to a self-imposed limit of
$6,000. Federal Home Loan Bank (FHLB) advances are primarily collateralized by
all shares of FHLB stock and a portion of the Corporations qualified mortgage
loan portfolio, and are used to fund mortgage loan originations of the
Corporation and as a regular funding source. As of December 31, 2002, the book
value of pledged collateral totaled $506 million and consisted of $331 million
in residential mortgage loans, $55 million in home equity loans, $35 million in
junior lien installment loans and $85 million in various securities. As of
December 31, 2001, the book value of pledged collateral was $396 million and
consisted of $314 million in residential mortgage loans, $48 million in home
equity loans and $34 million in junior lien installment loans. The detail of
these borrowings on December 31, 2002 and 2001 is as follows:

|                                                                                                                                    |  |                  |      |      |         |         |       |   |         |   |       | 
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ---- | ---- | ------- | ------- | ----- | - | ------- | - | ----- | 
|                                                                                                                                    |  |                  |      |      |        
|                                                                                                                                    |  |                  |      |      |         | Balance
|                                                                                                                                    |  | Current Interest |      |     
|Description                                                                                                                         |  | Rates            |      | 2002 |         | 2001   
|                                                                                                                                    |  |                  |      |      |         |        
|Other borrowed funds                                                                                                                |  |                  | 1.21 | %    |         | $       | 3,863 |   |         | $ | 5,853 | 
|Fixed rate FHLB advances with monthly principal and interest payments
Advances with contractual maturities within one year          |  | 4.88% to 5.82%   |      | $    | 10,000  |         |       | $ | 113,139 |  
|Fixed rate FHLB advances with monthly principal and interest payments
Advances with contractual maturities over one year until 2012 |  | 3.19% to 6.87%   |      | $    | 348,844 |         |       | $ | 155,013 |  
|Variable rate FHLB advance with monthly interest payments
Advance due in 2005                                                       |  |                  | 1.33 | %    |         | $       | 7,000 |   |         | $ | 7,000 | 

The Bank has a number of FHLB advances with fixed rates that have a convertible
date prior to their contractual maturity date. In an increasing rate
environment, these advances may be subject to their convertible date.

The table below provides a maturity distribution for the Corporations $396,339
long-term debt, which includes the FHLB advances and the Corporation-obligated
mandatorily redeemable capital securities of subsidiary trust discussed in Note
16:

|           |      |  |         |        | 
|---------- | ---- |  | ------- | ------ | 
|           | 2003 |  | $       | 10,000 | 
|           | 2004 |  |         | 8,000  | 
|           | 2005 |  |         | 7,000  | 
|           | 2006 |  |         | 5,000  | 
|           | 2007 |  |         | 45,844 | 
|Thereafter |      |  | 320,495 |       

16. Corporation-Obligated
Mandatorily Redeemable Capital Securities of Subsidiary Trust

The corporation-obligated mandatorily redeemable capital securities (the
capital securities) of subsidiary trust hold solely junior subordinated debt
securities of the Corporation (the debentures). The capital securities were
issued in 2001 by a statutory business trust, Second Bancorp Capital Trust I,
of which 100% of the common equity of the trust is owned by the Corporation.
The trust was formed with the sole purpose of issuing the capital securities
and investing the proceeds from the sale of such capital securities in the
debentures. The debentures held by the trust are the sole assets of the trust.
Distributions on the capital securities are payable quarterly at a per annum
rate of 9%, which is equal to the interest rate being earned by the trust on
the debentures and are recorded as interest expense of the Corporation. The
capital securities are subject to mandatory redemption, in whole or in part,
upon repayment of the debentures. The Corporation has entered into agreements
which, taken collectively, fully or unconditionally guarantee the capital
securities subject to the terms of the guarantees. The debentures qualify as
Tier I capital under Federal Reserve Board guidelines and are first redeemable,
in whole or in part, by the Corporation on December 31, 2006 and mature on
December 31, 2031. The amount outstanding, net of offering costs, as of
December 31, 2002 and 2001, were $30,495 and $30,442, respectively.

The effect of the capital securities will impact several key performance
indicators of the Corporations future financial results. Among those ratios
impacted will be the net interest margin, which is expected to decline with the
addition of the capital trust securities.

17. Shareholders Equity

During 2000, the Board of Directors authorized an increase to 600,000 the
number of authorized shares to be repurchased. The repurchase of the 600,000
shares authorized was completed on October 11, 2000. The Board of Directors
subsequently authorized the repurchase of up to 2% of shares outstanding
annually. During 2000, 79,800 shares had been repurchased bringing the total
shares in treasury to 730,200 as of December 31, 2000. During 2001, 153,294
shares had been repurchased bringing the total shares in treasury to 883,494 as
of December 31, 2001. In 2002, the Board of Directors authorized an additional
500,000 shares for repurchase, supplementing the annual 2% repurchase
authorization. During 2002, 395,515 shares had been repurchased bringing the
total shares in treasury to 1,279,009 as of December 31, 2002.

Regulatory Restrictions and Capital Ratios
Dividends are paid by the Corporation from its assets, which are mainly
provided by dividends from the Bank. However, certain restrictions exist
regarding the ability of the Bank to transfer funds to the Corporation in the
form of cash dividends, loans or advances. The approval of the Comptroller of
the Currency is required to pay dividends in excess of the Banks earnings
retained in the current year plus retained net profits from the preceding two
years. As of December 31, 2002, the Bank had retained earnings of $88,717, of
which none was available for distribution to the Corporation as dividends
without prior regulatory approval. Regulatory approval was received in 2002 to
provide a $21 million special dividend that was utilized to facilitate a
capital conversion at the subsidiary Bank level.

51



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The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory  and possibly
additional discretionary  actions by regulators that, if undertaken, could
have a direct material effect on the Corporations and the Banks financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Corporation and the Bank must meet specific
capital guidelines that involve quantitative measures of the banks assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Corporations and the Banks capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier I capital (as defined by the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 2002, that the Corporation and the Bank meet all capital adequacy
requirements to which it is subject.

As of December 31, 2002 and 2001, the most recent notification from the Office
of the Comptroller of the Currency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be categorized
as well capitalized the Bank must maintain minimum total risk-based, Tier I
risk-based and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that Management believes have
changed the Banks category.

The consolidated Corporations and the subsidiary Banks actual capital amounts
and ratios are presented in the table.

|                                          |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  |                        |             |  |  |  |         |  
|----------------------------------------- | -------------------- |  | ------ | ------- | ----------------- |  | ---------- | ---- | ----- |  | ----------- | ----------- | ------------------------ |  |  | ------ | - |  | ---------------------- | ----------- |  |  |  | ------- | -
|                                          |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  | To Be Well-Capitalized
|                                          |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  | Under                 
|                                          |                      |  |        |         |                   |  |            |      |       |  | For Capital |             | Prompt Corrective Action
|                                          |                      |  | Actual |         | Adequacy Purposes |  | Provisions
|                                          |                      |  |        |         |                   |  |           
|                                          |                      |  | Amount |         | Ratio             |  | Amount     |      | Ratio |  | Amount      |             | Ratio                   
|                                          |                      |  |        |         |                   |  |            |      |       |  |             |             |                         
|As of December 31, 2002:                  |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  |                        |             |  |  |  |        
|Total capital (to risk-weighted assets):  |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  |                        |             |  |  |  |        
|                                          | Second Bancorp       |  | $      | 154,464 |                   |  |            | 12.2 | %     |  |             | >/=$101,689 |                          |  |  | >/=8.0 | % |  |                        | N/A         |  |  |  | N/A     |  
|                                          | Second National Bank |  |        | 159,419 |                   |  |            | 12.7 |       |  |             | >/=100,299  |                          |  |  | >/=8.0 |   |  |                        | >/=$125,375 |  |  |  | >/=10.0 | %
|Tier I capital (to risk-weighted assets): |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  |                        |             |  |  |  |        
|                                          | Second Bancorp       |  |        | 138,554 |                   |  |            | 10.9 |       |  |             | >/=50,845   |                          |  |  | >/=4.0 |   |  |                        | N/A         |  |  |  | N/A     |  
|                                          | Second National Bank |  |        | 143,723 |                   |  |            | 11.5 |       |  |             | >/=50,150   |                          |  |  | >/=4.0 |   |  |                        | >/=75,224   |  |  |  | >/=6.0  |  
|Tier I leverage:                          |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  |                        |             |  |  |  |        
|                                          | Second Bancorp       |  |        | 138,554 |                   |  |            | 7.7  |       |  |             | >/=72,164   |                          |  |  | >/=4.0 |   |  |                        | N/A         |  |  |  | N/A     |  
|                                          | Second National Bank |  |        | 143,723 |                   |  |            | 8.2  |       |  |             | >/=70,235   |                          |  |  | >/=4.0 |   |  |                        | >/=87,794   |  |  |  | >/=5.0  |  
|As of December 31, 2001:                  |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  |                        |             |  |  |  |        
|Total capital (to risk-weighted assets):  |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  |                        |             |  |  |  |        
|                                          | Second Bancorp       |  | $      | 152,550 |                   |  |            | 12.6 | %     |  |             | >/=$96,869  |                          |  |  | >/=8.0 | % |  |                        | N/A         |  |  |  | N/A     |  
|                                          | Second National Bank |  |        | 149,170 |                   |  |            | 12.3 |       |  |             | >/=96,730   |                          |  |  | >/=8.0 |   |  |                        | >/=$120,913 |  |  |  | >/=10.0 | %
|Tier I capital (to risk-weighted assets): |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  |                        |             |  |  |  |        
|                                          | Second Bancorp       |  |        | 137,395 |                   |  |            | 11.4 |       |  |             | >/=48,434   |                          |  |  | >/=4.0 |   |  |                        | N/A         |  |  |  | N/A     |  
|                                          | Second National Bank |  |        | 134,036 |                   |  |            | 11.1 |       |  |             | >/=44,365   |                          |  |  | >/=4.0 |   |  |                        | >/=72,548   |  |  |  | >/=6.0  |  
|Tier I leverage:                          |                      |  |        |         |                   |  |            |      |       |  |             |             |                          |  |  |        |   |  |                        |             |  |  |  |        
|                                          | Second Bancorp       |  |        | 137,395 |                   |  |            | 8.2  |       |  |             | >/=66,689   |                          |  |  | >/=4.0 |   |  |                        | N/A         |  |  |  | N/A     |  
|                                          | Second National Bank |  |        | 134,036 |                   |  |            | 8.1  |       |  |             | >/=66,289   |                          |  |  | >/=4.0 |   |  |                        | >/=82,861   |  |  |  | >/=5.0  |  

18. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings
per share:

|                                                    |                                                                               |                        |      |            |         |      |      |            |        |   |      |            |        | 
|--------------------------------------------------- | ----------------------------------------------------------------------------- | ---------------------- | ---- | ---------- | ------- | ---- | ---- | ---------- | ------ | - | ---- | ---------- | ------ | 
|                                                    |                                                                               |                        |      | 2002       |         | 2001 |      | 2000      
|                                                    |                                                                               |                        |      |            |         |      |      |           
|Numerator for basic and diluted earnings per share: |                                                                               |                        |      |            |         |      |      |            |        |   |      |           
|                                                    |                                                                               | Net income             |      | $          | 18,000  |      |      | $          | 17,080 |   |      | $          | 6,134  | 
|                                                    |                                                                               |                        |      |            |         |      |      |            |        |   |      |           
|Denominator:                                        |                                                                               |                        |      |            |         |      |      |            |        |   |      |           
|                                                    | Denominator for basic earnings per share-weighted average shares              |                        |      | 9,905,832  |         |      |      | 10,013,068 |        |   |      | 10,247,025 |       
|                                                    | Effect of dilutive securities:                                                |                        |      |            |         |      |      |            |        |   |      |            |       
|                                                    |                                                                               | Employee stock options |      |            | 134,169 |      |      |            | 66,937 |   |      |            | 24,523 | 
|                                                    |                                                                               |                        |      |            |         |      |      |            |        |   |      |           
|                                                    | Denominator for diluted earnings per share  adjusted weighted average shares |                        |      | 10,040,001 |         |      |      | 10,080,005 |        |   |      | 10,271,548 |       
|                                                    |                                                                               |                        |      |            |         |      |      |            |        |   |      |           
|Basic earnings per share                            |                                                                               | $                      | 1.82 |            |         | $    | 1.71 |            |        | $ | 0.60 |           
|                                                    |                                                                               |                        |      |            |         |      |      |            |        |   |      |           
|Diluted earnings per share                          |                                                                               | $                      | 1.79 |            |         | $    | 1.69 |            |        | $ | 0.60 |           
|                                                    |                                                                               |                        |      |            |         |      |      |            |        |   |      |           

Excluding the effect of the accounting change associated with the transition
adjustment related to the adoption of SFAS No. 133, net income in 2001 was
$17,181 resulting in basic and diluted earnings per share of $1.72 and $1.70,
respectively.

52



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19. Federal Income Taxes

The Corporations federal income tax provision in the accompanying statements
of income differs from the statutory rate as follows:

|                                                |  |      |        |      |  |      |        |   |  |   |        |  
|----------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                |  | 2002 |        | 2001 |  | 2000
|                                                |  |      |        |      |  |     
|Statutory rate                                  |  |      | 35     | %    |  |      | 35     | % |  |   | 34     | %
|Income before federal income taxes (1)          |  | $    | 24,230 |      |  | $    | 23,061 |   |  | $ | 6,310  |  
|Tax at statutory rate                           |  | $    | 8,481  |      |  | $    | 8,071  |   |  | $ | 2,146  |  
|Non-taxable interest                            |  |      | (1,350 | )    |  |      | (1,480 | ) |  |   | (1,188 | )
|Increase in cash surrender valuelife insurance |  |      | (573   | )    |  |      | (545   | ) |  |   | (496   | )
|Disallowed interest expense                     |  |      | 163    |      |  |      | 245    |   |  |   | 248    |  
|Other items, net                                |  |      | (491   | )    |  |      | (411   | ) |  |   | (534   | )
|                                                |  |      |        |      |  |      |        |   |  |   |        |  
|                                                |  | $    | 6,230  |      |  | $    | 5,880  |   |  | $ | 176    |  
|                                                |  |      |        |      |  |      |        |   |  |   |        |  



---

|(1) |  | Excludes the cumulative effect adjustment of accounting
change for SFAS No. 133 for 2001. The pre-tax amount was $(155)
with a tax benefit of $54.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------

Significant components of the Corporations deferred tax assets and liabilities
as of December 31 are as follows:

|                                   |                                               |                                |        |       |        |      |    |       |       | 
|---------------------------------- | --------------------------------------------- | ------------------------------ | ------ | ----- | ------ | ---- | -- | ----- | ----- | 
|                                   |                                               |                                |        | 2002  |        | 2001
|                                   |                                               |                                |        |       |        |     
|Deferred tax assets:               |                                               |                                |        |       |        |      |    |      
|                                   | Provision for loan losses                     |                                | $      | 6,017 |        |      | $  | 5,685 |      
|                                   | Valuation allowance mortgage servicing
assets |                                |        | 1,328 |        |      |    | 284   |      
|                                   | Banking center reconfiguration
expense        |                                |        | 719   |        |      |    |      |      
|                                   | Non-accrual interest                          |                                |        | 633   |        |      |    | 380   |      
|                                   | Other                                         |                                |        | 1,439 |        |      |    | 1,500 |      
|                                   |                                               |                                |        |       |        |      |    |      
|                                   |                                               | Total deferred tax assets      |        |       | 10,136 |      |    |       | 7,849 | 
|Deferred tax liabilities:          |                                               |                                |        |       |        |      |    |      
|                                   | Capitalized mortgage servicing assets         |                                |        | 5,358 |        |      |    | 2,918 |      
|                                   | SFAS No. 115 adjustment                       |                                |        | 4,209 |        |      |    | 1,887 |      
|                                   | FHLB dividends                                |                                |        | 2,619 |        |      |    | 2,326 |      
|                                   | Goodwill and intangible amortization          |                                |        | 693   |        |      |    | 332   |      
|                                   | Other                                         |                                |        | 524   |        |      |    | 343   |      
|                                   |                                               |                                |        |       |        |      |    |      
|                                   |                                               | Total deferred tax liabilities |        |       | 13,403 |      |    |       | 7,806 | 
|                                   |                                               |                                |        |       |        |      |    |      
|Net deferred tax (liability) asset |                                               | $                              | (3,267 | )     |        | $    | 43 |      
|                                   |                                               |                                |        |       |        |      |    |      

20. Employee Benefit Plans

The Corporation has a non-contributory, defined-benefit pension plan covering
substantially all of its employees. The benefits are based on a percentage of
the employees average annual earnings multiplied by completed years of
continuous service. The Corporations funding policy is to contribute annually
an amount between the minimum required and the maximum amount that can be
deducted for federal income tax purposes. Contributions are intended to provide
not only for benefits attributed to service to date but also for those expected
to be earned in the future. The plan assets at December 31, 2002 are invested primarily in common stock, preferred stock, corporate bonds and cash.
Included in those investments for the last two-year ends are 16,762 shares of
Corporations common stock with a market value of $444 and $362 as of December
31, 2002 and 2001, respectively. The Bank also has a supplemental retirement
deferred benefit plan for certain employees, which provides benefits in excess
of the defined benefit plan.

