SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K

             ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of the
                        Securities Exchange Act of 1934

                  For the fiscal year ended December 31, 2003

                        Commission file number 0-11487

                        LAKELAND FINANCIAL CORPORATION

                  Indiana                             35-1559596
         (State of incorporation)        (I.R.S. Employer Identification No.)

       202 East Center Street, P.O. Box 1387, Warsaw, Indiana 46581-1387
                   (Address of principal executive offices)

                           Telephone (574) 267-6144

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

                          Common Stock, no par value
                               (Title of class)

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 twelve months (or for such other period 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(Section 229.405 of this chapter) is not contained herein and
will not be contained, to the best of the registrant's knowledge, in
definitive proxy or 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 voting and non-voting common equity held by
non-affiliates of the registrant, based on the last sales price quoted on the
Nasdaq Stock Market on June 30, 2003, the last business day of the
registrant's most recently completed second fiscal quarter, was approximately
$159,636,237.

Number of shares of common stock outstanding at February 25, 2004: 5,811,094

                      DOCUMENTS INCORPORATED BY REFERENCE

Part III - Portions of the Proxy Statement for the Annual Meeting of
Shareholders mailed on March 5, 2004 are incorporated by reference into Part
III hereof.

                                                  LAKELAND FINANCIAL CORPORATION
                                                    Annual Report on Form 10-K
                                                         Table of Contents

                                                                                                     Page Number
                                    PART I

Item 1.    Business                                                                                        3
             Forward - Looking Statements                                                                  4
             Supervision and Regulation                                                                    7
             Industry Segments                                                                            12
           Guide 3 Information                                                                            12
Item 2.    Properties                                                                                     30
Item 3.    Legal Proceedings                                                                              31
Item 4.    Submission of Matters to a Vote of Security Holders                                            31

                                    PART II

Item 5.    Market for Registrant's Common Equity and Related Shareholder Matters                          31
Item 6.    Selected Financial Data                                                                        32
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations 33
             Overview                                                                                     33
             Results of Operations                                                                        33
             Financial Condition                                                                          36
             Critical Accounting Policies                                                                 39
             Liquidity                                                                                    39
             Inflation                                                                                    41
Item 7a.   Quantitative and Qualitative Disclosures About Market Risk                                     41
Item 8.    Financial Statements and Supplemental Data                                                     46
             Financial Statements                                                                         46
             Notes to Financial Statements                                                                50
             Report of Independent Auditors                                                               77
             Management's Responsibility for Financial Statements                                         78
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           79
Item 9A.   Controls and Procedures                                                                        79
                                   PART III

Item 10.   Directors and Executive Officers of the Registrant                                             79
Item 11.   Executive Compensation                                                                         79
Item 12.   Security Ownership of Certain Beneficial Owners and Management                                 79
Item 13.   Certain Relationships and Related Transactions                                                 80
Item 14.   Principal Accounting Fees and Services                                                         80

                                    PART IV

Item 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K                                81

Form 10-K Signature Page                                                                                  83
Exhibit 21 Subsidiaries                                                                                   85

                                                                 2

                                    PART I

ITEM 1. BUSINESS

         The Company was incorporated under the laws of the State of Indiana
on February 8, 1983. As used herein, the term "Company" refers to Lakeland
Financial Corporation, or if the context dictates, Lakeland Financial
Corporation and its wholly-owned subsidiary, Lake City Bank, an Indiana state
bank headquartered in Warsaw, Indiana. Also included in the consolidated
financial statements is LCB Investments Limited, a wholly-owned subsidiary of
Lake City Bank which is a Bermuda corporation that manages a portion of the
Bank's investment portfolio. All intercompany transactions and balances are
eliminated in consolidation.

General

         Company's Business. The Company is a bank holding company as defined
in the Bank Holding Company Act of 1956, as amended. The Company owns all of
the outstanding stock of Lake City Bank, Warsaw, Indiana, a full service
commercial bank organized under Indiana law (the "Bank"). In trust, the Bank
recognizes a wholly-owned subsidiary, LCB Investments Limited, which manages a
portion of the Bank's investment portfolio. The Company conducts no business
except that incident to its ownership of the outstanding stock of the Bank and
the operation of the Bank.

         The Bank's deposits are insured by the Federal Deposit Insurance
Corporation. The Bank's activities cover all phases of commercial banking,
including checking accounts, savings accounts, time deposits, the sale of
securities under agreements to repurchase, commercial and agricultural
lending, direct and indirect consumer lending, real estate mortgage lending,
safe deposit box service and trust and brokerage services.

         The Bank's main banking office is located at 202 East Center Street,
Warsaw, Indiana. As of December 31, 2003 the Bank had 43 offices in twelve
counties throughout northern Indiana.

         Market Overview. While the Company operates in twelve counties, it
currently defines operations by three primary geographical markets. They are
the South Region, which includes Kosciusko and contiguous counties; the North
Region, which includes Elkhart and St. Joseph Counties; and the East Region,
which includes Allen and DeKalb Counties. The South Region includes the city
of Warsaw and is the location of the Company's headquarters. The Company has
had a presence in this region since 1872 . It has been in the North Region,
which includes the cities of Elkhart, South Bend and Goshen, since 1990, The
Company opened its first office in the East Region, which includes the cities
of Fort Wayne and Auburn, in 1999.

         The Company believes that these are well-established, and fairly
diverse economic regions. The Company's markets include a mix of industrial
and service companies with no business or industry concentrations.
Furthermore, no single industry or employer dominates any of the markets. Fort
Wayne represents the largest population center served by the Company with a
population of 206,000, according to 2000 U.S. Census Bureau data. South Bend,
with a 2000 population of 108,000, is the second largest city served by the
Company. Elkhart, with a 2000 population of 52,000, is the third largest city
that the Company currently serves. As a result of the presence of offices in
twelve counties that are widely dispersed, no single city or industry
represents an undue concentration.

         Expansion Strategy. The Company's expansion strategy is driven
primarily by the potential for increased penetration in existing markets where
opportunities for market share growth exists. Additionally, the Company
considers growth in new markets with a close geographic proximity to its
current operations. These markets are considered when the Company believes
they would be receptive to its strategic plan to deliver broad based financial
services with a local flavor. The Company has recently focused on growth
through de novo branching in locations that management believes have potential
for creating new market opportunities or for further penetrating existing
markets. In new markets, the Company believes it is critical to attract
experienced local management with a similar philosophy in order to provide a
basis for success.

                                      3

         The Company also considers opportunities beyond current markets when
the Company's board of directors and management believes that the opportunity
will provide a desirable strategic fit without posing undue risk. The Company
does not currently have any definitive understandings or agreements for any
acquisitions.

         Products and Services. The Company is a full service commercial bank
and provides commercial, retail, trust and investment services to its
customers. Commercial products include commercial loans and technology-driven
solutions to commercial customers' cash management needs such as CommerciaLink
Internet business banking and on-line cash management services. Retail banking
clients are provided a wide array of traditional retail banking services,
including lending, deposit and investment services. Retail lending programs
are focused on mortgage loans, home equity lines of credit and traditional
retail installment loans. The Company also has an Honors Private Banking
program that is positioned to serve the more financially sophisticated
customer with a menu including brokerage and trust services, executive
mortgage programs and access to financial planning seminars and programs. The
Bank's Prospero Program is dedicated to serving the expanding financial needs
of the Latino community. The Company provides trust clients with traditional
personal and corporate trust services. The Company also provides retail
brokerage services, including an array of financial and investment products
such as annuities and life insurance.

Forward-looking Statements

         This document (including information incorporated by reference)
contains, and future oral and written statements of the Company and its
management may contain, forward-looking statements, within the meaning of such
term in the Private Securities Litigation Reform Act of 1995, with respect to
the financial condition, results of operations, plans, objectives, future
performance and business of the Company. Forward-looking statements, which may
be based upon beliefs, expectations and assumptions of the Company's
management and on information currently available to management, are generally
identifiable by the use of words such as "believe," "expect," "anticipate,"
"plan," "intend," "estimate," "may," "will," "would," "could," "should" or
other similar expressions. Additionally, all statements in this document,
including forward-looking statements, speak only as of the date they are made,
and the Company undertakes no obligation to update any statement in light of
new information or future events.

         The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors, which could have
a material adverse effect on the operations and future prospects of the
Company and its subsidiaries include, but are not limited to, the following:

         o        The strength of the United States economy in general and the
                  strength of the local economies in which the Company
                  conducts its operations which may be less favorable than
                  expected and may result in, among other things, a
                  deterioration in the credit quality and value of the
                  Company's assets.

         o        The economic impact of past and any future terrorist attacks,
                  acts of war or threats thereof and the response of the United
                  States to any such threats and attacks.

         o        The effects of, and changes in, federal, state and local
                  laws, regulations and policies affecting banking,
                  securities, insurance and monetary and financial matters.

         o        The effects of changes in interest rates (including the
                  effects of changes in the rate of prepayments of the
                  Company's assets) and the policies of the Board of Governors
                  of the Federal Reserve System.

         o        The ability of the Company to compete with other financial
                  institutions as effectively as the Company currently intends
                  due to increases in competitive pressures in the financial
                  services sector.

         o        The inability of the Company to obtain new customers and to
                  retain existing customers.

         o        The timely development and acceptance of products and
                  services, including products and services offered through
                  alternative delivery channels such as the Internet.

                                      4

         o        Technological changes implemented by the Company and by
                  other parties, including third party vendors, which may be
                  more difficult or more expensive than anticipated or which
                  may have unforeseen consequences to the Company and its
                  customers.

         o        The ability of the Company to develop and maintain secure and
                  reliable electronic systems.

         o        The ability of the Company to retain key executives and
                  employees and the difficulty that the Company may experience
                  in replacing key executives and employees in an effective
                  manner.

         o        Consumer spending and saving habits, which may change in a
                  manner that affects the Company's business adversely.

         o        Business combinations and the integration of acquired
                  businesses, which may be more difficult or expensive than
                  expected.

         o        The costs, effects and outcomes of existing or future
                  litigation.

         o        Changes in accounting policies and practices, as may be
                  adopted by state and federal regulatory agencies, the
                  Financial Accounting Standards Board, the Securities and
                  Exchange Commission and the Public Company Accounting
                  Oversight Board.

         o        The ability of the Company to manage the risks associated
                  with the foregoing as well as anticipated.

         These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Additional information concerning the Company and its business,
including other factors that could materially affect the Company's financial
results, is included in the Company's filings with the Securities and Exchange
Commission.

Business Developments

         The Company conducts no business except that which is incident to its
ownership of the stock of the Bank, the collection of dividends from the Bank,
and the disbursement of dividends to shareholders.

         Lakeland Statutory Trust II (the "Trust"), a statutory business
trust, was formed under Connecticut law pursuant to a trust agreement dated
October 1, 2003 and a certificate of trust filed with the Connecticut
Secretary of State on October 1, 2003. Through a private placement, the trust
issued $30.0 million in trust preferred securities. The Trust exists for the
exclusive purposes of (i) issuing the trust securities representing undivided
beneficial interests in the assets of the Trust, (ii) investing the gross
proceeds of the trust securities in the subordinated debentures issued by the
Company, and (iii) engaging in only those activities necessary, advisable, or
incidental thereto. The subordinated debentures are the only assets of the
Trust, and payments under the subordinated debentures are the only revenue of
the Trust. The Trust has a term of 35 years, but may be terminated earlier as
provided in the trust agreement.

Competition

         The Bank was originally organized in 1872 and has continuously
operated under the laws of the State of Indiana since its organization. The
Bank's activities cover all phases of commercial banking, including checking
accounts, savings accounts, time deposits, the sale of securities under
agreements to repurchase, commercial and agricultural lending, direct and
indirect consumer lending, real estate mortgage lending, safe deposit box
services and trust and brokerage services. The interest rates for both
deposits and loans, as well as the range of services provided, are nearly the
same for all banks competing within the Bank's service area.

         The Bank competes for loans principally through a high degree of
customer contact, timely loan review and approval, market-driven competitive
loan pricing in certain situations and the Bank's reputation throughout the
region. The Bank believes that its convenience, quality service and hometown

                                      5

approach to banking enhances its ability to compete favorably in attracting
and retaining individual and business customers. The Bank actively solicits
deposit-related customers and competes for customers by offering personal
attention, professional service and competitive interest rates.

         The Bank's primary service area is northern Indiana. In addition to
the banks located within its service area, the Bank also competes with savings
and loan associations, credit unions, farm credit services, finance companies,
personal loan companies, insurance companies, money market funds, and other
non-depository financial intermediaries. Also, financial intermediaries such
as money market mutual funds and large retailers are not subject to the same
regulations and laws that govern the operation of traditional depository
institutions and accordingly may have an advantage in competing for funds.

         The Bank competes with other major banks for large commercial deposit
and loan accounts. The Bank is presently subject to an aggregate maximum loan
limit to any single account pursuant to Indiana law. The Bank currently
enforces an internal limit of $12.0 million, which is less than the amount
permitted by law. This maximum might occasionally limit the Bank from
providing loans to those businesses or personal accounts whose borrowings
periodically exceed this amount. In the event this were to occur, the Bank
maintains correspondent relationships with other financial institutions. The
Bank may participate with other banks in the placement of large borrowings in
excess of its lending limit. The Bank is also a member of the Federal Home
Loan Bank of Indianapolis in order to broaden its mortgage lending and
investment activities and to provide additional funds, if necessary, to
support these activities.