The following table sets forth the plans pension benefits:

|                                                |  |        |        |        |  |   |        |  
|----------------------------------------------- |  | ------ | ------ | ------ |  | - | ------ | -
|                                                |  | 2002   |        | 2001  
|                                                |  |        |        |       
|Change in benefit obligation:                   |  |        |        |        |  |   |        |  
|Benefit obligation at beginning of year         |  | $      | 10,762 |        |  | $ | 8,802  |  
|Service cost                                    |  |        | 901    |        |  |   | 727    |  
|Interest cost                                   |  |        | 802    |        |  |   | 694    |  
|Amendments                                      |  |        |       |        |  |   | 15     |  
|Actuarial loss                                  |  |        | 1,582  |        |  |   | 965    |  
|Disbursements                                   |  |        | (346   | )      |  |   | (441   | )
|                                                |  |        |        |        |  |   |        |  
|Benefit obligation at end of year               |  | $      | 13,701 |        |  | $ | 10,762 |  
|                                                |  |        |        |        |  |   |        |  
|Change in plan assets:                          |  |        |        |        |  |   |        |  
|Fair value of plan assets at beginning
of year  |  | $      | 9,593  |        |  | $ | 10,956 |  
|Actual return on plan assets                    |  |        | (990   | )      |  |   | (1,008 | )
|Employer contribution                           |  |        | 86     |        |  |   | 86     |  
|Disbursements                                   |  |        | (346   | )      |  |   | (441   | )
|                                                |  |        |        |        |  |   |        |  
|Fair value of plan assets at end of year        |  | $      | 8,343  |        |  | $ | 9,593  |  
|                                                |  |        |        |        |  |   |        |  
|Funded status                                   |  | $      | (5,358 | )      |  | $ | (1,169 | )
|Unrecognized net actuarial loss                 |  |        | 3,989  |        |  |   | 350    |  
|Unrecognized prior service cost                 |  |        | 14     |        |  |   | 15     |  
|Unrecognized initial net obligation             |  |        | (6     | )      |  |   | (28    | )
|                                                |  |        |        |        |  |   |        |  
|Net amount recognized                           |  | $      | (1,361 | )      |  | $ | (832   | )
|                                                |  |        |        |        |  |   |        |  
|Accrued pension liability                       |  | $      | (3,021 | )      |  | $ | (990   | )
|Accumulated other comprehensive income          |  |        | 1,660  |        |  |   | 158    |  
|                                                |  |        |        |        |  |   |        |  
|Net amount recognized                           |  | $      | (1,361 | )      |  | $ | (832   | )
|                                                |  |        |        |        |  |   |        |  
|Weighted average assumptions as of December 31: |  |        |        |        |  |   |        |  
|Discount rate                                   |  |        | 6.75   | %      |  |   | 7.375  | %
|Expected return on plan assets                  |  |        | 9.75   | %      |  |   | 9.75   | %
|Rate of compensation increase                   |  | Age-   |        | Age-  
|                                                |  | graded |        | graded

|                                         |  |      |        |      |  |      |        |   |  |   |      |  
|---------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ---- | -
|                                         |  | 2002 |        | 2001 |  | 2000
|                                         |  |      |        |      |  |     
|Components of net
periodic benefit cost: |  |      |        |      |  |      |        |   |  |   |      |  
|Service cost                             |  | $    | 901    |      |  | $    | 727    |   |  | $ | 617  |  
|Interest cost                            |  |      | 802    |      |  |      | 694    |   |  |   | 594  |  
|Expected return on
plan assets           |  |      | (1,076 | )    |  |      | (1,008 | ) |  |   | (832 | )
|Amortization of prior
service cost       |  |      | 1      |      |  |      | 6      |   |  |   | 6    |  
|Amortization of initial
net asset        |  |      | (22    | )    |  |      | (21    | ) |  |   | (21  | )
|Recognized net
actuarial loss (gain)     |  |      | 10     |      |  |      | (109   | ) |  |   | (181 | )
|                                         |  |      |        |      |  |      |        |   |  |   |      |  
|Net periodic pension
expense             |  | $    | 616    |      |  | $    | 289    |   |  | $ | 183  |  
|                                         |  |      |        |      |  |      |        |   |  |   |      |  

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The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the nonqualified pension plan with
accumulated benefit obligations in excess of plan assets were $12,741, $10,465
and $8,343, respectively, as of December 31, 2002, and $9,949, $8,146 and
$9,594 respectively as of December 31, 2001. The actual return on plan assets
in 2002 represented a 10.3% decline in the fair value of plan assets. The
decline is attributable to the reduction in the values of plan equity
investments during the year. Management will reduce the expected return on plan
assets to 9% for the calculation of the 2003 net periodic pension expense.

The Corporation also maintains two nonqualified supplemental retirement plans
for certain key employees. The plans benefits are unfunded and any payments to
the plan participants are made by the Corporation. The projected benefit
obligation, accumulated benefit obligations and fair value of plan assets for
the nonqualified pension plan with accumulated benefits obligations in excess
of plan assets were $960, $856, and $0, respectively, as of December 31, 2002,
and $813, $782, and $0, respectively as of December 31, 2001. For the years
ended December 31, 2002, 2001 and 2000, expenses related to these plans were
$149, $95 and $62, respectively.

The Bank also sponsors a defined contribution benefit plan covering
substantially all eligible employees of the Bank. The Bank voluntarily
contributes 75% of the participants contribution to a maximum of 4.5% of the
participants compensation. Participants, at their discretion, may invest in
several investment funds or a stock fund consisting solely of the Corporations
common stock. The Banks contribution is initially limited to the stock fund,
however participants may choose to reallocate the investments at any time.
Contributions in 2002, 2001 and 2000 were $626, $524 and $442, respectively.
The Board of Directors of the Corporation has authorized the issuance of 99,000
shares of the Corporations common stock for use in the Banks defined
contribution benefit plan. As of December 31, 2002, none of the shares
authorized have been issued.

21. Stock Options and Awards

Stock Options
The Corporation maintains incentive and non-qualified stock option plans that
allow for stock based awards to eligible employees and directors. Through
February 1998, the Corporation issued incentive stock options that were
exercisable in one year after issuance and expire after ten years. The maximum
annual grant was 7,500 shares per employee. The plan was terminated in May 1998
when the non-qualified stock option plan was approved. In 1998, the
non-qualified plan authorized 650,000 shares of common stock to be reserved and
subject to issuance. In April 2002, the plan was amended with shareholder
approval to increase by 450,000 the number of authorized shares. As of December
31, 2002, the non-qualified plan had 477,000 authorized and un-issued shares
remaining. Until January 2001, the maximum annual grant was 10,000 shares per
employee and 1,000 shares per director. The awards currently have no maximum.
The options are also exercisable one year after issuance and expire after ten
years.

The weighted-average fair value of the options granted during 2002, 2001 and
2000 was $5.38, $3.85 and $3.68, respectively. The fair value for these options
was estimated at the date of grant using a Black-Scholes option-pricing model
with the following weighted-average assumptions:

|                                                                         |  |         |      |         |  |         |      |   |  |  |      |  
|------------------------------------------------------------------------ |  | ------- | ---- | ------- |  | ------- | ---- | - |  |  | ---- | -
|                                                                         |  | 2002    |      | 2001    |  | 2000   
|                                                                         |  |         |      |         |  |        
|Risk-free interest rate                                                  |  |         | 3.0  | %       |  |         | 4.0  | % |  |  | 5.5  | %
|Dividend yield                                                           |  |         | 3.0  | %       |  |         | 3.0  | % |  |  | 4.0  | %
|Volatility factor of expected
market price of Corporations
common stock |  |         | .289 |         |  |         | .302 |   |  |  | .301 |  
|Weighted-average expected life                                           |  | 6 years |      | 6 years |  | 6 years

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Corporations employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in Managements opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.

A summary of stock option activity is as follows:

|                                 |           |  |           |          |              |   |              |             |  |   |        |        |  
|-------------------------------- | --------- |  | --------- | -------- | ------------ | - | ------------ | ----------- |  | - | ------ | ------ | -
|                                 |           |  | Number    |          | Option Price |  
|                                 |           |  | Of Shares |          | Per Share    |   | Total       
|                                 |           |  |           |          |              |   |             
|Outstanding at                   |           |  |           |          |              |   |              |             |  |   |        |       
|December 31, 1999                |           |  | 360,750   |          |              | $ | 7.33-$25.44  |             |  | $ | 7,593  |       
|                                 | Granted   |  |           | 92,000   |              |   |              | 13.66-22.34 |  |   |        | 1,412  |  
|                                 | Forfeited |  |           | (54,050  | )            |   |              | 13.44-25.44 |  |   |        | (1,281 | )
|                                 | Exercised |  |           | (2,500   | )            |   |              | 13.44       |  |   |        | (34    | )
|                                 |           |  |           |          |              |   |              |             |  |   |        |       
|Outstanding at                   |           |  |           |          |              |   |              |             |  |   |        |       
|December 31, 2000                |           |  | 396,200   |          |              |   | 7.33-25.44   |             |  |   | 7,690  |       
|                                 | Granted   |  |           | 197,500  |              |   |              | 14.44-20.19 |  |   |        | 2,943  |  
|                                 | Forfeited |  |           | (5,500   | )            |   |              | 22.13-25.44 |  |   |        | (125   | )
|                                 | Exercised |  |           | (47,500  | )            |   |              | 7.33-13.66  |  |   |        | (540   | )
|                                 |           |  |           |          |              |   |              |             |  |   |        |       
|Outstanding at December 31, 2001 |           |  | 540,700   |          |              |   | 10.58-25.44  |             |  |   | 9,968  |       
|                                 | Granted   |  |           | 167,000  |              |   |              | 23.27-26.32 |  |   |        | 3,928  |  
|                                 | Exercised |  |           | (127,300 | )            |   |              | 10.56-22.72 |  |   |        | (1,795 | )
|                                 |           |  |           |          |              |   |              |             |  |   |        |       
|Outstanding at December 31, 2002 |           |  | 580,400   |          |              | $ | 13.44-$26.32 |             |  | $ | 12,101 |       
|                                 |           |  |           |          |              |   |              |             |  |   |        |       
|Exercisable at December 31, 2002 |           |  | 413,400   |          |              | $ | 13.44-$25.44 |             |  | $ | 8,173  |       
|                                 |           |  |           |          |              |   |              |             |  |   |        |       

As of December 31, 2002, outstanding options weighted-average exercise price
was $20.85 and weighted-average remaining contractual life was 7.4 years.