Foreign Operations

         The Company has no investments with any foreign entity other than two
nominal demand deposit accounts. One is maintained with a Canadian bank in
order to facilitate the clearing of checks drawn on banks located in other
countries. The other is maintained with a bank in Bermuda for LCB Investments
Limited to be used for administrative expenses. There are no foreign loans.

Employees

         At December 31, 2003, the Company, including its subsidiaries, had
426 full-time equivalent employees. Benefit programs include a pension plan,
401(k) plan, group medical insurance, group life insurance and paid vacations.
Effective April 1, 2000, the defined benefit pension plan was frozen and
employees can no longer accrue new benefits under that plan. The Bank is not a
party to any collective bargaining agreement, and employee relations are
considered good. The Company also has a stock option plan under which stock
options may be granted to employees and directors.

Internet Website

         The Company maintains an Internet site at www.lakecitybank.com. The
Company makes available free of charge on this site its annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act as soon as reasonably practicable after it electronically files such
material with, or furnishes it to, the Securities and Exchange Commission. The
Company's code of conduct and the charters of its various committees of the
Board of Directors are also available on the website.

                                      6

SUPERVISION AND REGULATION

         General

         Financial institutions, their holding companies and their affiliates
are extensively regulated under federal and state law. As a result, the growth
and earnings performance of the Company may be affected not only by management
decisions and general economic conditions, but also by the requirements of
federal and state statutes and by the regulations and policies of various bank
regulatory authorities, including the Indiana Department of Financial
Institutions (the "DFI"), the Board of Governors of the Federal Reserve System
(the "Federal Reserve") and the Federal Deposit Insurance Corporation (the
"FDIC"). Furthermore, taxation laws administered by the Internal Revenue
Service and state taxing authorities and securities laws administered by the
Securities and Exchange Commission (the "SEC") and state securities
authorities have an impact on the business of the Company. The effect of these
statutes, regulations and regulatory policies may be significant, and cannot
be predicted with a high degree of certainty.

         Federal and state laws and regulations generally applicable to
financial institutions regulate, among other things, the scope of business,
the kinds and amounts of investments, reserve requirements, capital levels
relative to operations, the nature and amount of collateral for loans, the
establishment of branches, mergers and consolidations and the payment of
dividends. This system of supervision and regulation establishes a
comprehensive framework for the respective operations of the Company and its
subsidiaries and is intended primarily for the protection of the FDIC-insured
deposits and depositors of the Bank, rather than shareholders.

         The following is a summary of the material elements of the regulatory
framework that applies to the Company and its subsidiaries. It does not
describe all of the statutes, regulations and regulatory policies that apply,
nor does it restate all of the requirements of those that are described. As
such, the following is qualified in its entirety by reference to applicable
law. Any change in statutes, regulations or regulatory policies may have a
material effect on the business of the Company and its subsidiaries.

         Recent Regulatory Developments

         National Bank Preemption. On January 7, 2004, the Office of the
Comptroller of the Currency (the "OCC") issued two final rules that clarify
the federal character of the national banking system. The first rule provides
that, except where made applicable by federal law, state laws that obstruct,
impair or condition national banks' ability to fully exercise their
deposit-taking, lending and operational powers are not applicable to national
banks. That rule further provides that the following types of state laws apply
to national banks to the extent that they only incidentally affect the
exercise of national banks' deposit-taking, lending and operational powers:
contract, criminal, taxation, tort, zoning and laws relating to certain
homestead rights, rights to collect debts, acquisitions and transfers of
property and other laws as determined to apply to national banks by the OCC.
The second rule affirms that, under federal law, with some exceptions, the OCC
has exclusive visitorial authority (the power to inspect, examine, supervise
and regulate) with respect to the content and conduct of activities authorized
for national banks. These controversial rules give national banks, especially
those that operate in multiple states, a significant competitive advantage
over state-chartered banks and are therefore likely to be challenged by
individuals and organizations that represent the interests of individual
states and state-chartered banks. Both the U.S. House Committee on Financial
Services and the New York Attorney General have already initiated such
challenges.

         FACT Act. On December 4, 2003, President Bush signed into law the
Fair and Accurate Credit Transactions Act of 2003 (the "FACT Act"), which
contains numerous amendments to the Fair Credit Reporting Act relating to
matters including identity theft and privacy. Among its other provisions, the
FACT Act requires financial institutions: (i) to establish an identity theft
prevention program; (ii) to enhance the accuracy and integrity of information
furnished to consumer reporting agencies; and (iii) to allow customers to
prevent financial institution affiliates from using, for marketing
solicitation purposes, transaction and experience information about the
customers received from the financial institution. The FACT Act also requires
the federal banking regulators, and certain other agencies, to promulgate
regulations to implement its provisions. The various provisions of the FACT
Act contain different effective dates including March 31, 2004, for those

                                      7

provisions of the FACT Act that do not require significant changes to business
procedures and December 1, 2004, for certain other provisions that will
require significant business procedure changes.

         The Company

         General. The Company, as the sole shareholder of the Bank, is a bank
holding company. As a bank holding company, the Company is registered with,
and is subject to regulation by, the Federal Reserve under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). In accordance with Federal
Reserve policy, the Company is expected to act as a source of financial
strength to the Bank and to commit resources to support the Bank in
circumstances where the Company might not otherwise do so. Under the BHCA, the
Company is subject to periodic examination by the Federal Reserve. The Company
is required to file with the Federal Reserve periodic reports of the Company's
operations and such additional information regarding the Company and its
subsidiaries as the Federal Reserve may require. The Company is also subject
to regulation by the DFI under Indiana law.

         Acquisitions, Activities and Change in Control. The primary purpose
of a bank holding company is to control and manage banks. The BHCA generally
requires the prior approval of the Federal Reserve for any merger involving a
bank holding company or any acquisition by a bank holding company of another
bank or bank holding company. Subject to certain conditions (including deposit
concentration limits established by the BHCA), the Federal Reserve may allow a
bank holding company to acquire banks located in any state of the United
States. In approving interstate acquisitions, the Federal Reserve is required
to give effect to applicable state law limitations on the aggregate amount of
deposits that may be held by the acquiring bank holding company and its
insured depository institution affiliates in the state in which the target
bank is located (provided that those limits do not discriminate against
out-of-state depository institutions or their holding companies) and state
laws that require that the target bank have been in existence for a minimum
period of time (not to exceed five years) before being acquired by an
out-of-state bank holding company.

         The BHCA generally prohibits the Company from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company that is not a bank and from engaging in any business other than that
of banking, managing and controlling banks or furnishing services to banks and
their subsidiaries. This general prohibition is subject to a number of
exceptions. The principal exception allows bank holding companies to engage
in, and to own shares of companies engaged in, certain businesses found by the
Federal Reserve to be "so closely related to banking ... as to be a proper
incident thereto." This authority would permit the Company to engage in a
variety of banking-related businesses, including the operation of a thrift,
consumer finance, equipment leasing, the operation of a computer service
bureau (including software development), and mortgage banking and brokerage.
The BHCA generally does not place territorial restrictions on the domestic
activities of non-bank subsidiaries of bank holding companies.

         Additionally, bank holding companies that meet certain eligibility
requirements prescribed by the BHCA and elect to operate as financial holding
companies may engage in, or own shares in companies engaged in, a wider range
of nonbanking activities, including securities and insurance underwriting and
sales, merchant banking and any other activity that the Federal Reserve, in
consultation with the Secretary of the Treasury, determines by regulation or
order is financial in nature, incidental to any such financial activity or
complementary to any such financial activity and does not pose a substantial
risk to the safety or soundness of depository institutions or the financial
system generally. As of the date of this filing, the Company has neither
applied for nor received approval to operate as a financial holding company.

         Federal law also prohibits any person or company from acquiring
"control" of an FDIC-insured depository institution or its holding company
without prior notice to the appropriate federal bank regulator. "Control" is
conclusively presumed to exist upon the acquisition of 25% or more of the
outstanding voting securities of a bank or bank holding company, but may arise
under certain circumstances at 10% ownership.

         Capital Requirements. Bank holding companies are required to maintain
minimum levels of capital in accordance with Federal Reserve capital adequacy
guidelines. If capital levels fall below the minimum required levels, a bank
holding company, among other things, may be denied approval to acquire or
establish additional banks or non-bank businesses.

                                      8

         The Federal Reserve's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies: (i) a
risk-based requirement expressed as a percentage of total assets weighted
according to risk; and (ii) a leverage requirement expressed as a percentage
of total assets. The risk-based requirement consists of a minimum ratio of
total capital to total risk-weighted assets of 8% and a minimum ratio of Tier
1 capital to total risk-weighted assets of 4%. The leverage requirement
consists of a minimum ratio of Tier 1 capital to total assets of 3% for the
most highly rated companies, with a minimum requirement of 4% for all others.
For purposes of these capital standards, Tier 1 capital consists primarily of
permanent stockholders' equity less intangible assets (other than certain loan
servicing rights and purchased credit card relationships). Total capital
consists primarily of Tier 1 capital plus certain other debt and equity
instruments that do not qualify as Tier 1 capital and a portion of the
company's allowance for loan and lease losses.

         The risk-based and leverage standards described above are minimum
requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
For example, the Federal Reserve's capital guidelines contemplate that
additional capital may be required to take adequate account of, among other
things, interest rate risk, or the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Further, any
banking organization experiencing or anticipating significant growth would be
expected to maintain capital ratios, including tangible capital positions
(i.e., Tier 1 capital less all intangible assets), well above the minimum
levels. As of December 31, 2003, the Company had regulatory capital in excess
of the Federal Reserve's minimum requirements.

         Dividend Payments. The Company's ability to pay dividends to its
shareholders may be affected by both general corporate law considerations and
policies of the Federal Reserve applicable to bank holding companies. As an
Indiana corporation, the Company is subject to the limitations of the Indiana
General Business Corporation Law, which prohibit the Company from paying
dividends if the Company is, or by payment of the dividend would become,
insolvent, or if the payment of dividends would render the Company unable to
pay its debts as they become due in the usual course of business.
Additionally, policies of the Federal Reserve caution that a bank holding
company should not pay cash dividends that exceed its net income or that can
only be funded in ways that weaken the bank holding company's financial
health, such as by borrowing. The Federal Reserve also possesses enforcement
powers over bank holding companies and their non-bank subsidiaries to prevent
or remedy actions that represent unsafe or unsound practices or violations of
applicable statutes and regulations. Among these powers is the ability to
proscribe the payment of dividends by banks and bank holding companies.

         Federal Securities Regulation. The Company's common stock is
registered with the SEC under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Consequently, the Company is subject to the information, proxy solicitation,
insider trading and other restrictions and requirements of the SEC under the
Exchange Act.

         The Bank

         General. The Bank is an Indiana-chartered bank, the deposit accounts
of which are insured by the FDIC's Bank Insurance Fund ("BIF"). As an
Indiana-chartered bank, the Bank is subject to the examination, supervision,
reporting and enforcement requirements of the DFI, the chartering authority
for Indiana banks, and the FDIC, designated by federal law as the primary
federal regulator of state-chartered, FDIC-insured banks that, like the Bank,
are not members of the Federal Reserve System ("non-member banks").

         Deposit Insurance. As an FDIC-insured institution, the Bank is
required to pay deposit insurance premium assessments to the FDIC. The FDIC
has adopted a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their respective levels of capital and results of
supervisory evaluations. Institutions classified as well-capitalized (as
defined by the FDIC) and considered healthy pay the lowest premium while
institutions that are less than adequately capitalized (as defined by the
FDIC) and considered of substantial supervisory concern pay the highest
premium. Risk classification of all insured institutions is made by the FDIC
for each semi-annual assessment period.

                                      9

         During the year ended December 31, 2003, BIF assessments ranged from
0% of deposits to 0.27% of deposits. For the semi-annual assessment period
beginning January 1, 2004, BIF assessment rates will continue to range from 0%
of deposits to 0.27% of deposits.

         FICO Assessments. Since 1987, a portion of the deposit insurance
assessments paid by members of the FDIC's Savings Association Insurance Fund
("SAIF") has been used to cover interest payments due on the outstanding
obligations of the Financing Corporation ("FICO"). FICO was created in 1987 to
finance the recapitalization of the Federal Savings and Loan Insurance
Corporation, the SAIF's predecessor insurance fund. As a result of federal
legislation enacted in 1996, beginning as of January 1, 1997, both SAIF
members and BIF members became subject to assessments to cover the interest
payments on outstanding FICO obligations until the final maturity of such
obligations in 2019. These FICO assessments are in addition to amounts
assessed by the FDIC for deposit insurance. During the year ended December 31,
2003, the FICO assessment rate for BIF and SAIF members was approximately
0.02% of deposits.

         Supervisory Assessments. All Indiana banks are required to pay
supervisory assessments to the DFI to fund the operations of the DFI. The
amount of the assessment is calculated on the basis of the bank's total
assets. During the year ended December 31, 2003, the Bank paid supervisory
assessments to the DFI totaling $84,000.

         Capital Requirements. Banks are generally required to maintain
capital levels in excess of other businesses. The FDIC has established the
following minimum capital standards for state-chartered FDIC-insured
non-member banks, such as the Bank: (i) a leverage requirement consisting of a
minimum ratio of Tier 1 capital to total assets of 3% for the most
highly-rated banks with a minimum requirement of at least 4% for all others;
and (ii) a risk-based capital requirement consisting of a minimum ratio of
total capital to total risk-weighted assets of 8% and a minimum ratio of Tier
1 capital to total risk-weighted assets of 4%. For purposes of these capital
standards, the components of Tier 1 capital and total capital are the same as
those for bank holding companies discussed above.

         The capital requirements described above are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions. For example,
regulations of the FDIC provide that additional capital may be required to
take adequate account of, among other things, interest rate risk or the risks
posed by concentrations of credit, nontraditional activities or securities
trading activities.

         Further, federal law and regulations provide various incentives for
financial institutions to maintain regulatory capital at levels in excess of
minimum regulatory requirements. For example, a financial institution that is
"well-capitalized" may qualify for exemptions from prior notice or application
requirements otherwise applicable to certain types of activities and may
qualify for expedited processing of other required notices or applications.
Additionally, one of the criteria that determines a bank holding company's
eligibility to operate as a financial holding company is a requirement that
all of its financial institution subsidiaries be "well-capitalized." Under the
regulations of the FDIC, in order to be "well-capitalized" a financial
institution must maintain a ratio of total capital to total risk-weighted
assets of 10% or greater, a ratio of Tier 1 capital to total risk-weighted
assets of 6% or greater and a ratio of Tier 1 capital to total assets of 5% or
greater.

         Federal law also provides the federal banking regulators with broad
power to take prompt corrective action to resolve the problems of
undercapitalized institutions. The extent of the regulators' powers depends on
whether the institution in question is "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," in each case as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators'
corrective powers include: (i) requiring the institution to submit a capital
restoration plan; (ii) limiting the institution's asset growth and restricting
its activities; (iii) requiring the institution to issue additional capital
stock (including additional voting stock) or to be acquired; (iv) restricting
transactions between the institution and its affiliates; (v) restricting the
interest rate the institution may pay on deposits; (vi) ordering a new
election of directors of the institution; (vii) requiring that senior
executive officers or directors be dismissed; (viii) prohibiting the
institution from accepting deposits from correspondent banks; (ix) requiring
the institution to divest certain subsidiaries; (x) prohibiting the payment of
principal or interest on subordinated debt; and (xi) ultimately, appointing a
receiver for the institution.

         As of December 31, 2003: (i) the Bank was not subject to a directive
from the FDIC to increase its capital to an amount in excess of the minimum

                                      10

regulatory capital requirements; (ii) the Bank exceeded its minimum regulatory
capital requirements under FDIC capital adequacy guidelines; and (iii) the
Bank was "well-capitalized," as defined by FDIC regulations.

         Dividend Payments. The primary source of funds for the Company is
dividends from the Bank. Indiana law prohibits the Bank from paying dividends
in an amount greater than its undivided profits. The Bank is required to
obtain the approval of the DFI for the payment of any dividend if the total of
all dividends declared by the Bank during the calendar year, including the
proposed dividend, would exceed the sum of the Bank's retained net income for
the year to date combined with its retained net income for the previous two
years. Indiana law defines "retained net income" to mean the net income of a
specified period, calculated under the consolidated report of income
instructions, less the total amount of all dividends declared for the
specified period.

         The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant
to applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described
above, the Bank exceeded its minimum capital requirements under applicable
guidelines as of December 31, 2003. As of December 31, 2003, approximately
$19.8 million was available to be paid as dividends by the Bank.
Notwithstanding the availability of funds for dividends, however, the FDIC may
prohibit the payment of any dividends by the Bank if the FDIC determines such
payment would constitute an unsafe or unsound practice.

         Insider Transactions. The Bank is subject to certain restrictions
imposed by federal law on extensions of credit to the Company, on investments
in the stock or other securities of the Company and the acceptance of the
stock or other securities of the Company as collateral for loans made by the
Bank. Certain limitations and reporting requirements are also placed on
extensions of credit by the Bank to its directors and officers, to directors
and officers of the Company, to principal shareholders of the Company and to
"related interests" of such directors, officers and principal shareholders. In
addition, federal law and regulations may affect the terms upon which any
person who is a director or officer of the Company or the Bank or a principal
shareholder of the Company may obtain credit from banks with which the Bank
maintains a correspondent relationship.

         Safety and Soundness Standards. The federal banking agencies have
adopted guidelines that establish operational and managerial standards to
promote the safety and soundness of federally insured depository institutions.
The guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings.

         In general, the safety and soundness guidelines prescribe the goals
to be achieved in each area, and each institution is responsible for
establishing its own procedures to achieve those goals. If an institution
fails to comply with any of the standards set forth in the guidelines, the
institution's primary federal regulator may require the institution to submit
a plan for achieving and maintaining compliance. If an institution fails to
submit an acceptable compliance plan, or fails in any material respect to
implement a compliance plan that has been accepted by its primary federal
regulator, the regulator is required to issue an order directing the
institution to cure the deficiency. Until the deficiency cited in the
regulator's order is cured, the regulator may restrict the institution's rate
of growth, require the institution to increase its capital, restrict the rates
the institution pays on deposits or require the institution to take any action
the regulator deems appropriate under the circumstances. Noncompliance with
the standards established by the safety and soundness guidelines may also
constitute grounds for other enforcement action by the federal banking
regulators, including cease and desist orders and civil money penalty
assessments.

         Branching Authority. Indiana banks, such as the Bank, have the
authority under Indiana law to establish branches anywhere in the State of
Indiana, subject to receipt of all required regulatory approvals.

         Federal law permits state and national banks to merge with banks in
other states subject to: (i) regulatory approval; (ii) federal and state
deposit concentration limits; and (iii) state law limitations requiring the
merging bank to have been in existence for a minimum period of time (not to
exceed five years) prior to the merger. The establishment of new interstate

                                      11

branches or the acquisition of individual branches of a bank in another state
(rather than the acquisition of an out-of-state bank in its entirety) is
permitted only in those few states that authorize such expansion.

         State Bank Investments and Activities. The Bank generally is
permitted to make investments and engage in activities directly or through
subsidiaries as authorized by Indiana law. However, under federal law and FDIC
regulations, FDIC insured state banks are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. Federal law and FDIC
regulations also prohibit FDIC insured state banks and their subsidiaries,
subject to certain exceptions, from engaging as principal in any activity that
is not permitted for a national bank unless the bank meets, and continues to
meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member. These restrictions have not had, and are not
currently expected to have, a material impact on the operations of the Bank.

         Federal Reserve System. Federal Reserve regulations, as presently in
effect, require depository institutions to maintain non-interest earning
reserves against their transaction accounts (primarily NOW and regular
checking accounts), as follows: for transaction accounts aggregating $45.4
million or less, the reserve requirement is 3% of total transaction accounts;
and for transaction accounts aggregating in excess of $45.4 million, the
reserve requirement is $1.164 million plus 10% of the aggregate amount of
total transaction accounts in excess of $45.4 million. The first $6.6 million
of otherwise reservable balances are exempted from the reserve requirements.
These reserve requirements are subject to annual adjustment by the Federal
Reserve. The Bank is in compliance with the foregoing requirements.

INDUSTRY SEGMENTS

         While the Company's chief decision-makers monitor the revenue streams
of the various Company products and services, the identifiable segments
operations are managed and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the Company's financial service
operations are considered by management to be aggregated in one reportable
operating segment -- commercial banking.

GUIDE 3 INFORMATION

         On the pages that follow are tables that set forth selected
statistical information relative to the business of the Company. This data
should be read in conjunction with the consolidated financial statements,
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" as set forth in Items 7&8, below, herein
incorporated by reference.

                                      12

                                   DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
                                             INTEREST RATES AND INTEREST DIFFERENTIAL
                                                     (in thousands of dollars)

                                                                 2003                                       2002
                                               ----------------------------------------   ----------------------------------------
                                                 Average       Interest                     Average       Interest
                                                 Balance        Income       Yield (1)      Balance        Income       Yield (1)
                                               ------------  ------------  ------------   ------------  ------------  ------------
                                                                                                    
ASSETS
Earning assets:
  Loans:
    Taxable (2)(3)                             $    839,797  $     46,861          5.58%  $    766,962  $     49,083          6.40%
    Tax exempt (1)                                    7,758           430          5.54          3,935           279          7.09

  Investments: (1)
    Available for sale                              271,161        14,118          5.21        274,155        15,677          5.72

  Short-term investments                             11,882           120          1.01         12,672           191          1.51

  Interest bearing deposits                           6,134            68          1.11          4,283            70          1.61
                                               ------------  ------------                 ------------  ------------
Total earning assets                              1,136,732        61,597          5.42%     1,062,007        65,300          6.15%

Nonearning assets:
  Cash and due from banks                            46,394             0                       42,904             0

  Premises and equipment                             25,810             0                       24,469             0

  Other nonearning assets                            40,062             0                       28,032             0

  Less allowance for loan losses                     (9,909)            0                       (8,662)            0
                                               ------------  ------------                 ------------  ------------
Total assets                                   $  1,239,089  $     61,597                 $  1,148,750  $     65,300
                                               ============  ============                 ============  ============

(1)     Tax exempt income was converted to a fully taxable equivalent basis at a 35 percent tax rate for 2003 and 2002. The tax
        equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the TEFRA adjustment
        applicable to nondeductible interest expenses.

(2)     Loan fees, which are immaterial in relation to total taxable loan interest income for the years ended December 31, 2003 and
        2002, are included as taxable loan interest income.

(3)     Nonaccrual loans are included in the average balance of taxable loans.

                                                                13

                                   DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
                                         INTEREST RATES AND INTEREST DIFFERENTIAL (Cont.)
                                                     (in thousands of dollars)

                                                                 2002                                       2001
                                               ----------------------------------------   ----------------------------------------
                                                 Average       Interest                     Average       Interest
                                                 Balance        Income       Yield (1)      Balance        Income       Yield (1)
                                               ------------  ------------  ------------   ------------  ------------  ------------
                                                                                                    
ASSETS
Earning assets:
  Loans:
    Taxable (2)(3)                             $    766,962  $     49,083          6.40%  $    727,330  $     58,348          8.02%
    Tax exempt (1)                                    3,935           279          7.09          2,420           209          8.64

  Investments: (1)
    Available for sale                              274,155        15,677          5.72        291,901        18,556          6.36

  Short-term investments                             12,672           191          1.51          9,778           405          4.14

  Interest bearing deposits                           4,283            70          1.61          2,437            80          3.24
                                               ------------  ------------                 ------------  ------------
Total earning assets                              1,062,007        65,300          6.15%     1,033,866        77,598          7.51%

Nonearning assets:
  Cash and due from banks                            42,904             0                       41,148             0

  Premises and equipment                             24,469             0                       26,423             0

  Other nonearning assets                            28,032             0                       28,743             0

  Less allowance for loan losses                     (8,662)            0                       (7,364)            0
                                               ------------  ------------                 ------------  ------------
Total assets                                   $  1,148,750  $     65,300                 $  1,122,816  $     77,598
                                               ============  ============                 ============  ============

(1)     Tax exempt income was converted to a fully taxable equivalent basis at a 35 and 34 percent tax rate for 2002 and 2001. The
        tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the TEFRA
        adjustment applicable to nondeductible interest expenses.

(2)     Loan fees, which are immaterial in relation to total taxable loan interest income for the years ended December 31, 2002 and
        2001, are included as taxable loan interest income.

(3)     Nonaccrual loans are included in the average balance of taxable loans.