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Restricted Stock Awards
The restricted stock plan provides for the issuance of up to 50,000 shares of
common stock to key employees. The restriction expires after five years and the
Corporation recognizes expense over the restricted period. Compensation expense
recognized in 2002, 2001 and 2000 totaled $104, $72 and $32, respectively. At
December 31, 2002, there were 22,420 authorized and un-issued shares remaining.

A summary of restricted stock activity is as follows:

|                                 |           |  |           |        |           |   |              |              |  |   |     |     |  
|-------------------------------- | --------- |  | --------- | ------ | --------- | - | ------------ | ------------ |  | - | --- | --- | -
|                                 |           |  | Number    |        | Price Per |   |              |              | 
|                                 |           |  | Of Shares |        | Share     |   | Value       
|                                 |           |  |           |        |           |   |             
|Outstanding at
December 31, 2000 |           |  | 23,460    |        |           | $ | 16.38-$32.63 |              |  | $ | 424 |    
|                                 | Granted   |  |           | 1,500  |           |   |              | 21.38- 21.82 |  |   |     | 33  |  
|                                 | Forfeited |  |           | (3,500 | )         |   |              | 16.38-19.00  |  |   |     | (58 | )
|                                 |           |  |           |        |           |   |              |              |  |   |     |    
|Outstanding at December 31, 2001 |           |  | 21,460    |        |           |   | 16.38-32.63  |              |  |   | 399 |    
|                                 | Granted   |  |           | 6,120  |           |   |              | 20.56-27.10  |  |   |     | 150 |  
|                                 |           |  |           |        |           |   |              |              |  |   |     |    
|Outstanding at December 31, 2002 |           |  | 27,580    |        |           | $ | 16.38-$32.63 |              |  | $ | 549 |    
|                                 |           |  |           |        |           |   |              |              |  |   |     |    

22. Parent Company

Condensed financial information of Second Bancorp Incorporated (Parent Company
only) is as follows:

Condensed Balance Sheets

|                                      |                                                                                                                 |                                            |   |         |         |  |   |         |         | 
|------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ------- | ------- |  | - | ------- | ------- | 
|December 31                           |                                                                                                                 | 2002                                       |   | 2001   
|                                      |                                                                                                                 |                                            |   |        
|Assets:                               |                                                                                                                 |                                            |   |         |         |  |   |        
|                                      | Cash                                                                                                            |                                            | $ | 486     |         |  | $ | 1,227   |        
|                                      | Available-for-sale securities                                                                                   |                                            |   | 1,011   |         |  |   | 1,040   |        
|                                      | Loans                                                                                                           |                                            |   | 557     |         |  |   | 586     |        
|                                      | Investment in and advances to subsidiaries, at
equity in underlying value of their net
assets                   |                                            |   | 172,142 |         |  |   | 156,318 |        
|                                      | Fixed assets                                                                                                    |                                            |   | 3       |         |  |   | 4       |        
|                                      | Other assets                                                                                                    |                                            |   | 2,886   |         |  |   | 2,348   |        
|                                      |                                                                                                                 |                                            |   |         |         |  |   |        
|                                      |                                                                                                                 | Total assets                               |   | $       | 177,085 |  |   | $       | 161,523 | 
|                                      |                                                                                                                 |                                            |   |         |         |  |   |        
|Liabilities and Shareholders Equity: |                                                                                                                 |                                            |   |         |         |  |   |        
|                                      | Accrued and other liabilities                                                                                   |                                            | $ | 2,266   |         |  | $ | 1,792   |        
|                                      | Note payable                                                                                                    |                                            |   | 7,000   |         |  |   |        |        
|                                      | Subordinated debentures of non-bank subsidiary                                                                  |                                            |   | 31,485  |         |  |   | 31,432  |        
|Shareholders Equity:                 |                                                                                                                 |                                            |   |         |         |  |   |        
|                                      | Common stock, no par value; 30,000,000 shares
authorized; 11,041,263 and 10,832,810
shares issued, respectively |                                            |   | 41,763  |         |  |   | 37,453  |        
|                                      | Treasury stock, 1,279,009 and 883,494 shares,
respectively                                                      |                                            |   | (27,180 | )       |  |   | (16,798 | )      
|                                      | Other comprehensive income                                                                                      |                                            |   | 6,656   |         |  |   | 3,434   |        
|                                      | Retained earnings                                                                                               |                                            |   | 115,095 |         |  |   | 104,210 |        
|                                      |                                                                                                                 |                                            |   |         |         |  |   |        
|                                      |                                                                                                                 | Total liabilities and
shareholders equity |   | $       | 177,085 |  |   | $       | 161,523 | 
|                                      |                                                                                                                 |                                            |   |         |         |  |   |        

Condensed Statements of Income

|            |                                                                                 |                |   |         |        |      |   |        |        |  |   |       |       | 
|----------- | ------------------------------------------------------------------------------- | -------------- | - | ------- | ------ | ---- | - | ------ | ------ |  | - | ----- | ----- | 
|Years ended |                                                                                 |                |   |         |        |      |   |        |        |  |   |      
|December 31 |                                                                                 | 2002           |   | 2001    |        | 2000
|            |                                                                                 |                |   |         |        |     
|Income:     |                                                                                 |                |   |         |        |      |   |        |        |  |   |      
|            | Cash dividends from subsidiaries                                                |                | $ | 30,790  |        |      | $ | 8,150  |        |  | $ | 7,952 |      
|            | Interest income                                                                 |                |   | 99      |        |      |   | 161    |        |  |   | 259   |      
|            | Trading account losses                                                          |                |   |        |        |      |   | (10    | )      |  |   | (309  | )    
|            | (Losses) gains on sale of securities                                            |                |   | (56     | )      |      |   | 37     |        |  |   | (10   | )    
|            | Other income                                                                    |                |   | 169     |        |      |   |       |        |  |   | 9     |      
|            |                                                                                 |                |   |         |        |      |   |        |        |  |   |      
|            |                                                                                 | Total income   |   |         | 31,002 |      |   |        | 8,338  |  |   |       | 7,901 | 
|Expenses:   |                                                                                 |                |   |         |        |      |   |        |        |  |   |      
|            | Interest expense                                                                |                |   | 3,060   |        |      |   | 796    |        |  |   | 25    |      
|            | Merger costs                                                                    |                |   | 134     |        |      |   | 305    |        |  |   |      |      
|            | Other expenses                                                                  |                |   | 966     |        |      |   | 962    |        |  |   | 2,108 |      
|            |                                                                                 |                |   |         |        |      |   |        |        |  |   |      
|            |                                                                                 | Total expenses |   |         | 4,160  |      |   |        | 2,063  |  |   |       | 2,133 | 
|            | Income before income taxes and equity in
undistributed earnings of subsidiaries |                |   | 26,842  |        |      |   | 6,275  |        |  |   | 5,768 |      
|            | Income tax benefit                                                              |                |   | 1,403   |        |      |   | 739    |        |  |   | 780   |      
|            |                                                                                 |                |   |         |        |      |   |        |        |  |   |      
|            | Income before and equity in
undistributed earnings of subsidiaries              |                |   | 28,245  |        |      |   | 7,014  |        |  |   | 6,548 |      
|            | Equity in undistributed (loss) income of
subsidiaries                           |                |   | (10,245 | )      |      |   | 10,066 |        |  |   | (414  | )    
|            |                                                                                 |                |   |         |        |      |   |        |        |  |   |      
|            |                                                                                 | Net income     |   | $       | 18,000 |      |   | $      | 17,080 |  |   | $     | 6,134 | 
|            |                                                                                 |                |   |         |        |      |   |        |        |  |   |      