                                                                14

                                   DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
                                         INTEREST RATES AND INTEREST DIFFERENTIAL (Cont.)
                                                     (in thousands of dollars)

                                                                 2003                                       2002
                                               ----------------------------------------   ----------------------------------------
                                                 Average       Interest                     Average       Interest
                                                 Balance       Expense        Yield         Balance       Expense        Yield
                                               ------------  ------------  ------------   ------------  ------------  ------------
                                                                                                    
LIABILITIES AND STOCKHOLDERS'
EQUITY

Interest bearing liabilities:
  Savings deposits                             $     61,053  $        232          0.38%  $     53,792  $        404          0.75%

  Interest bearing checking accounts                301,328         3,214          1.07        231,712         3,592          1.55

  Time deposits:
    In denominations under $100,000                 203,196         6,153          3.03        203,531         7,491          3.68
    In denominations over $100,000                  230,417         4,480          1.94        224,437         5,604          2.50

  Miscellaneous short-term borrowings               118,109         1,110          0.94        146,619         2,552          1.74

  Long-term borrowings and
    subordinated debentures                          53,892         2,948          5.47         46,287         2,915          6.30
                                               ------------  ------------                 ------------  ------------
Total interest bearing liabilities                  967,995        18,137          1.87%       906,378        22,558          2.49%

Noninterest bearing liabilities and
 stockholders' equity:

  Demand deposits                                   173,716             0                      150,226             0

  Other liabilities                                  10,069             0                       13,093             0

Stockholders' equity                                 87,309             0                       79,053             0

Total liabilities and stockholders'
 equity                                        ------------  ------------                 ------------  ------------
                                               $  1,239,089  $     18,137                 $  1,148,750  $     22,558
                                               ============  ============                 ============  ============

Net interest differential - yield on
 average daily earning assets                                $     43,460          3.82%                $     42,742          4.02%
                                                             ============                               ============

                                                                15

                                   DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
                                         INTEREST RATES AND INTEREST DIFFERENTIAL (Cont.)
                                                     (in thousands of dollars)

                                                                 2002                                       2001
                                               ----------------------------------------   ----------------------------------------
                                                  Average      Interest                      Average      Interest
                                                  Balance      Expense        Yield          Balance      Expense        Yield
                                               ------------  ------------  ------------   ------------  ------------  ------------
                                                                                                    
LIABILITIES AND STOCKHOLDERS'
EQUITY

Interest bearing liabilities:
  Savings deposits                             $     53,792  $        404          0.75%  $     50,513  $        613          1.21%

  Interest bearing checking accounts                231,712         3,592          1.55        230,144         7,447          3.24

  Time deposits:
    In denominations under $100,000                 203,531         7,491          3.68        211,728        11,151          5.27
    In denominations over $100,000                  224,437         5,604          2.50        203,067        10,639          5.24

  Miscellaneous short-term borrowings               146,619         2,552          1.74        178,197         6,904          3.87

  Long-term borrowings and
    subordinated debentures                          46,287         2,915          6.30         32,030         2,476          7.73
                                               ------------  ------------                 ------------  ------------
Total interest bearing liabilities                  906,378        22,558          2.49%       905,679        39,230          4.33%

Noninterest bearing liabilities and
 stockholders' equity:

 Demand deposits                                    150,226             0                      137,011             0

  Other liabilities                                  13,093             0                       10,135             0

Stockholders' equity                                 79,053             0                       69,991             0

Total liabilities and stockholders'
 equity                                        ------------  ------------                 ------------  ------------
                                               $  1,148,750  $     22,558                 $  1,122,816  $     39,230
                                               ============  ============                 ============  ============

Net interest differential - yield on
 average daily earning assets                                $     42,742          4.02%  $     38,368                        3.71%
                                                             ============                 ============

                                                                16

                                           ANALYSIS OF CHANGES IN INTEREST DIFFERENTIALS
                                                 (fully taxable equivalent basis)
                                                     (in thousands of dollars)

                                                                             YEAR ENDED DECEMBER 31,

                                                      2003 Over (Under) 2002 (1)                 2002 Over (Under) 2001 (1)
                                               ----------------------------------------   ----------------------------------------
                                                  Volume         Rate         Total          Volume         Rate         Total
                                               ------------  ------------  ------------   ------------  ------------  ------------
                                                                                                    
INTEREST AND LOAN FEE INCOME (2)
  Loans:
    Taxable                                    $      4,407  $     (6,629) $     (2,222)  $      3,043  $    (12,308) $     (9,265)
    Tax exempt                                          223           (72)          151            113           (43)           70
  Investments:
    Available for sale                                 (170)       (1,389)       (1,559)        (1,085)       (1,794)       (2,879)

  Short-term investments                                (11)          (60)          (71)            96          (310)         (214)

  Interest bearing deposits                              25           (27)           (2)            42           (52)          (10)
                                               ------------  ------------  ------------   ------------  ------------  ------------
Total interest income                                 4,474        (8,177)       (3,703)         2,209       (14,507)      (12,298)
                                               ------------  ------------  ------------   ------------  ------------  ------------

INTEREST EXPENSE
  Savings deposits                                       49          (221)         (172)            38          (247)         (209)
  Interest bearing checking accounts                    914        (1,292)         (378)            50        (3,905)       (3,855)

  Time deposits:
    In denominations under $100,000                     (12)       (1,326)       (1,338)          (417)       (3,243)       (3,660)
    In denominations over $100,000                      146        (1,270)       (1,124)         1,022        (6,057)       (5,035)

  Miscellaneous short-term borrowings                  (428)       (1,014)       (1,442)        (1,059)       (3,293)       (4,352)

  Long-term borrowings and
    subordinated debentures                             444          (411)           33            958          (519)          439
                                               ------------  ------------  ------------   ------------  ------------  ------------
Total interest expense                                1,113        (5,534)       (4,421)           592       (17,264)      (16,672)
                                               ------------  ------------  ------------   ------------  ------------  ------------
INCREASE (DECREASE) IN
  INTEREST DIFFERENTIALS                       $      3,361  $     (2,643) $        718   $      1,617  $      2,757  $      4,374
                                               ============  ============  ============   ============  ============  ============

(1)      The earning assets and interest bearing liabilities used to calculate interest differentials are based on average daily
         balances for 2003, 2002 and 2001. The changes in volume represent "changes in volume times the old rate". The changes in
         rate represent "changes in rate times old volume". The changes in rate/volume were also calculated by "change in rate
         times change in volume" and allocated consistently based upon the relative absolute values of the changes in volume and
         changes in rate.

(2)      Tax exempt income was converted to a fully taxable equivalent basis at a 35, 35 and 34 percent tax rate for 2003, 2002 and
         2001. The tax equivalent rate for tax exempt loans and tax exempt securities acquired after January 1, 1983 included the
         TEFRA adjustment applicable to nondeductible interest expense.

                                                                17

                                                      ANALYSIS OF SECURITIES
                                                     (in thousands of dollars)

        The amortized cost and the fair value of securities as of December 31, 2003, 2002 and 2001 were as follows:

                                                          2003                        2002                          2001
                                               -------------------------   -------------------------   ---------------------------
                                                Amortized       Fair        Amortized        Fair        Amortized        Fair
                                                   Cost         Value          Cost          Value          Cost          Value
                                               -----------  ------------   ------------  ------------   ------------  ------------
                                                                                                    
Securities available for sale:
  U.S. Treasury securities                     $         0  $          0   $      5,143  $      5,338   $      7,630  $      7,866
  U.S. Government agencies and corporations         17,234        17,280         11,371        11,946         11,528        11,574
  Mortgage-backed securities                       213,071       211,142        216,619       222,036        213,054       216,654
  State and municipal securities                    51,138        52,945         33,534        34,785         30,085        29,663
  Other debt securities                                  0             0              0             0          5,791         5,882
                                               -----------  ------------   ------------  ------------   ------------  ------------
Total debt securities available for sale       $   281,443  $    281,367   $    266,667  $    274,105   $    268,088  $    271,639
                                               ===========  ============   ============  ============   ============  ============

                                                                18

                                                  ANALYSIS OF SECURITIES (cont.)
                                                   (fully tax equivalent basis)
                                                     (in thousands of dollars)

        The weighted average yields (1) and maturity distribution (2) for debt securities portfolio at
December 31, 2003, were as follows:

                                                                                           After One     After five
                                                                               Within         Year         Years         Over
                                                                                One          Within      Within Ten       Ten
                                                                                Year       Five Years      Years         Years
                                                                            ------------  ------------  ------------  ------------

Securities available for sale:

Government agencies and corporations
  Book value                                                                $          0  $     11,799  $      5,481  $          0
  Yield                                                                             0.00%         3.36%         5.25%         0.00%

Mortgage-backed securities
  Book value                                                                           0        16,229        64,112       130,801
  Yield                                                                             0.00%         5.74%         5.35%         5.45%

State and municipal securities
  Book value                                                                         100           865         3,922        48,058
  Yield                                                                             6.85%         3.34%         4.24%         4.63%
                                                                            ------------  ------------  ------------  ------------

Total debt securities available for sale:
  Book value                                                                $        100  $     28,893  $     73,515  $    178,859
  Yield                                                                             6.85%         4.69%         5.05%         5.23%
                                                                            ============  ============  ============  ============

(1)     Tax exempt income was converted to a fully taxable equivalent basis at a 35% rate.

(2)     The maturity distribution of mortgage-backed securities was based upon anticipated payments as computed by using the
        historic average payment speed from date of issue.

        There were no investments in securities of any one issuer, other than the U.S. Government and its agencies that exceeded
10% of stockholders' equity at December 31, 2003.

                                                                19

                                                    ANALYSIS OF LOAN PORTFOLIO
                                                   Analysis of Loans Outstanding
                                                     (in thousands of dollars)

        The Company segregates its loan portfolio into four basic segments: commercial (including agri-business and agricultural
loans), real estate mortgages, installment and personal line of credit loans (including credit card loans). The loan portfolio as
of December 31, 2003, 2002, 2001, 2000 and 1999 was as follows:

                                                                  2003          2002          2001          2000          1999
                                                              ------------  ------------  ------------  ------------  ------------
                                                                                                       
Commercial loans:
  Taxable                                                     $    667,672  $    619,963  $    534,645  $    487,125  $    419,034
  Tax exempt                                                         7,785         4,974         2,544         2,374         3,048
                                                              ------------  ------------  ------------  ------------  ------------
Total commercial loans                                             675,457       624,937       537,189       489,499       422,082

Real estate mortgage loans                                          44,050        47,184        47,252        52,731        46,872

Installment loans                                                   58,567        75,692        95,592       129,729       146,711

Line of credit and credit card loans                                92,808        74,863        58,190        46,917        38,233
                                                              ------------  ------------  ------------   -----------  ------------

  Total loans                                                      870,882       822,676       738,223       718,876       653,898

Less allowance for loan losses                                      10,234         9,533         7,946         7,124         6,522
                                                              ------------  ------------  ------------   -----------  ------------

  Net loans                                                   $    860,648  $    813,143  $    730,277   $   711,752  $    647,376
                                                              ============  ============  ============   ===========  ============

        The real estate mortgage loan portfolio included construction loans totaling $3,932, $2,540, $2,354, $3,626 and $4,488 as
of December 31, 2003, 2002, 2001, 2000 and 1999. The loan classifications are based on the nature of the loans as of the loan
origination date. There were no foreign loans included in the loan portfolio for the periods presented.

                                                                20

                                                ANALYSIS OF LOAN PORTFOLIO (cont.)
                                               Analysis of Loans Outstanding (cont.)
                                                     (in thousands of dollars)

        Repricing opportunities of the loan portfolio occur either according to predetermined adjustable rate schedules included
in the related loan agreements or upon maturity of each principal payment. The following table indicates the scheduled maturities
of the loan portfolio as of December 31, 2003.

                                                                                            Line of
                                                                  Real                     Credit and
                                                 Commercial      Estate     Installment   Credit Card      Total         Percent
                                                ------------  ------------  ------------  ------------  ------------  ------------

Original maturity of one day                    $    410,909  $          0  $        419  $     90,006  $    501,334          57.6%

Other within one year                                 94,472         6,256        23,420             0       124,148          14.2

After one year, within five years                    158,334         5,632        32,671             0       196,637          22.6

Over five years                                       11,290        32,061         2,057         2,802        48,210           5.5

Nonaccrual loans                                         452           101             0             0           553           0.1
                                                ------------  ------------  ------------  ------------  ------------  ------------

  Total loans                                   $    675,457  $     44,050  $     58,567  $     92,808  $    870,882         100.0%
                                                ============  ============  ============  ============  ============  ============

        A portion of the loans is short-term maturities. At maturity, credits are reviewed and, if renewed, are renewed at rates
and conditions that prevail at the time of maturity.

        Loans due after one year which have a predetermined interest rate and loans due after one year which have floating or
adjustable interest rates as of December 31, 2003 amounted to $207,387 and $37,460.

                                                                21

                                                ANALYSIS OF LOAN PORTFOLIO (cont.)
                                                   Review of Nonperforming Loans
                                                     (in thousands of dollars)

        The following is a summary of nonperforming loans as of December 31, 2003, 2002, 2001, 2000 and 1999.

                                                                  2003          2002          2001          2000          1999
                                                              ------------  ------------  ------------  ------------  ------------
                                                                                                       
PART A - PAST DUE ACCRUING LOANS (90 DAYS OR MORE)

Real estate mortgage loans                                    $        160  $          0  $        170  $        398  $          0

Commercial and industrial loans                                      2,912         3,245             0         7,635            20

Loans to individuals for household, family and
 other personal expenditures                                           119           142            94           171           151

Loans to finance agriculture production and
 other loans to farmers                                                  0             0             0             0             0
                                                              ------------  ------------  ------------  ------------  ------------

  Total past due loans                                               3,191         3,387           264         8,204           171
                                                              ------------  ------------  ------------  ------------  ------------

PART B - NONACCRUAL LOANS

Real estate mortgage loans                                             101           106            59            37             0

Commercial and industrial loans                                        452         4,110         2,175           169           329

Loans to individuals for household, family and
 other personal expenditures                                             0             0             0             0             0

Loans to finance agriculture production and
 other loans to farmers                                                  0             0             0             0             0
                                                               -----------  ------------  ------------  ------------  ------------

  Total past due loans                                                 553         4,216         2,234           206           329
                                                               -----------  ------------  ------------  ------------  ------------

PART C - TROUBLED DEBT RESTRUCTURED LOANS                                0             0             0         1,127         1,179
                                                               -----------  ------------  ------------  ------------  ------------

Total nonperforming loans                                      $     3,744  $      7,603  $      2,498  $      9,537  $      1,679
                                                               ===========  ============  ============  ============  ============

        Nonearning assets of the Company include nonperforming loans (as indicated above), nonaccrual investments, other real
estate and repossessions, which amounted to $4,328 at December 31, 2003.