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Condensed Statements of Cash Flows

|                                                              |  |      |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|Years ended December 31                                       |  | 2002 |         | 2001 |  | 2000
|                                                              |  |      |         |      |  |     
|Operating Activities:                                         |  |      |         |      |  |      |         |   |  |   |         |  
|Net income                                                    |  | $    | 18,000  |      |  | $    | 17,080  |   |  | $ | 6,134   |  
|Less: Equity in undistributed
net loss (income) of subsidiary |  |      | 10,245  |      |  |      | (10,066 | ) |  |   | 414     |  
|Depreciation                                                  |  |      | 1       |      |  |      | 2       |   |  |   | 13      |  
|Net decrease (increase) in trading account
securities         |  |      |        |      |  |      | 328     |   |  |   | (328    | )
|Loss (gain) on sale of securities                             |  |      | 55      |      |  |      | (37     | ) |  |   | 10      |  
|Donation of securities to foundation                          |  |      | 75      |      |  |      |        |   |  |   |        |  
|Gain on disposal of equipment and
other assets                |  |      | (169    | )    |  |      |        |   |  |   | (9      | )
|Amortization of debt issuance costs                           |  |      | 53      |      |  |      | 13      |   |  |   |        |  
|Other (net)                                                   |  |      | (128    | )    |  |      | (25     | ) |  |   | (818    | )
|                                                              |  |      |         |      |  |      |         |   |  |   |         |  
|Cash provided by operations                                   |  |      | 28,132  |      |  |      | 7,295   |   |  |   | 5,416   |  
|                                                              |  |      |         |      |  |      |         |   |  |   |         |  
|Investing Activities:                                         |  |      |         |      |  |      |         |   |  |   |         |  
|Repayment of loan to subsidiary                               |  |      |        |      |  |      |        |   |  |   | 11,000  |  
|Net decrease in loans                                         |  |      | 29      |      |  |      | 26      |   |  |   | 26      |  
|Sale of securities                                            |  |      |        |      |  |      | 417     |   |  |   | 17      |  
|Purchase of securities                                        |  |      | (55     | )    |  |      |        |   |  |   | (126    | )
|Acquisition of subsidiaries                                   |  |      | (1,979  | )    |  |      | (26,926 | ) |  |   |        |  
|Investment in subsidiaries                                    |  |      | (21,000 | )    |  |      | (990    | ) |  |   |        |  
|Sale of premises and equipment other
assets                   |  |      | 319     |      |  |      |        |   |  |   | 11      |  
|Purchase of premises and equipment                            |  |      |        |      |  |      |        |   |  |   | (5      | )
|                                                              |  |      |         |      |  |      |         |   |  |   |         |  
|Cash (used by) provided by investing
activities               |  |      | (22,686 | )    |  |      | (27,473 | ) |  |   | 10,923  |  
|                                                              |  |      |         |      |  |      |         |   |  |   |         |  
|Financing Activities:                                         |  |      |         |      |  |      |         |   |  |   |         |  
|Issuance of note payable                                      |  |      | 7,000   |      |  |      |        |   |  |   | 1,000   |  
|Repayment of note payable                                     |  |      |        |      |  |      | (1,000  | ) |  |   | (4,000  | )
|Issuance of subordinated
debentures to non-bank subsidiary    |  |      |        |      |  |      | 31,419  |   |  |   |        |  
|Net issuance of common stock                                  |  |      | 4,310   |      |  |      | 518     |   |  |   | (31     | )
|Purchase of treasury stock                                    |  |      | (10,382 | )    |  |      | (2,851  | ) |  |   | (6,807  | )
|Payment of dividend                                           |  |      | (7,115  | )    |  |      | (6,798  | ) |  |   | (6,518  | )
|                                                              |  |      |         |      |  |      |         |   |  |   |         |  
|Cash (used by) provided by financing
activities               |  |      | (6,187  | )    |  |      | 21,288  |   |  |   | (16,356 | )
|                                                              |  |      |         |      |  |      |         |   |  |   |         |  
|(Decrease) increase in cash                                   |  |      | (741    | )    |  |      | 1,110   |   |  |   | (17     | )
|Cash at beginning of year                                     |  |      | 1,227   |      |  |      | 117     |   |  |   | 134     |  
|                                                              |  |      |         |      |  |      |         |   |  |   |         |  
|Cash at end of year                                           |  | $    | 486     |      |  | $    | 1,227   |   |  | $ | 117     |  
|                                                              |  |      |         |      |  |      |         |   |  |   |         |  

23. Derivative Instruments

The Corporation uses derivative instruments primarily to protect against the
risk of adverse price of interest rate movements on the value of certain assets
and liabilities and on future cash flows. Derivative instruments represent
contracts between parties that usually require little or no initial net
investment and result in one party delivering cash or another type of asset to
the other party based on a notional amount and underlying as specified in the
contract. A notional amount represents the number of units of a specific item,
such as currency units. An underlying represents a variable, such as an
interest rate or price index. The amount of cash or other asset delivered from
one party to the other is determined based on the interaction of the notional
amount of the contract with the underlying. Derivatives are also implicit in
certain contracts and commitments.

The Corporations primary market risk is interest rate risk. Management
periodically uses derivative instruments to protect against the risk of
interest rate movements on the value of certain assets and liabilities and on
future cash flows. These instruments primarily include interest rate swaps and
interest rate caps and floors with indices that relate to the pricing of
specific assets and liabilities. The nature and volume of the derivative
instruments used to manage interest rate risk depend on the level and type of
assets and liabilities on the balance sheet and the risk management strategies
for the current and anticipated rate environment.

On January 1, 2001, the Corporation adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which requires all derivative
instruments to be carried at fair value on the balance sheet. As a result of
adopting the new standard, the Corporation recorded amounts with establishing
the fair values of the derivatives and hedged items on the balance sheet. A
pre-tax transition loss of $155, or $101 after tax, was recorded in the income
statement net of tax as a cumulative effect of accounting change to establish
the fair value hedge relationships. Prior to 2001, unrealized gains and losses
on derivatives used for hedging purposes were generally not required to be
reported in the financial statements. In order to reduce the earnings
volatility that would result from having to recognize in earnings the fair
value of certain derivative instruments used to hedge risks associated with
financial instruments carried at fair value, SFAS No. 133 provides special
hedge accounting provisions. The provisions permit the change in the fair value
of the hedged item related to the risk being hedged to be recognized in
earnings in the same period and in the same income statement line as the change
in fair value of the derivatives in interest income on commercial loans and
interest expense on FHLB advances. Note 1 provides further detail on how
derivative instruments are accounted for in the financial statements. The
Corporation usually designates derivative instruments used to manage interest
rate risk into SFAS No. 133 hedge relationships with specific assets,
liabilities or cash flows being hedged.

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As with any financial instrument, derivative instruments have inherent risks.
Market risk is the adverse effect a change in interest rates, currency or
implied volatility has on the value of a financial instrument. The risk is
periodically measured as part of the Corporations overall market risk
monitoring process, which includes the use of earnings simulation and net
present value estimation.

Credit risk is the risk that a counter party to a derivative contract with an
unrealized gain fails to perform according to the terms of the agreement.
Credit risk is managed by limiting the aggregate amount of net unrealized gains
in agreements outstanding and monitoring the size and the maturity structure of
the derivative portfolio.

Fair Value Hedges
During 2002, the Corporation utilized pay-fixed interest rate swaps for
commercial loans for changes in interest rates. The swaps have a $3.6 million
notional amount with a $(258) fair market value as of December 31, 2002 with no
net ineffectiveness hedge gain or loss. As of December 31, 2001, the swap had a
fair market value of $(247). Previously, the Corporation utilized interest rate
caps to mitigate the risk of increased borrowing costs associated with
convertible features of certain FHLB advances. The caps were terminated during
2001 with no impact on future years earning and $72 in expense recognized in
2001.

Cash Flow Hedges
During 2001, the Corporation hedged cash flow variability related to floating
rate loans. The Corporation used interest rate floors to mitigate the risk of a
decline in interest receipts on floating rate loans due to a decline in the
Banks prime rate. During 2001, the Corporation recognized $217 in income from
the effectiveness of the floors with an additional $390 to be amortized into
income over the remaining term of the floors, which was generated when the
floors were terminated during 2001.

Other Derivatives
During 2002, the Corporation utilized interest rate floors to mitigate the risk
of changes in the valuation of mortgage servicing assets. At December 31, 2002,
the floors had a fair value of $375 based on a $300 million notional value and
a remaining life of 1.9 years.

24. Commitments and Contingent Liabilities

Loan Commitments
Loan commitments are made to accommodate the financial needs of the Banks
customers; however, there are no long-term, fixed-rate loan commitments that
result in market risk. Standby letters of credit commit the Bank to make
payments on behalf of customers when certain specified future events occur.
They primarily are issued to facilitate customers trade transactions.

Both arrangements have credit risk, essentially the same as that involved in
extending loans to customers, and are subject to the Banks normal credit
policies. Collateral (e.g., securities, receivables, inventory and equipment)
is obtained based on Managements credit assessment of the customer.