                                                                22

                      ANALYSIS OF LOAN PORTFOLIO (cont.)
                    Comments Regarding Nonperforming Assets

PART A - CONSUMER LOANS

         Consumer installment loans, except those loans that are secured by
real estate, are not placed on nonaccrual status since these loans are
charged-off when they have been delinquent from 90 to 180 days, and when the
related collateral, if any, is not sufficient to offset the indebtedness.
Advances under Mastercard and Visa programs, as well as advances under all
other consumer line of credit programs, are charged-off when collection
appears doubtful.

PART B - NONPERFORMING LOANS

         When a loan is classified as a nonaccrual loan, interest on the loan
is no longer accrued and all accrued interest receivable is charged off. It is
the policy of the Bank that all loans for which the collateral is insufficient
to cover all principal and accrued interest will be reclassified as
nonperforming loans to the extent they are unsecured, on or before the date
when the loan becomes 90 days delinquent. Thereafter, interest is recognized
and included in income only when received. Interest not recorded on nonaccrual
loans is referenced in Footnote 4 in Item 8 below.

         As of December 31, 2003, there were $553,000 of loans on nonaccrual
status, some of which were also on impaired status. There were $3.0 million of
loans classified as impaired.

PART C - TROUBLED DEBT RESTRUCTURED LOANS

         Loans renegotiated as troubled debt restructurings are those loans
for which either the contractual interest rate has been reduced and/or other
concessions are granted to the borrower because of a deterioration in the
financial condition of the borrower which results in the inability of the
borrower to meet the terms of the loan.

         As of December 31, 2003 and 2002, there were no loans renegotiated as
troubled debt restructurings.

PART D - OTHER NONPERFORMING ASSETS

         Management is of the opinion that there are no significant
foreseeable losses relating to nonperforming assets, as defined in the
preceding table, or classified loans, except as discussed above in Part B -
Nonperforming Loans and Part C - Troubled Debt Restructured Loans.

PART E - LOAN CONCENTRATIONS

         There were no loan concentrations within industries, which exceeded
ten percent of total assets. It is estimated that over 90% of all the Bank's
commercial, industrial, agri-business and agricultural real estate mortgage,
real estate construction mortgage and consumer loans are made within its basic
service area.

                                      23

Basis For Determining Allowance For Loan Losses:

         Management is responsible for determining the adequacy of the
allowance for loan losses. This responsibility is fulfilled by management in a
number of ways, including the following:

         1. Management reviews the larger individual loans (primarily in the
commercial loan portfolio) for unfavorable collectibility factors and assesses
the requirement for specific reserves on such credits. For those loans not
subject to specific reviews, management reviews previous loan loss experience
to establish historical ratios and trends in charge-offs by loan category. The
ratios of net charge-offs to particular types of loans enable management to
estimate charge-offs by loan category and thereby establish appropriate
reserves for loans not specifically reviewed.

         2. Management reviews the current economic conditions of its lending
market to determine the effects on loan charge-offs by loan category, in
addition to the effects on the loan portfolio as a whole.

         3. Management reviews delinquent loan reports to determine risk of
loan charge-offs. High delinquencies are generally indicative of an increase
in future loan charge-offs.

         Based upon these policies and objectives, $2.3 million, $3.1 million
and $2.2 million were charged to the provision for loan losses and added to
the allowance for loan losses in 2003, 2002 and 2001.

         The allocation of the allowance for loan losses to the various
lending areas is performed by management in relation to perceived exposure to
loss in the various loan portfolios. However, the allowance for loan losses is
available in its entirety to absorb losses in any particular loan category.

                                      24

                                                ANALYSIS OF LOAN PORTFOLIO (cont.)
                                                       Summary of Loan Loss
                                                     (in thousands of dollars)

        The following is a summary of the loan loss experience for the years ended December 31, 2003, 2002, 2001, 2000 and 1999.

                                                                  2003          2002          2001          2000          1999
                                                              ------------  ------------  ------------  ------------  ------------

Amount of loans outstanding, December 31,                     $    870,882  $    822,676  $    738,223  $    718,876  $    653,898
                                                              ============  ============  ============  ============  ============

Average daily loans outstanding during the year
 ended December 31,                                           $    847,555  $    770,897  $    729,750  $    679,198  $    605,170
                                                              ============  ============  ============  ============  ============

Allowance for loan losses, January 1,                         $      9,533  $      7,946  $      7,124  $      6,522  $      5,510
                                                              ------------  ------------  ------------  ------------  ------------

Loans charged-off
  Commercial                                                         1,261         1,268           569           200           147
  Real estate                                                           47             0             0            30             6
  Installment                                                          353           509           868           483           252
  Credit cards and personal credit lines                               113            98           103            35            30
                                                              ------------  ------------  ------------  ------------  ------------

Total loans charged-off                                              1,774         1,875         1,540           748           435
                                                              ------------  ------------  ------------  ------------  ------------

Recoveries of loans previously charged-off
  Commercial                                                            21           270             3            45            10
  Real estate                                                            0             0            16             0             0
  Installment                                                          188           128           113            93           114
  Credit cards and personal credit lines                                12             8             5             6            13
                                                              ------------  ------------  ------------  ------------  ------------

Total recoveries                                                       221           406           137           144           137
                                                              ------------  ------------  ------------  ------------  ------------

Net loans charged-off                                                1,553         1,469         1,403           604           298
Provision for loan loss charged to expense                           2,254         3,056         2,225         1,206         1,310
                                                              ------------  ------------  ------------  ------------  ------------

  Balance, December 31,                                       $     10,234  $      9,533  $      7,946  $      7,124  $      6,522
                                                              ============  ============  ============  ============  ============

Ratio of net charge-offs during the period to
 average daily loans outstanding
  Commercial                                                          0.15%         0.13%         0.08%         0.02%         0.02%
  Real estate                                                         0.00          0.00          0.00          0.00          0.00
  Installment                                                         0.02          0.05          0.10          0.06          0.02
  Credit cards and personal credit lines                              0.01          0.01          0.01          0.01          0.01
                                                              ------------  ------------  ------------  ------------  ------------

Total                                                                 0.18%         0.19%         0.19%         0.09%         0.05%
                                                              ============  ============  ============  ============  ============

Ratio of allowance for loan losses to
 nonperforming assets                                               236.46%       123.15%       192.58%        73.83%       368.06%
                                                              ============  ============  ============  ============  ============

                                                                25

                                                ANALYSIS OF LOAN PORTFOLIO (cont.)
                                              Allocation of Allowance for Loan Losses
                                                     (in thousands of dollars)

        The following is a summary of the allocation for loan losses as of December 31, 2003, 2002, 2001, 2000 and 1999.

                                                         2003                         2002                         2001
                                              --------------------------   --------------------------   --------------------------
                                               Allowance      Loans as      Allowance      Loans as      Allowance      Loans as
                                                  For        Percentage        For        Percentage        For        Percentage
                                                  Loan        of Gross         Loan        of Gross         Loan        of Gross
                                                 Losses        Loans          Losses        Loans          Losses        Loans
                                              ------------  ------------   ------------  ------------   ------------  ------------
                                                                                                    
Allocated allowance for loan losses
  Commercial                                  $      8,634         77.56%  $      7,824         75.96%  $      6,412         72.77%
  Real estate                                          110          5.06            123          5.74            127          6.40
  Installment                                          440          6.72            573          9.20            728         12.95
  Credit cards and personal credit lines               696         10.66            563          9.10            431          7.88
                                              ------------  ------------   ------------   -----------   ------------  ------------

Total allocated allowance for loan losses            9,880        100.00%         9,083        100.00%         7,698        100.00%
                                                            ============                  ===========                 ============

Unallocated allowance for loan losses                  354                          450                          248
                                              ------------                 ------------                 ------------

Total allowance for loan losses               $     10,234                 $      9,533                 $      7,946
                                              ============                 ============                 ============

                                                               2000                                           1999
                                              --------------------------   ---------------------------
                                               Allowance      Loans as      Allowance       Loans as
                                                  For        Percentage        For         Percentage
                                                  Loan        of Gross         Loan         of Gross
                                                 Losses        Loans          Losses         Loans
                                              ------------  ------------   ------------   ------------
Allocated allowance for loan losses
  Commercial                                  $      5,205         68.09%  $      4,750          64.55%
  Real estate                                          132          7.34            120           7.17
  Installment                                          974         18.04          1,202          22.43
  Credit cards and personal credit lines               352          6.53            185           5.85
                                              ------------  ------------   ------------   ------------

Total allocated allowance for loan losses            6,663        100.00%         6,257         100.00%
                                                            ============                  ============

Unallocated allowance for loan losses                  461                          265
                                              ------------                 ------------

Total allowance for loan losses               $      7,124                 $      6,522
                                              ============                 ============

        In 2001 and 1999, the Company reviewed and revised the allocation process for the Allowance for Loan Losses. These changes
primarily affected the allocations as they pertain to the commercial loans classified in the Company's internal watch list. These
changes also brought the Company's methodology into closer conformity with regulatory guidance. The Company continues to review the
allocation process and the documentation for the Allowance for Loan Losses, therefore future changes may occur.

                                                                26

                                                       ANALYSIS OF DEPOSITS
                                                     (in thousands of dollars)

        The average daily deposits for the years ended December 31, 2003, 2002 and 2001, and the average rates paid on those
deposits are summarized in the following table:

                                                         2003                         2002                         2001
                                              --------------------------   --------------------------   --------------------------
                                                Average        Average       Average        Average       Average        Average
                                                 Daily          Rate          Daily          Rate          Daily          Rate
                                                Balance         Paid         Balance         Paid         Balance         Paid
                                              ------------  ------------   ------------  ------------   ------------  ------------

Demand deposits                               $    173,716          0.00%  $    150,226          0.00%  $    137,011          0.00%

Savings and transaction accounts:
  Regular savings                                   61,053          0.38         53,792          0.75         50,513          1.21
  Interest bearing checking                        301,328          1.07        231,712          1.55        230,144          3.24

Time deposits:
  Deposits of $100,000 or more                     230,417          1.94        224,437          2.50        203,067          5.24
  Other time deposits                              203,196          3.03        203,531          3.68        211,728          5.27
                                              ------------                 ------------                  -----------

Total deposits                                $    969,710          1.45%  $    863,698          1.98%   $   832,463          3.59%
                                              ============                 ============                  ===========

        As of December 31, 2003, time certificates of deposit in denominations of $100,000 or more will mature as follows:

Within three months                           $     45,842

Over three months, within six months                17,847

Over six months, within twelve months               10,208

Over twelve months                                  32,471
                                              ------------

Total time certificates of deposit in
 denominations of $100,000 or more            $    106,368
                                              ============

                                                                27

                      QUALITATIVE MARKET RISK DISCLOSURE

         Management's market risk disclosure appears under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7, below, and is incorporated herein by reference in
response to this item. The Company's primary market risk exposure is interest
rate risk. The Company does not have a material exposure to foreign currency
exchange rate risk, does not own any material derivative financial instruments
and does not maintain a trading portfolio.

                       RETURN ON EQUITY AND OTHER RATIOS

              The rates of return on average daily assets and stockholders'
equity, the dividend payout ratio, and the average daily stockholders' equity
to average daily assets for the years ended December 31, 2003, 2002 and 2001
were as follows:

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

Percent of net income to:
  Average daily total assets                    1.12%        1.08%        0.90%

  Average daily stockholders' equity           15.88%       15.64%       14.45%

  Percentage of dividends declared per
   common share to basic earnings per
   weighted average number of common
   shares outstanding (5,819,916 shares
   in 2003 and 5,813,984 shares in 2002
   and 2001)                                    31.93%       31.92%       34.48%

  Percentage of average daily
   stockholders' equity to average
   daily total assets                           7.05%        6.88%        6.23%

                                      28

                             SHORT-TERM BORROWINGS
                           (in thousands of dollars)

        The following is a schedule, at the end of the year indicated, of
statistical information relating to securities sold under agreement to
repurchase maturing within one year and secured by either U.S. Government
agency securities or mortgage-backed securities classified as other debt
securities. There were no other categories of short-term borrowings for which
the average balance outstanding during the period was 30 percent or more of
stockholders' equity at the end of each period.