The Banks maximum obligation to extend credit for loan commitments (unfunded
loans and unused lines of credit) and standby letters of credit outstanding on
December 31 was as follows:

|                          |  |      |         |      |  |   |         | 
|------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                          |  | 2002 |         | 2001
|                          |  |      |         |     
|Commercial                |  | $    | 162,892 |      |  | $ | 108,810 | 
|Real Estate               |  |      | 32,231  |      |  |   | 29,600  | 
|Consumer                  |  |      | 68,967  |      |  |   | 57,944  | 
|Standby Letters of Credit |  |      | 18,020  |      |  |   | 4,796   | 
|                          |  |      |         |      |  |   |         | 
|Total                     |  | $    | 282,110 |      |  | $ | 201,150 | 
|                          |  |      |         |      |  |   |         | 

Lease Agreements
The Bank has entered into lease agreements covering its main office, several
branch locations and equipment for various periods through 2014, with options
to renew. Also, the Bank has the option to purchase the main office facility
before two optional periods at the fair market value in existence at that time.

Future minimum commitments under non-cancelable operating leases are as
follows:

|           |      |  |       |       | 
|---------- | ---- |  | ----- | ----- | 
|           | 2003 |  | $     | 2,431 | 
|           | 2004 |  |       | 2,206 | 
|           | 2005 |  |       | 2,276 | 
|           | 2006 |  |       | 2,139 | 
|           | 2007 |  |       | 1,955 | 
|Thereafter |      |  | 6,419 |      

Included in the schedule above are costs totaling $234, $197, $155, $155, $155
and $751, respectively, for the years shown that were expensed in 2002, due to
the banking center reconfiguration strategy that included closure and
consolidation of several facilities.

Rentals under operating leases and data processing costs amounted to $3,362,
$3,214 and $3,020 in 2002, 2001 and 2000, respectively.

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Low Income Housing Project
In 1993, the Bank began investing in low-income housing tax credit projects
designed to provide affordable housing for Ohio communities. The Bank has
invested $1,995 to date and is realizing tax credits and tax savings from the
investments. The Bank is committed to invest another $4,005 to the fund over
the next several years.

Commitments

|                                            |  |       |         |      |  |        |         |       |  |   |        |       |  |   |     | 
|------------------------------------------- |  | ----- | ------- | ---- |  | ------ | ------- | ----- |  | - | ------ | ----- |  | - | --- | 
|Amount of                                   |  |       |         |      |  |        |         |       |  |   |        |       |  |   |     | 
|commitment                                  |  |       |         |      |  | Less   |         |       |  |   |        | After
|Expiration by                               |  |       |         |      |  | Than 1 |         | 2-5   |  | 5
|period                                      |  | Total |         | Year |  | Years  |         | Years
|                                            |  |       |         |      |  |        |         |      
|Commitments to lend-commercial              |  | $     | 162,892 |      |  | $      | 156,861 |       |  | $ | 6,031  |       |  | $ |    | 
|Commitments to
lend-residential real estate |  |       | 32,231  |      |  |        | 32,231  |       |  |   |       |       |  |   |    | 
|Commitments to lend-consumer                |  |       | 68,967  |      |  |        | 68,967  |       |  |   |       |       |  |   |    | 
|Standby letters of credit                   |  |       | 18,020  |      |  |        | 2,632   |       |  |   | 15,125 |       |  |   | 263 | 
|                                            |  |       |         |      |  |        |         |       |  |   |        |       |  |   |     | 
|Total                                       |  | $     | 282,110 |      |  | $      | 260,691 |       |  | $ | 21,156 |       |  | $ | 263 | 
|                                            |  |       |         |      |  |        |         |       |  |   |        |       |  |   |     | 

There are no recourse provisions with third parties or balances recorded for
the standby letters of credit at December 31, 2002.

25. Line of Business Reporting

Management began using line of business reporting on January 1, 2002.
Management previously was developing the system and
allocation methodology used in the line of business reporting structure. The
Corporation operates three major lines of business: Retail, Commercial and
Mortgage.

Retail includes deposit gathering, direct and indirect consumer lending along
with a minor amount of small business banking services. Commercial includes
credit and related financial services to small- to large- sized corporations
and businesses. Mortgage includes mortgage banking activities, including the
ownership, origination, sale and servicing of mortgages.

The business units are identified by the product or services offered and the
channel through which the product or service is delivered. The accounting
policies of the individual business units are the same as those for the
Corporation.

The reported results reflect the underlying economics of the businesses.
Expenses for centrally provided services are allocated based upon estimated
usage of those services. The business units assets and liabilities are
matched-funded and interest rate risk is centrally managed. Transactions
between business units are primarily conducted at fair value, resulting in
gains or losses that are eliminated for reporting consolidated results of
operations.

Parent and other are primarily comprised of the results of the investment
funding activities, inter-segment revenue (expense) eliminations and
unallocated corporate income and expense. Operating results of the business
units are discussed in the Line of Business Results section of Managements
Discussion and Analysis of Financial Condition and Results of Operations.
Selected financial information by line of business is included in the table
below:

|                            |  |          |         |            |  |        |         |           |  |              |         |   |  |        |         |   |  |   |           |  
|--------------------------- |  | -------- | ------- | ---------- |  | ------ | ------- | --------- |  | ------------ | ------- | - |  | ------ | ------- | - |  | - | --------- | -
|                            |  |          |         |            |  |        |         |           |  |              |         |   |  | Parent |         |   |  |  
|                            |  | Mortgage |         | Commercial |  | Retail |         | And Other |  | Consolidated
|                            |  |          |         |            |  |        |         |           |  |             
|Interest income             |  | $        | 19,770  |            |  | $      | 31,645  |           |  | $            | 27,116  |   |  | $      | 26,797  |   |  | $ | 105,328   |  
|Interest expense            |  |          |        |            |  |        |        |           |  |              | (30,028 | ) |  |        | (20,784 | ) |  |   | (50,812   | )
|Transfer pricing            |  |          | (14,053 | )          |  |        | (17,970 | )         |  |              | 32,111  |   |  |        | (88     | ) |  |   |          |  
|Loan fees                   |  |          | 175     |            |  |        | 1,347   |           |  |              | 458     |   |  |        | (36     | ) |  |   | 1,944     |  
|                            |  |          |         |            |  |        |         |           |  |              |         |   |  |        |         |   |  |   |           |  
|Net interest margin         |  |          | 5,892   |            |  |        | 15,022  |           |  |              | 29,657  |   |  |        | 5,889   |   |  |   | 56,460    |  
|Provision for loan losses   |  |          | (345    | )          |  |        | (2,560  | )         |  |              | (3,254  | ) |  |        |        |   |  |   | (6,159    | )
|Non-interest income         |  |          | 6,481   |            |  |        | 1,749   |           |  |              | 9,095   |   |  |        | 6,100   |   |  |   | 23,425    |  
|Non-interest expense-direct |  |          | (3,138  | )          |  |        | (4,218  | )         |  |              | (17,419 | ) |  |        | (24,721 | ) |  |   | (49,496   | )
|                            |  |          |         |            |  |        |         |           |  |              |         |   |  |        |         |   |  |   |           |  
|Direct contribution         |  |          | 8,890   |            |  |        | 9,993   |           |  |              | 18,079  |   |  |        | (12,732 | ) |  |   | 24,230    |  
|Allocations                 |  |          | (2,633  | )          |  |        | (742    | )         |  |              | (16,352 | ) |  |        | 19,727  |   |  |   |          |  
|                            |  |          |         |            |  |        |         |           |  |              |         |   |  |        |         |   |  |   |           |  
|Income before taxes         |  |          | 6,257   |            |  |        | 9,251   |           |  |              | 1,727   |   |  |        | 6,995   |   |  |   | 24,230    |  
|Income taxes                |  |          |        |            |  |        |        |           |  |              |        |   |  |        | (6,230  | ) |  |   | (6,230    | )
|                            |  |          |         |            |  |        |         |           |  |              |         |   |  |        |         |   |  |   |           |  
|Net income                  |  |          | 6,257   |            |  | $      | 9,251   |           |  | $            | 1,727   |   |  | $      | 765     |   |  | $ | 18,000    |  
|                            |  |          |         |            |  |        |         |           |  |              |         |   |  |        |         |   |  |   |           |  
|Average assets              |  | $        | 302,551 |            |  | $      | 470,144 |           |  | $            | 368,990 |   |  | $      | 612,471 |   |  | $ | 1,754,156 |  
|                            |  |          |         |            |  |        |         |           |  |              |         |   |  |        |         |   |  |   |           |  

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Report of Independent Auditors

To the Shareholders and Board of Directors of Second Bancorp Incorporated:

We have audited the accompanying consolidated balance sheets of Second Bancorp
Incorporated and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income, shareholders equity, and cash flows for
each of the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the Corporations Management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Second Bancorp
Incorporated and subsidiaries at December 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

Cleveland, Ohio
January 23, 2003

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Report of Management

Financial Statements
Management is responsible for the preparation, integrity, and fair presentation
of its published financial statements as of December 31, 2002 and the year then
ended. The consolidated financial statements of Second Bancorp Incorporated
have been prepared in accordance with accounting principles generally accepted
in the United States and, as such, include some amounts that are based on
judgments and estimates of Management.

Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining effective internal
control over financial reporting presented in conformity with accounting
principles generally accepted in the United States and the Federal Financial
Institutions Examination Council instructions for Consolidated Reports of
Condition and Income (call report instructions). The system contains monitoring
mechanisms, and actions are taken to correct deficiencies identified.