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

Outstanding at year end               $    102,601  $    124,969  $    149,117

Approximate average interest rate at
 year end                                     0.79%         1.03%         1.91%

Highest amount outstanding as of any
 month end during the year            $    108,270  $    139,857  $    160,628

Approximate average outstanding
 during the year                      $     97,808  $    116,214  $    140,277

Approximate average interest rate
 during the year                              0.83%         1.49%         3.72%

        Securities sold under agreement to repurchase include fixed rate, term
transactions initiated by the investment department of the Bank, as well as
corporate sweep accounts.

                                      29

ITEM 2. PROPERTIES

         The Company conducts its operations from the following locations:

Branches/Headquarters
Main/Headquarters         202 East Center St.              Warsaw           IN
Warsaw Drive-up           East Center St.                  Warsaw           IN
Akron                     102 East Rochester               Akron            IN
Argos                     100 North Michigan               Argos            IN
Auburn                    1220 East 7th St.                Auburn           IN
Bremen                    1600 Indiana State Road 331      Bremen           IN
Columbia City             601 Countryside Dr.              Columbia City    IN
Concord                   4202 Elkhart Rd.                 Goshen           IN
Cromwell                  111 North Jefferson St.          Cromwell         IN
Elkhart Beardsley         864 East Beardsley St.           Elkhart          IN
Elkhart East              22050 State Road 120             Elkhart          IN
Elkhart Hubbard Hill      58404 State Road 19              Elkhart          IN
Elkhart Northwest         1208 North Nappanee St.          Elkhart          IN
Fort Wayne North          302 East DuPont Rd.              Fort Wayne       IN
Fort Wayne Northeast      10411 Maysville Rd.              Fort Wayne       IN
Fort Wayne Southwest      10429 Illinois Rd.               Fort Wayne       IN
Fort Wayne Downtown       200 East Main St., Suite 600     Fort Wayne       IN
Goshen Downtown           102 North Main St.               Goshen           IN
Goshen South              2513 South Main St.              Goshen           IN
Granger                   12830 State Road 23              Granger          IN
Huntington                1501 North Jefferson St.         Huntington       IN
Kendallville East         631 Professional Way             Kendallville     IN
LaGrange                  901 South Detroit                LaGrange         IN
Ligonier Downtown         222 South Cavin St.              Ligonier         IN
Ligonier South            1470 U.S. Highway 33 South       Ligonier         IN
Medaryville               Main St.                         Medaryville      IN
Mentone                   202 East Main St.                Mentone          IN
Middlebury                712 Wayne Ave.                   Middlebury       IN
Milford                   Indiana State Road 15 North      Milford          IN
Mishawaka                 5015 North Main St.              Mishawaka        IN
Nappanee                  202 West Market St.              Nappanee         IN
North Webster             644 North Main St.               North Webster    IN
Pierceton                 202 South First St.              Pierceton        IN
Plymouth                  862 East Jefferson St.           Plymouth         IN
Rochester                 507 East 9th St.                 Rochester        IN
Shipshewana               895 North Van Buren St.          Shipshewana      IN
Silver Lake               102 Main St.                     Silver Lake      IN
South Bend Northwest      21113 Cleveland Rd.              South Bend       IN
Syracuse                  502 South Huntington             Syracuse         IN
Warsaw East               3601 Commerce Dr.                Warsaw           IN
Warsaw North              420 Chevy Way                    Warsaw           IN
Warsaw West               1221 West Lake St.               Warsaw           IN
Winona Lake               99 Chestnut St.                  Winona Lake      IN
Winona Lake East          1324 Wooster Rd.                 Winona Lake      IN

         The Company leases from third parties the real estate and buildings
for its Milford and Winona Lake East branches, and for its Fort Wayne Downtown
office. In addition, the Company leases the real estate for its freestanding
ATMs. All the other branch facilities are owned by the Company. The Company
also owns parking lots in downtown Warsaw for the use and convenience of
Company employees and customers, as well as leasehold improvements, equipment,
furniture and fixtures necessary to operate the banking facilities.

                                      30

         In addition, the Company owns buildings at 110 South High St.,
Warsaw, Indiana, and 114-118 East Market St., Warsaw, Indiana, which it uses
for various offices, a building at 113 East Market St., Warsaw, Indiana, which
it uses for office and computer facilities, and a building at 109 South
Buffalo St., Warsaw, Indiana, which it uses for training and development. The
Company also leases from third parties facilities in Warsaw, Indiana, for the
storage of supplies and in Elkhart, Indiana, for computer facilities.

         None of the Company's assets are the subject of any material
encumbrances.

ITEM 3. LEGAL PROCEEDINGS

         There are no material pending legal proceedings other than ordinary
routine litigation incidental to the business to which the Company and the
Bank are a party or of which any of their property is subject.

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

         No matter was submitted to a vote of security holders during the
fourth quarter of 2003.

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

                                              4th      3rd      2nd      1st
                                            Quarter  Quarter  Quarter  Quarter
                                            -------  -------  -------  -------
2003

Trading range (per share)*
  Low                                       $33.510  $29.510  $24.400  $23.000
  High                                      $37.469  $34.400  $31.220  $25.750

Dividends declared (per share)              $  0.19  $  0.19  $  0.19  $  0.19

2002

Trading range (per share)*
  Low                                       $22.220  $23.570  $20.100  $17.410
  High                                      $24.995  $29.760  $28.840  $20.450

Dividends declared (per share)              $  0.17  $  0.17  $  0.17  $  0.17

*  The trading ranges are the high and low as obtained from the Nasdaq Stock
market.

         The common stock of the Company began being quoted on The Nasdaq
Stock Market under the symbol LKFN in August, 1997. On December 31, 2003, the
Company had approximately 513 shareholders of record and estimates that is has
approximately 2,000 shareholders in total.

         The Company paid dividends as set forth in the table above. The
Company's ability to pay dividends to shareholders is largely dependent upon
the dividends it receives from the Bank, and the Bank is subject to regulatory
limitations on the amount of cash dividends it may pay. See "Business -
Supervision and Regulation - The Company - Dividend Payments" and "Business -
Supervision and Regulation - The Bank - Dividend Payments" for a more detailed
description of these limitations.

                                      31

ITEM 6. SELECTED FINANCIAL DATA

                                                                  2003          2002          2001          2000          1999
                                                              ------------  ------------  ------------  ------------  ------------
                                                                         (in thousands except share and per share data)

Interest income                                               $     60,336  $     64,335  $     76,615  $     80,050  $     69,395

Interest expense                                                    18,137        22,558        39,230        45,030        37,122
                                                              ------------  ------------  ------------  ------------  ------------

Net interest income . . . . . . . . . . . . . . . . . . . . .       42,199        41,777        37,385        35,020        32,273

Provision for loan losses                                            2,254         3,056         2,225         1,206         1,310
                                                              ------------  ------------  ------------ -------------  ------------

Net interest income after provision
  for loan losses                                                   39,945        38,721        35,160        33,814        30,963
Other noninterest income                                            14,909        12,894        11,449        10,469         9,841
Net gain on sale of branches                                             0             0           753             0             0
Net gains on sale of real estate
  mortgages held for sale                                            3,018         1,914         1,232           504         1,302
Net securities gains (losses)                                          500            55           120             0         1,340
Noninterest expense                                                (37,679)      (34,698)      (33,857)      (31,349)      (31,042)
                                                              ------------  ------------  ------------  ------------  ------------

Income before income tax expense . . . . . . . . . . . . . . .      20,693        18,886        14,857        13,438        12,404

Income tax expense                                                   6,828         6,520         4,744         4,116         4,085
                                                              ------------  ------------  ------------  ------------  ------------

Net income . . . . . . . . . . . . . . . . . . . . . . . . . .$     13,865  $     12,366  $     10,113  $      9,322  $      8,319
                                                              ============  ============  ============  ============  ============

Basic weighted average common shares
  outstanding                                                    5,819,916     5,813,984     5,813,984     5,813,984     5,813,984
                                                              ============  ============  ============  ============  ============

Basic earnings per common share                               $       2.38  $       2.13  $       1.74  $       1.60  $       1.43
                                                              ============  ============  ============  ============  ============

Diluted weighted average common shares
  outstanding                                                    6,001,449     5,958,386     5,841,196     5,813,999     5,813,992
                                                              ============  ============  ============  ============  ============

Diluted earnings per common share                             $       2.31  $       2.08  $       1.73  $       1.60  $       1.43
                                                              ============  ============  ============  ============  ============

Cash dividends declared                                       $       0.76  $       0.68  $       0.60  $       0.52  $       0.44
                                                              ============  ============  ============  ============  ============

                                                                32

ITEM 6. SELECTED FINANCIAL DATA (continued)

                                                                  2003          2002          2001          2000          1999
                                                              ------------  ------------  ------------  ------------  ------------
                                                                                         (in thousands)
Balances at December 31:
- --------------------------------------

Total assets                                                  $  1,271,414  $  1,249,060  $  1,139,013  $  1,150,485  $  1,041,198

Total loans                                                   $    870,882  $    822,676  $    738,223  $    718,876  $    653,898

Total deposits                                                $    926,391  $    913,325  $    793,380  $    845,329  $    748,243

Total short-term borrowings                                   $    184,761  $    184,968  $    232,117  $    200,078  $    195,374

Long-term borrowings                                          $     30,047  $     31,348  $     11,389  $     11,433  $     16,473

Subordinated debentures                                       $     30,928  $     20,619  $     20,619  $     20,619  $     20,619

Total stockholders' equity                                    $     90,022  $     83,880  $     73,534  $     64,973  $     54,194

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

         Lakeland Financial Corporation is the holding company for Lake City
Bank. The Company is headquartered in Warsaw, Indiana and operates 43 offices
in twelve counties in northern Indiana. The Company earned $13.9 million for
the year ended 2003 versus $12.4 million for the year ended 2002, an increase
of 12.1%. The increase was driven by a $3.6 million increase in non-interest
income, an $802,000 decrease in the provision for loan losses and a $422,000
increase in net interest income. Offsetting these positive impacts was a $3.0
million increase in non-interest expense, driven by $804,000 expense related
to debt extinguishment costs and an other real estate owned impairment of
$300,000. The Company earned $12.4 million for the year ended 2002 versus
$10.1 million for the year ended 2001, an increase of 22.3%. The increase was
driven by a $4.4 million increase in net interest income and a $1.3 million
increase in non-interest income. Offsetting these positive impacts were
increases of $831,000 in the provision for loan losses and $841,000 in
non-interest expense.

         Basic earnings per share for the year ended 2003 was $2.38 per share
versus $2.13 per share for the year ended 2002 and $1.74 for the year ended
2001. Diluted earnings per share reflect the potential dilutive impact of
stock options granted under an employee stock option plan. Diluted earnings
per share for the year ended 2003 was $2.31 per share versus $2.08 per share
for the year ended 2002 and $1.73 for the year ended 2001.

RESULTS OF OPERATIONS

2003 versus 2002

         The Company reported record net income of $13.9 million in 2003, an
increase of $1.5 million, or 12.1%, versus net income of $12.4 million in
2002. Net interest income increased $422,000, or 1.0%, to $42.2 million versus
$41.8 million in 2002. Net interest income increased due to a decrease in
interest expense on time deposits and short-term borrowings, as well as growth
in commercial loans, which offset some of the effect of the declining interest
rates during the year. Despite growth in earning assets, interest income
decreased $4.0 million, or 6.2%, from $64.3 million in 2002 to $60.3 million
in 2003. The decrease was driven primarily by a 73 basis point reduction in
the tax equivalent yield on average earning assets over the year. Interest
expense decreased $4.4 million, or 19.6%, from $22.6 million in 2002 to $18.1
million in 2003. The decrease was primarily the result of a 55 basis point
decrease in the Company's daily cost of funds over the year. The Company had a
net interest margin of 3.82% in 2003 versus 4.02% in 2002. Average earning

                                                                33

assets increased by $74.7 million and totaled $1.1 billion in 2003 and 2002.
The primary driver was a $76.7 million increase in the average daily loan
balance. Deposits increased to fund the loan growth during 2003, driven
primarily by increases of $69.6 million in the average daily interest bearing
checking account balances and increases of $23.5 million in the average daily
demand deposit balances. The Company believes that the growth in the loan
portfolio will continue in conjunction with the strategic focus on commercial
lending and the general expansion and penetration of the geographical markets
the Company serves. During the fourth quarter of 2003, the Company completed
the issuance of floating rate trust preferred securities and the redemption of
its existing fixed rate trust preferred securities. The interest rate on
subordinated debentures, which are tied to the trust preferred securities,
changed from a 9% fixed rate to a variable rate of 305 basis points over the 3
month LIBOR rate in the fourth quarter of 2003. Interest expense on
subordinated debentures is expected to decrease in 2004 compared to 2003 given
the low interest rate environment and that the Company paid a higher fixed
rate for a portion of 2003.