There are inherent limitations in the effectiveness of any internal control,
including the possibility of human error and the circumvention or overriding of
controls. Accordingly, even effective internal control can provide only
reasonable assurance with respect to financial statement preparation. Further,
because of changes in conditions, the effectiveness of internal control may
vary over time.

Management assessed the Banks internal control over financial reporting
presented in conformity with accounting principles generally accepted in the
United States and call report instructions as of December 31, 2002. This
assessment was based on criteria for effective internal control over financial
reporting described in Internal Control  Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, Management believes The Second National Bank of Warren maintained
effective internal control over financial reporting presented in conformity
with accounting principles generally accepted in the United States and call
report instructions as of December 31, 2002.

Compliance With Laws And Regulations
Management is also responsible for compliance with the federal and state laws
and regulations concerning dividend restrictions and federal laws and
regulations concerning loans to insiders designated by the FDIC as safety and
soundness laws and regulations.

Management assessed compliance by The Second National Bank of Warren with the
designated laws and regulations relating to safety and soundness. Based on this
assessment, Management believes that the Bank complied, in all significant
respects, with the designated laws and regulations related to safety and
soundness for the year ended December 31, 2002.

/s/ Rick L. Blossom
R. L. (Rick) Blossom
President and Chief Executive Officer

/s/ David L. Kellerman
David L. Kellerman
Treasurer

Warren, Ohio
January 23, 2003

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Item 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Not Applicable.




PART III




Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

In accordance with General Instruction G(3), the information called for in this
Item 10 is incorporated herein by reference to Second Bancorps definitive
proxy statement for the annual meeting of shareholders to be held April 17,
2003 (the Proxy Statement). Such Proxy Statement has been filed with the
Securities and Exchange Commission on March 5, 2003. Information regarding
executive officers is included under item 4a hereof.




Item 11. EXECUTIVE COMPENSATION

In accordance with General Instruction G(3), the information called for in this
Item 11 is incorporated herein by reference to Second Bancorps definitive
proxy statement for the annual meeting of shareholders to be held April 17,
2003 (the Proxy Statement). Such Proxy Statement has been filed with the
Securities and Exchange Commission on March 5, 2003.




Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

In accordance with General Instruction G(3), the information called for in this
Item 12 is incorporated herein by reference to Second Bancorps definitive
proxy statement for the annual meeting of shareholders to be held April 17,
2003 (the Proxy Statement). Such Proxy Statement has been filed with the
Securities and Exchange Commission on March 5, 2003.




Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In accordance with General Instruction G(3), the information called for in this
Item 13 is incorporated herein by reference to Second Bancorps definitive
proxy statement for the annual meeting of shareholders to be held April 17,
2003 (the Proxy Statement). Such Proxy Statement has been filed with the
Securities and Exchange Commission on March 5, 2003.




Item 14. CONTROLS AND PROCEDURES

The management of Second Bancorp Incorporated is responsible for establishing
and maintaining effective disclosure controls and procedures, as defined under
Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. As of December
31, 2002, an evaluation was performed under the supervision and with the
participation of management, including the Chief Executive Officer and
Treasurer (Chief Financial Officer), of the effectiveness of the design and
operation of Second Bancorps disclosure controls and procedures. Based on that
evaluation, management concluded that Second Bancorps disclosure controls and
procedures as of December 31, 2002 were effective in ensuring that information
required to be disclosed in this Annual Report on Form 10-K was recorded,
processed, summarized and reported within the time period required by the
United States Securities and Exchange Commissions rules and forms.

Managements responsibilities related to establishing and maintaining
disclosure controls and procedures include maintaining effective internal
controls over financial reporting that are designed to produce reliable
financial statements in accordance with accounting principles generally
accepted in the United States. As disclosed in the Report of Management on page
67 of this Annual Report, management assessed Second Bancorps system of
internal control over financial reporting as of December 31, 2002, in relation
to criteria for effective internal control over financial reporting as
described in Internal Control  Integrated Framework, issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that, as of December 31, 2002, its system of
internal control over financial reporting met those criteria.

There have been no significant changes in Second Bancorps internal controls or
in other factors that could significantly affect internal controls subsequent
to December 31, 2002.

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PART IV




Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) The following consolidated financial statements of Second Bancorp,
Incorporated and subsidiaries are incorporated herein by reference from Item 8:

Consolidated Balance Sheets  December 31, 2002 and 2001.

Consolidated Statements of Income  years ended December 31, 2002, 2001 and
2000.

Consolidated Statements of Shareholders Equity  years ended December 31,
2002, 2001 and 2000.

Consolidated Statements of Cash Flows  years ended December 31, 2002, 2001 and
2000.

Notes to Consolidated Financial Statements.

Report of Independent Auditors.

(2)  Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.

(3)  Listing of Exhibits.The exhibits listed on the accompanying Index to
Exhibits immediately following the financial statement schedules are filed
as part of, or incorporated by reference into, this report.

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1 |  | Agreement and Plan of Merger, dated as of July 23, 2001, by and among
Second Bancorp Incorporated, Second Merger Corp. and Commerce Exchange
Corporation. Incorporated herein by reference to Exhibit 2.1 to the
Registration Statement on Form S-3 (Registration Nos. 333-68910 and
333-68910-01) as filed on September 4, 2001 by Second Bancorp Incorporated
and Second Bancorp Capital Trust I (the 2001 Form S-3).
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|3.1 |  | Amended and Restated Articles of Incorporation of the Registrant. (As
updated to include Amendments dated March 17, 1987; January 7, 1991; June
20, 1997; September 18, 1998; and November 10, 1998). Incorporated herein
by reference to Exhibit 3.1 to Second Bancorp Incorporateds annual report
on Form 10-K for the year ended December 31, 1998 (File No. 0-15624).                                               
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|3.3 |  | Code of Regulations of the Registrant. Incorporated herein by reference
to exhibit 3.2 to Second Bancorp Incorporateds annual report on Form 10-K
for the year ended December 31, 1994 (File No. 0-15624).                                                                                                                                                                                                              
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.1 |  | Indenture, dated as of September 28, 2001, by and between Second Bancorp
Incorporated and Wilmington Trust Company, as Indenture Trustee, relating
to 9.00% Subordinated Debentures due 2031 of Second Bancorp Incorporated.
Incorporated herein by reference to Exhibit 4.1 to Second Bancorp
Incorporateds Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2001 (File No. 0-15624).        
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.2 |  | Form of 9.00% Subordinated Debenture due 2031 of Second Bancorp
Incorporated. Incorporated herein by reference to Exhibit 4.1 to Second
Bancorp Incorporateds Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2001 (included as Exhibit A to Exhibit 4.1)
(File No. 0-15624).                                                                                                                
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.3 |  | Certificate of Trust of Second Bancorp Capital Trust I. Incorporated
herein by reference to Exhibit 4.3 to the 2001 Form S-3.                                                                                                                                                                                                                                                                                            
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.4 |  | Trust Agreement of Second Bancorp Capital Trust I, dated August 29, 2001,
by and among Wilmington Trust Company, as Trustee, R. L. Blossom, David L.
Kellerman and Christopher Stanitz. Incorporated herein by reference to
Exhibit 4.4 to the 2001 Form S-3.                                                                                                                                                            