         Nonaccrual loans were $553,000, or 0.06% of total loans, at year end
versus $4.2 million, or 0.51% of total loans, at the end of 2002. There were
two relationships totaling $3.0 million classified as impaired as of December
31, 2003 versus nine relationships totaling $7.3 million at the end of 2002.
One commercial credit represented $2.9 million and $3.2 million of this amount
in 2003 and 2002. The renewal of this loan has been complicated as more than
one bank is involved, and it remains past maturity. The loan first became
delinquent in 2002 and the maturity has not been extended. While this loan is
current as to principal and interest, there can be no assurance that it will
remain current given the circumstances involved. The decrease was the result
of payments on six commercial loans, including one loan of $1.7 million. Net
charge-offs were $1.6 million in 2003 versus $1.5 million in 2002,
representing 0.18% and 0.19% of average daily loans in 2003 and 2002. Total
nonperforming loans were $3.7 million, or 0.43% of total loans, at year end
2003 versus $7.6 million, or 0.92% of total loans, at the end of 2002. The
provision for loan loss expense was $2.3 million in 2003, resulting in an
allowance for loan losses at December 31, 2003 of $10.2 million, which
represented 1.18% of the loan portfolio, versus a provision for loan loss
expense of $3.1 million in 2002 and an allowance for loan losses of $9.5
million in 2002, or 1.16% of the loan portfolio. The lower provision in 2003
versus 2002 was attributable to a number of factors, but was primarily a
result of the decrease in nonperforming loans during 2003. The continued
challenging economic conditions during 2003 and the resulting impact on asset
quality as evidenced by the percentage of internally classified loans in 2003
was also a factor in the determination of the provision for loan losses. The
Company's management continues to monitor the adequacy of the provision based
on loan levels, asset quality, economic conditions and other factors that may
influence the assessment of the collectability of loans.

         Noninterest income was $18.4 million in 2003 versus $14.9 million in
2002, an increase of $3.6 million, or 24.0%. The increase was driven by a $1.1
million, or 57.7%, increase in gains on sale of mortgages, from $1.9 million
in 2002 to $3.0 million in 2003. This increase was a result of the increased
level of mortgage activity during 2003. Additionally, noninterest income
increased due to a $558,000 reduction in the charge for non-cash impairment of
the Company's mortgage servicing rights, a $624,000 increase in the earnings
on life insurance, a $445,000 increase in gains on securities sold and a
$411,000 increase in operating lease income. The Company does not expect the
level of mortgage activity seen during 2003 to continue and therefore does not
expect mortgage sale gains to remain at the level seen during 2003. The
increase in earnings on life insurance occurred primarily due to the life
insurance not being put into place until the fourth quarter of 2002.

         Noninterest expense increased $3.0 million, or 8.6% from $34.7
million in 2002 to $37.7 million in 2003. Salaries and wages increased $1.3
million, or 7.2%, to $19.8 million in 2003 versus $18.5 million in 2002. This
increase was attributable to normal salary increases, increases related to the
employee 401(k) plan, higher health care costs and staff additions. Net
occupancy expense increased from $2.2 million in 2002 to $2.4 million in 2003
as a result of increased spending to refurbish several offices and higher real
estate tax expense. Included in other expense was a $300,000 write-down on an
ORE property, which was subsequently sold by year end. During the fourth
quarter of 2003, the Company completed the issuance of floating rate trust
preferred securities and the redemption of its existing fixed rate trust
preferred securities. The redemption resulted in a loss on extinguishment of
$804,000.

         As a result of these factors, income before income tax expense
increased $1.8 million, or 9.6%, from $18.9 million in 2002 to $20.7 million
in 2003. Income tax expense was $6.8 million in 2003 versus $6.5 million in
2002. Income tax as a percentage of income before tax was 33.0% in 2003 versus
34.5% in 2002. The lower tax rate resulted from increased investment in tax
advantaged securities and investments and an increase in the level of income
derived from the investment subsidiary. Net income increased $1.5 million, or
12.1%, to $13.9 million in 2003 versus $12.4 million in 2002. Basic earnings
per share in 2003 was $2.38, an increase of 11.7%, versus $2.13 in 2002. The

                                      34

Company's net income performance represented a 16.5% return on January 1,
2003, stockholders' equity versus 16.8% in 2002. The net income performance
resulted in a 1.12% return on average daily assets in 2003 versus 1.08% in
2002.

2002 versus 2001

         The Company reported record net income of $12.4 million in 2002, an
increase of $2.3 million, or 22.3%, versus net income of $10.1 million in
2001. Net interest income increased $4.4 million, or 11.7%, to $41.8 million
versus $37.4 million in 2001. Net interest income increased primarily due to
the implementation of a liability pricing strategy during 2001 that resulted
in an improved net interest margin and growth in the loan portfolio. Interest
income decreased $12.3 million, or 16.0%, from $76.6 million in 2001 to $64.3
million in 2002. The decrease was driven primarily by a 134 basis point
reduction in the tax equivalent yield on average earning assets over the year.
Interest expense decreased $16.7 million, or 42.5%, from $39.2 million in 2001
to $22.6 million in 2002. The decrease was primarily the result of a 163 basis
point decrease in the Company's daily cost of funds over the year. The Company
had a net interest margin of 4.02% in 2002 versus 3.71% in 2001. Average
earning assets increased by $27.1 million to $1.1 billion in 2002 versus $1.0
billion in 2001. The primary driver was a $40.1 million increase in the
average daily loan balance. Deposits increased to fund the loan growth during
2002, driven primarily by increases of $13.6 million in the average daily time
deposit balances and increases of $13.2 million in the average daily demand
deposit balances. The increase in average daily total deposits occurred
despite the impact of the Company's September, 2001 branch divestiture, which
included $70.3 million in deposits.

         Nonaccrual loans were $4.2 million, or 0.51% of total loans, at year
end versus $2.2 million, or 0.30% of total loans, at the end of 2001. There
were nine relationships totaling $7.3 million classified as impaired as of
December 31, 2002 versus six relationships totaling $10.0 million at the end
of 2001. One commercial credit represented $3.2 million of this amount in
2002. The renewal of this loan was complicated as more than one bank was
involved, and it was past maturity, however at year end 2002 the loan was
current as to principal and interest. The removal of one credit that had a
balance of $7.5 million at December 31, 2001 was offset by the addition of the
aforementioned loan. The impaired loan that was removed from impaired status
had been current on principal and interest for most of 2002 and was
restructured as a personal loan to the principal of the corporate entity with
the support of both the existing collateral and new collateral in the form of
life insurance and additional pledged securities. In addition, full payment
under the loan terms was expected. Net charge-offs were $1.5 million in 2002
versus $1.4 million in 2001, representing 0.19% and 0.19% of average daily
loans in 2002 and 2001. The provision for loan loss expense was $3.1 million
in 2002, resulting in an allowance for loan losses at December 31, 2002 of
$9.5 million, which represented 1.16% of the loan portfolio, versus $7.9
million in 2001, or 1.08% of the loan portfolio. The higher provision in 2002
versus 2001 was attributable to a number of factors, but was primarily a
result of the more challenging economic conditions during 2002 and the
resulting impact on asset quality as evidenced by an increase in the
percentage of internally classified loans in 2002. The growth of the
commercial loan portfolio was also a factor in the determination of the
provision for loan losses.

         Noninterest income was $14.9 million in 2002 versus $13.6 million in
2001, an increase of $1.3 million, or 9.7%. The increase was driven by a $1.4
million, or 26.1%, increase in service charges on deposit accounts which was
largely due to fees related to new deposit services which were implemented in
the first quarter of 2002, as well as fees associated with business checking
accounts. The increase in noninterest income was also reflective of the low
interest rate environment which encouraged new mortgage and mortgage
refinancing activity. The increased mortgage activity resulted in a rise in
the gains on sale of mortgages, which were $1.9 million versus $1.2 million in
2001, an increase of 55.4%. Trust and brokerage fees decreased $197,000, or
7.4%, to $2.5 million versus $2.6 million in 2001 as a result of a reduction
in brokerage income from $1.1 million in 2001 to $695,000 in 2002. During
2001, the Company sold five non-strategic branches resulting in a gain of
$753,000.

         Noninterest expense increased 2.5% from $33.9 million in 2001 to
$34.7 million in 2002. Salaries and wages increased $1.2 million, or 6.8%, to
$18.5 million in 2002 versus $17.3 million in 2001. This increase was
attributable to normal salary increases, increases related to the employee
401(k) plan and an expanded incentive compensation plan. Net occupancy expense
and equipment costs decreased from $4.9 million in 2001 to $4.7 million in
2002 as a result of the sale of five non-strategic branches during the second
half of 2001 and reductions in some operating expenses.

         As a result of these factors, income before income tax expense
increased $4.0 million, or 27.1%, from $14.9 million in 2001 to $18.9 million

                                      35

in 2002. Income tax expense was $6.5 million in 2002 versus $4.7 million in
2001. Income tax as a percentage of income before tax was 34.5% in 2002 versus
31.9% in 2001. The increase in income tax as a percentage of income before tax
was primarily due to greater profitability, as well as the adoption of FASB
147 during 2002, which resulted in the Company reversing previously amortized
goodwill and related taxes for the year of $378,000. Both of these resulted in
a higher percentage of income being subject to state franchise tax combined
with the Company being taxed at the 35% federal tax rate in 2002 versus the
34% rate in 2001. Net income increased $2.3 million, or 22.3%, to $12.4
million in 2002 versus $10.1 million in 2001. Basic earnings per share in 2002
was $2.13, an increase of 22.4%, versus $1.74 in 2001. The Company's net
income performance represented a 16.8% return on January 1, 2002,
stockholders' equity versus 15.6% in 2001. The net income performance resulted
in a 1.08% return on average daily assets in 2002 versus 0.90% in 2001.

FINANCIAL CONDITION

         As of December 31, 2003, the Company had 43 offices serving twelve
counties in northern Indiana. The Company added two new offices during 2003.
Since 1996, the Company has added seventeen new offices through acquisition
and internal growth. The Company opened a thirteenth office in Kosciusko
County and a fourth office in Allen County as part of its acquisition of
Indiana Capital Management's Fort Wayne Office in 2003 and also continues to
evaluate additional expansion opportunities. The Company will consider future
acquisition and expansion opportunities with an emphasis on markets that it
believes would be receptive to its business philosophy of local, independent
banking. The Company sold five southern market branches during the third
quarter of 2001 in order to help position the Company to focus on growth
opportunities in its core northern markets, which are anchored by the cities
of Warsaw, Fort Wayne, Elkhart and South Bend, Indiana.

         Total assets of the Company were $1.271 billion as of December 31,
2003, an increase of $22.4 million, or 1.8%, when compared to $1.249 billion
as of December 31, 2002.

         Total cash and cash equivalents decreased by $29.7 million, or 34.1%,
to $57.4 million at December 31, 2003 from $87.1 million at December 31, 2002.
The decrease was primarily attributable to the funding of real estate mortgage
loans due to an increase in demand resulting from falling interest rates
during the first half of 2003.

         Total securities available for sale increased by $7.3 million, or
2.6%, to $281.4 million at December 31, 2003 from $274.1 million at December
31, 2002. The increase was a result of a number of activities in the
securities portfolio. Paydowns of $113.1 million were received, and the
amortization of premiums, net of the accretion of discounts, was $1.5 million.
Maturities, calls and sales of securities totaled $33.6 million. The fair
value of the securities decreased $7.5 million as a result of generally lower
interest rates. These portfolio decreases were offset by securities purchases
totaling $162.5 million. The investment portfolio is managed to limit the
Company's exposure to risk and contains mostly collateralized mortgage
obligations and other securities which are either directly or indirectly
backed by the federal government or a local municipal government. The
investment portfolio did not contain any corporate debt instruments or trust
preferred instruments as of December 31, 2003.

         Real estate mortgages held for sale decreased by $7.0 million, or
67.0%, to $3.4 million at December 31, 2003 from $10.4 million at December 31,
2002. The balance of this asset category is subject to a high degree of
variability depending on, among other things, recent mortgage loan rates and
the timing of loan sales into the secondary market. During 2003, $143.2
million in real estate mortgages were originated for sale and $150.2 million
in mortgages were sold, compared to $93.8 and $91.8 in 2002.

         Total loans, excluding real estate mortgages held for sale, increased
by $48.2 million or 5.9%, to $870.9 million at December 31, 2003 from $822.7
million at December 31, 2002. The mix of loan types within the Company's
portfolio extended a trend toward a higher percentage of the total loan
portfolio being in commercial loans. The portfolio breakdown at year end 2003
reflected 78% commercial, 5% real estate and 17% consumer loans compared to
76% commercial, 6% real estate and 18% consumer loans at December 31, 2002.

         At December 31, 2003, the allowance for loan losses was $10.2
million, or 1.18% of total loans outstanding, versus $9.5 million, or 1.16%,
of total loans outstanding at December 31, 2002. The process of identifying
probable credit losses is a subjective process. Therefore, the Company
maintains a general allowance to cover probable incurred credit losses within
the entire portfolio. The methodology management uses to determine the
adequacy of the loan loss reserve includes the following considerations.

                                      36

         The Company has a relatively high percentage of commercial and
commercial real estate loans, most of which are extended to small or
medium-sized businesses. Commercial loans represent higher dollar loans to
fewer customers and therefore higher credit risk. Pricing is adjusted to
manage the higher credit risk associated with these types of loans. The
majority of fixed rate mortgage loans, which represent increased interest rate
risk, are sold in the secondary market, as well as some variable rate mortgage
loans. The remainder of the variable rate mortgage loans and a small number of
fixed rate mortgage loans are retained. Management believes the allowance for
loan losses is at a level commensurate with the overall risk exposure of the
loan portfolio. However, as a result of the difficult economic climate,
certain borrowers may experience difficulty and the level of nonperforming
loans, charge-offs, and delinquencies could rise and require further increases
in the provision.