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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5  |  | Amended and Restated Trust Agreement of Second Bancorp Capital Trust I,
dated as of September 28, 2001, by and among Second Bancorp Incorporated,
as Depositor, Wilmington Trust Company as Property Trustee, Wilmington
Trust Company, as Delaware Trustee, and the Administrative Trustees named
therein. Incorporated herein by reference to Exhibit 4.2 to Second Bancorp
Incorporateds Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2001 (File No. 0-15624).
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.6  |  | Form of 9.00% Cumulative Trust Preferred Securities of Second Bancorp
Capital Trust I. Incorporated herein by reference to Exhibit 4.2 to Second
Bancorp Incorporateds Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2001 (included as Exhibit D to Exhibit 4.2)
(File No. 0-15624).                                                                                                                                                                              
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.7  |  | Preferred Securities Guarantee Agreement, dated as of September 28, 2001,
by and between Second Bancorp Incorporated and Wilmington Trust Company.
Incorporated herein by reference to Exhibit 4.3 to Second Bancorp
Incorporateds Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2001 (File No. 0-15624).                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.1 |  | 1998 Non-qualified Stock Option Plan. Incorporated herein by reference to
the Registration Statement on Form S-8 (Registration No. 333-68104) as
filed on August 22, 2001.                                                                                                                                                                                                                                                                                                                      
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.2 |  | Amended Stock Option Incentive Plan. Incorporated herein by reference to
the Registration Statement on Form S-8 (Registration No. 333-32431) as
filed on July 30, 1997.                                                                                                                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.3 |  | Form of Incentive Stock Option Agreement. Incorporated herein by
reference to Exhibit 10.2 to Second Bancorp Incorporateds annual report
on Form 10-K for the year ended December 31, 1994 (File No. 0-15624).                                                                                                                                                                                                                                                                                 
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.4 |  | Deferred Compensation Agreement between Second Bancorp and Alan G. Brant,
dated November 9,1995. Incorporated herein by reference to the Exhibit
filed with the Registrants registration statement on Form S-4
(Registration No. 333-62365) as filed on September 22, 1998 with the
Securities and Exchange Commission.                                                                                                                                                                        
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.5 |  | Lease Agreement between Arden Associates Limited Partnership and Second
National, dated October 1, 1979. Incorporated herein by reference to
Exhibit 10.10 to Second Bancorp Incorporateds annual report on Form 10-K
for the year ended December 31, 1994 (File No. 0-15624).                                                                                                                                                                                                                 
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.6 |  | Amendment to Lease Agreement between Arden Associates Limited Partnership
and Second National. Incorporated herein by reference to Exhibit 10.11 to
Second Bancorp Incorporateds annual report on Form 10-K for the year
ended December 31, 1995 (File No. 0-15624).                                                                                                                                                                                                                           
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.7 |  | Form of Amended Management Severance Agreement with executive officers.
The following executive officers are covered by this amended agreement:                                                                                                                                                                                                                                                                                                                                                 
|     |  | Christopher Stanitz, David L. Kelllerman, Thomas W. Allen, Diane C.
Bastic, John L. Falatok, Myron Filarski, Darryl E. Mast and Terry L.
Myers. Incorporated herein by reference to Exhibit 10.12 to Second Bancorp
Incorporateds annual report on Form 10-K for the year ended December 31,
1995 (File No. 0-15624).                                                                                                                                                                          
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.8 |  | Revolving Credit Agreement (excluding exhibits), dated September 15,
1998, between Second Bancorp and The Northern Trust Company. Incorporated
herein by reference to the Exhibit filed with the Registrants
registration statement on Form S-4 (Registration No. 333-62365) as filed
on September 22, 1998 with the Securities and Exchange Commission.                                                                                                                                       
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.9 |  | First Amendment to Revolving Credit Agreement (excluding exhibits), dated
March 11, 1997, between Second Bancorp and The Northern Trust Company.
Incorporated herein by reference to the Exhibit filed with the
Registrants registration statement on Form S-4 (Registration No.
333-62365) as filed on September 22, 1998 with the Securities and Exchange
Commission.                                                                                                                        

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|      |  |                                                                                                                                                                                                                                                                                                                             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.10 |  | Second Amendment to Revolving Credit Agreement (excluding exhibits),
dated December 4, 1998, between Second Bancorp and The Northern Trust
Company. Incorporated herein by reference to Exhibit 10.10 to Second
Bancorp Incorporateds annual report on Form 10-K for the year ended
December 31, 2001. (File No. 0-15624). 
|      |  |                                                                                                                                                                                                                                                                                                                             
|10.11 |  | Third Amendment to Revolving Credit Agreement (excluding exhibits),
dated February 16, 2000, between Second Bancorp and The Northern Trust
Company. Incorporated herein by reference to Exhibit 10.11 to Second
Bancorp Incorporateds annual report on Form 10-K for the year ended
December 31, 2001. (File No. 0-15624). 
|      |  |                                                                                                                                                                                                                                                                                                                             
|10.12 |  | Fourth Amendment to Revolving Credit Agreement (excluding exhibits),
dated February 16, 2001, between Second Bancorp and The Northern Trust
Company. Incorporated herein by reference to Exhibit 10.12 to Second
Bancorp Incorporateds annual report on Form 10-K for the year ended
December 31, 2001. (File No. 0-15624).
|      |  |                                                                                                                                                                                                                                                                                                                             
|10.13 |  | Fifth Amendment to Revolving Credit Agreement (excluding exhibits),
dated April 3, 2002, between Second Bancorp and The Northern Trust
Company.                                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                             
|10.14 |  | Form of Non-qualified Stock Option Agreement. Incorporated herein by
reference to Exhibit 10.15 to Second Bancorp Incorporateds annual report
on Form 10-K for the year ended December 31, 1998 (File No. 0-15624).                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                             
|10.15 |  | Employment Agreement by and between Second Bancorp and Rick L. Blossom,
dated December 6, 1999. Incorporated herein by reference to Exhibit 10.16
to Second Bancorp Incorporateds annual report on Form 10-K for the year
ended December 31, 1999 (File No. 0-15624).                                                      
|      |  |                                                                                                                                                                                                                                                                                                                             
|10.16 |  | Deferred Compensation Agreement by and between Second Bancorp and Rick
L. Blossom, dated December 6, 1999. Incorporated herein by reference to
Exhibit 10.17 to Second Bancorp Incorporateds annual report on Form 10-K
for the year ended December 31, 1999 (File No. 0-15624).                                           
|      |  |                                                                                                                                                                                                                                                                                                                             
|10.17 |  | Management Severance Agreement by and between Second Bancorp and Rick L.
Blossom, dated December 6, 1999. Incorporated herein by reference to
Exhibit 10.18 to Second Bancorp Incorporateds annual report on Form 10-K
for the year ended December 31, 1999 (File No. 0-15624).                                            
|      |  |                                                                                                                                                                                                                                                                                                                             
|10.18 |  | Amended 1998 Non-qualified Stock Option Plan.                                                                                                                                                                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                             
|10.19 |  | Stock Purchase Agreement by and among Second Bancorp, William R. Herzog
and George E. Stouffer, Jr., dated August 16, 2002.                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                             
|10.20 |  | Purchase and Assumption Agreement (excluding exhibits) between The
Second National Bank of Warren and Advance Financial Savings Bank, dated
October 25, 2002.                                                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                             
|11.1  |  | Statement Re: Computation of Per Share Earnings. Included in Note 18 of
the Notes to the Consolidated Financial Statements of Registrant in the
financial statements portion of this annual report on Form 10-K.                                                                                                            
|      |  |                                                                                                                                                                                                                                                                                                                             
|21.1  |  | Subsidiaries of the registrant.                                                                                                                                                                                                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                             
|23.1  |  | Consent of Ernst & Young.                                                                                                                                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                             
|99.1  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                             
|99.2  |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                          

64



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(b)  The Corporation filed three reports on Form 8-K during the three months
ended December 31, 2002. A Form 8-K was filed on October 18, 2002 to disclose
earnings for the third quarter of 2002. A Form 8-K was filed on October 29,
2002 to announce the sale of two branches. A Form 8-K was filed on December 2,
2002 to announce a live webcast presentation.



|(c) |  | Exhibits - the response to this portion of Item 15 is included at Item
15(a)(3) of this report.
|--- |  | -----------------------------------------------------------------------------------------------
|   
|(d) |  | Financial Statement Schedules - none.                                                          

65



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SIGNATURES

Pursuant to the requirements of section 13 or 15 (d) 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.

| |  |                                                                                 |  |                     
| |  | ------------------------------------------------------------------------------- |  | --------------------
| |  | SECOND BANCORP INCORPORATED
/s/ David L. KellermanDavid L. Kellerman, Treasurer |  | March 21, 2003(date)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

|    |  |                                                                                                           |  |                     
|--- |  | --------------------------------------------------------------------------------------------------------- |  | --------------------
|By: |  | /s/ Rick L. BlossomRick L. Blossom, Chairman, President & CEO                                             |  | March 20, 2003(date)
|   
|By: |  | /s/ David L. KellermanDavid L. Kellerman, Principal Financial Officer
     & Principal Accounting Officer |  | March 21, 2003(date)
|   
|By: |  | /s/ David A. AllenDavid A. Allen, Jr., Director                                                           |  | March 21, 2003(date)
|   
|By: |  | /s/ John A. AndersonJohn A. Anderson, Director                                                            |  | March 20, 2003(date)
|   
|By: |  | /s/ Lynnette M. CavalierLynnette M. Cavalier, Director                                                    |  | March 21, 2003(date)
|   
|By: |  | /s/ John L. PogueJohn L. Pogue, Director                                                                  |  | March 21, 2003(date)

66



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##### Table of Contents






CEO CERTIFICATION

SECOND BANCORP INCORPORATED
CERTIFICATION

I, Rick L. Blossom, Chairman, President and Chief Executive Officer, certify
that:

1.     I have reviewed this annual report on Form 10-K of Second Bancorp
Incorporated;

2.     Based on my knowledge, this annual 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 annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weakness
in internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                      

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                     |  |                                                                                                       
|-------------------- |  | ------------------------------------------------------------------------------------------------------
|Date: March 20, 2003 |  | /s/ Rick L. BlossomRick L. Blossom
          Chairman, President and
          Chief Executive Officer

67



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##### Table of Contents






CFO CERTIFICATION

SECOND BANCORP INCORPORATED
CERTIFICATION

I, David L. Kellerman, Treasurer, certify that:

1.     I have reviewed this annual report on Form 10-K of Second Bancorp
Incorporated;

2.     Based on my knowledge, this annual 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 annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weakness
in internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                      

6.     The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

|                     |  |                                                                                       
|-------------------- |  | --------------------------------------------------------------------------------------
|Date: March 21, 2003 |  | /s/ David L. KellermanDavid L. Kellerman
          Treasurer (Chief Financial Officer)

68