         Loans are charged against the allowance for loan losses when
management believes that the collectability of the principal is unlikely.
Subsequent recoveries, if any, are credited to the allowance. The allowance is
an amount that management believes will be adequate to absorb probable
incurred losses relating to specifically identified loans based on an
evaluation, as well as other probable incurred losses inherent in the loan
portfolio. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans, and current economic conditions that may affect the
borrower's ability to repay. Management also considers trends in adversely
classified loans based upon a monthly review of those credits. An appropriate
level of general allowance is determined based on the application of
historical loss percentages to graded loans by categories. Federal regulations
require insured institutions to classify their own assets on a regular basis.
The regulations provide for three categories of classified loans -
substandard, doubtful and loss. The regulations also contain a special mention
category. Special mention is defined as loans that do not currently expose an
insured institution to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving
management's close attention. Assets classified as substandard or doubtful
require the institution to establish general allowances for loan losses. If an
asset or portion thereof is classified as loss, the insured institution must
either establish specified allowances for loan losses in the amount of 100% of
the portion of the asset classified loss, or charge off such amount. At
December 31, 2003, on the basis of management's review of the loan portfolio,
the Company had loans totaling $70.4 million on the classified loan list
versus $75.0 million on December 31, 2002. As of December 31, 2003, the
Company had $41.9 million of assets classified special mention, $27.7 million
classified as substandard, $869,000 classified as doubtful and $0 classified
as loss as compared to $47.6 million, $27.0 million, $211,000 and $200,000 at
December 31, 2002.

         Allowance estimates are developed by management in consultation with
regulatory authorities, taking into account both actual loss experience and
peer group loss experience and are adjusted for current economic conditions.
Allowance estimates are considered a prudent measurement of the risk in the
Company's loan portfolio and are applied to individual loans based on loan
type. In accordance with FASB Statements 5 and 114, the allowance is provided
for losses that have been incurred as of the balance sheet date and is based
on past events and current economic conditions, and does not include the
effects of expected losses on specific loans or groups of loans that are
related to future events or expected changes in economic conditions.

         The Company has experienced growth in total loans over the last three
years of $152.0 million, or 21.1%. The concentration of this loan growth was
in the commercial loan portfolio. Commercial loans comprised 78%, 76% and 73%
of the total loan portfolio at December 31, 2003, 2002 and 2001.
Traditionally, this type of lending may have more credit risk than other types
of lending because of the size and diversity of the credits. The Company
manages this risk by adjusting its pricing to the perceived risk of each
individual credit and by diversifying the portfolio by customer, product,
industry and geography. Management believes that it is prudent to continue to
provide for loan losses in a manner consistent with its historical approach
due to loan growth described above and current economic conditions.

         As a result of the methodology in determining the adequacy of the
allowance for loan losses, the provision for loan losses was $2.3 million in
2003 versus $3.1 million in 2002. At December 31, 2003 total nonperforming
loans decreased by $3.9 million to $3.7 million from $7.6 million at December
31, 2002. Loans delinquent 90 days or more that were included in the
accompanying financial statements as accruing totaled $3.2 million versus $3.4
million at December 31, 2002. Total impaired loans decreased by $4.3 million
to $3.0 million at December 31, 2003 from $7.3 million at December 31, 2002.
The decreases in nonperforming loans and impaired loans resulted from payments
on six commercial loans including one loan of $1.7 million. The loans
delinquent 90 days or more total includes one commercial credit for $2.9
million and $3.2 million in 2003 and 2002. The renewal of this loan has been

                                      37

complicated as more than one bank is involved, and it remains past maturity.
The loan first became delinquent in 2002 and the maturity has not been
extended. While this loan is current as to principal and interest, there can
be no assurance that it will remain current given the circumstances involved.
The impaired loan total includes $127,000 in nonaccrual loans. The Company
allocated $456,000 and $1.3 million of the allowance for loan losses to the
impaired loans in 2003 and 2002. A loan is impaired when full payment under
the original loan terms is not expected. Impairment is evaluated in total for
smaller-balance loans of similar nature such as residential mortgage,
consumer, and credit card loans, and on an individual loan basis for other
loans. If a loan is impaired, a portion of the allowance may be allocated so
that the loan is reported, net, at the present value of estimated future cash
flows using the loan's existing rate or at the fair value of collateral if
repayment is expected solely from the collateral.

         The Company believes that the improvement in total nonperforming
loans is a reflection of the continued focus on enforcement of a strong credit
environment, an aggressive position on loan work-out situations and a general
improvement in the regional economic conditions. The allowance for loan loss
to total loans percentage increased from 1.16% in 2002 to 1.18% in 2003.
Despite these factors, the Company does not believe that it has experienced a
dramatic change in overall asset quality. Nonetheless, the Company believes
that its overall expansion strategy has employed a credit risk management
approach that promotes diversification and therefore creates a balanced
portfolio with appropriate risk parameters.

         Total deposits increased by $13.1 million, or 1.4%, to $926.4 million
at December 31, 2003 from $913.3 million at December 31, 2002. The increase
resulted from increases of $80.5 million in NOW accounts, $49.6 million in
Investors' Money Market accounts, $17.9 million in money market accounts and
$8.1 million in savings accounts. Offsetting these increases were declines of
$136.0 million in certificates of deposit and $7.1 million in demand deposit
accounts. The Company believes that this shift from certificates of deposits
to shorter term, liquid deposits is a reflection of the low interest rate
environment.

         Total short-term borrowings decreased by $207,000, or 0.1%, to $184.8
million at December 31, 2003 from $185.0 million at December 31, 2002. The
decrease resulted from decreases of $22.4 million in securities sold under
agreements to repurchase, $6.0 million in federal fund purchases and $840,000
in U.S. Treasury demand notes combined with a $29.0 million increase in
Federal Home Loan Bank advances.

           The Company believes that a strong, appropriately managed capital
position is critical to long-term earnings and expansion. Bank regulatory
agencies exclude the market value adjustment created by SFAS No. 115 (AFS
adjustment) from capital adequacy calculations. Excluding this adjustment from
the calculation, the Company had a total risk-based capital ratio of 12.8% and
Tier I risk-based capital ratio of 11.8% as of December 31, 2003. These ratios
met or exceeded the Federal Reserve's "well-capitalized" minimums of 10.0% and
6.0%, respectively.

         The ability to maintain and grow these ratios is a function of the
balance between net income and a prudent dividend policy. Total stockholders'
equity increased by 7.3% to $90.0 million as of December 31, 2003, from $83.9
million as of December 31, 2002. The increase in 2003 resulted from net income
of $13.9 million less the following factors:

o        cash dividends of $4.4 million,
o        an unfavorable change in the AFS adjustment for the market valuation
         on securities held for sale of $4.9 million, net of tax,
o        a negative minimum pension liability adjustment of $331,000, net of
         tax,
o        $169,000 for the acquisition of treasury stock,
o        $819,000 related to stock option exercises and stock compensation
         expense and
o        $152,000 of treasury stock sold and distributed under the deferred
         directors' plan.

         In addition, effective January 1, 2003, the Company's directors'
deferred plan compensation plan was amended to no longer permit
diversification outside of Company stock and to require that settlement of
deferred balances be made in shares of Company stock. In accordance with EITF
97-14: "Accounting for Deferred Compensation Arrangements Where Amounts Earned
Are Held in a Rabbi Trust and Invested," on the date of the plan change, the
$949,000 current value of the liability for the Company shares was transferred
to additional paid-in-capital from other liabilities. Subsequent payments
under the deferred directors' plan of $204,000 were made to paid-in-capital
under the new plan. Total stockholders' equity increased by 14.1% to $83.9
million as of December 31, 2002, from $73.5 million as of December 31, 2001.

                                      38

The increase in 2002 resulted from net income of $12.4 million less the
following factors:

o        cash dividends of $3.9 million,
o        a favorable change in the AFS adjustment of $2.5 million, net of tax,
o        a negative minimum pension liability adjustment of $343,000, net of
         tax, and
o        $197,000 for the purchase of treasury stock.

         The 2003 AFS adjustment reflected a 56 basis point increase in the
two to five year U.S. Treasury rates during 2003. Due to the fact that the
securities portfolio is primarily fixed rate, a negative equity adjustment
would likely occur if interest rates increased. Management has factored this
into the determination of the size of the AFS portfolio to assure that
stockholders' equity is adequate under various scenarios.

         Other than those indicated in this management's discussion,
management is not aware of any known trends, events or uncertainties that
would have a material effect on the Company's liquidity, capital and results
of operations. In addition, management is not aware of any regulatory
recommendations that, if implemented, would have such an effect.

Critical Accounting Policies

         Certain of the Company's accounting policies are important to the
portrayal of the Company's financial condition, since they require management
to make difficult, complex or subjective judgments, some of which may relate
to matters that are inherently uncertain. Estimates associated with these
policies are susceptible to material changes as a result of changes in facts
and circumstances. Some of the facts and circumstances which could affect
these judgments include changes in interest rates, in the performance of the
economy or in the financial condition of borrowers. Management believes that
its critical accounting policies include determining the allowance for loan
losses, determining the fair value of securities and other financial
instruments and the valuation of mortgage servicing rights.

         The allowance for loan losses may be difficult to estimate due to
changes in economic conditions, the financial condition of borrowers and the
fact that there is not always a specific event that triggers a loss. The
Company believes that the allowance for loan losses has closely reflected
actual loss experience and expects this to continue as adjustments are made
for changes occurring in the facts and circumstances affecting the analysis.
Additional information detailing the analysis process and methodology is
included previously under "Financial Condition".

         Determining fair value for securities and other financial instruments
may be difficult to estimate due to changing market conditions, difficulty in
predicting these market changes and changes in interest rates. The Company
believes the pricing obtained and rates applied in determining the fair value
of securities and other financial instruments has been an accurate estimate of
the instruments fair value at a point in time. The Company monitors the prices
obtained and reviews the rates applied in determining fair value on a regular
basis, making adjustments when situations warrant and expects the accuracy of
these estimates at a point in time to continue.

         The valuation of mortgage servicing rights may be difficult due to
the number of assumptions that could be used to value the servicing retained
and the servicing rights themselves are not tangible. The Company does not
have a large mortgage origination business and feels that the business closely
reflects industry standards for the amount of mortgage origination activity it
conducts. Industry software is used to value the servicing rights, and there
are no assumptions applied that could be considered outside industry
standards.

Liquidity

         Management maintains a liquidity position that it believes will
adequately provide funding for loan demand and deposit run-off that may occur
in the normal course of business. The Company relies on a number of different
sources in order to meet these potential liquidity demands. The primary
sources are increases in deposit accounts and cash flows from loan payments
and the securities portfolio. Given current prepayment assumptions, the cash
flow from the securities portfolio is expected to provide approximately $49.8
million of funding in 2004.

                                      39

         In addition to these primary sources of funds, management has several
secondary sources available to meet potential funding requirements. As of
December 31, 2003, the Company had $110.0 million in Federal Fund lines with
correspondent banks and may borrow up to $100.0 million at the Federal Home
Loan Bank of Indianapolis. The Company has its securities in the available for
sale (AFS) portfolio. Therefore the Company may sell securities to meet
funding demands. Management believes that the securities in the AFS portfolio
are of high quality and would therefore be marketable. Approximately 81.0% of
this portfolio is comprised of Federal agency securities or mortgage-backed
securities directly or indirectly backed by the Federal government. In
addition, the Company has historically sold mortgage loans on the secondary
market to reduce interest rate risk and to create an additional source of
funding.

         During 2003, cash and cash equivalents decreased $29.7 million from
$87.1 million as of December 31, 2002 to $57.4 million as of December 31,
2003. The primary driver of this decrease was an increase in net loans of
$51.7 million, which is net of approximately $143.2 million of loans
originated and sold during 2003. A falling rate environment during the first
half of the year contributed to an increase in demand for residential real
estate mortgage loans. Other uses of funds were purchases of securities of
$162.5 million and payments on long-term borrowings of $31.9 million. Sources
of funds were proceeds from loan sales of $152.1 million and proceeds from
maturities, calls and principal paydowns of securities of $132.4 million.
Other sources of funds were proceeds from long-term borrowings of $40.9
million, proceeds from the sale of securities of $14.3 million and a net
increase in deposits of $13.1 million.

         During 2002, cash and cash equivalents increased $8.0 million from
$79.1 million as of December 31, 2001 to $87.1 million as of December 31,
2002. A $119.9 million increase in deposit balances was the primary driver
behind this change. Other sources of funds included proceeds from the sale of
loans of $93.1 million, proceeds from calls and maturities of securities
totaling $83.4 million and proceeds from long term borrowings of $20.0
million. Uses of funds were purchases of securities of $89.4 million, an
increase in net loans of $86.0 million, which is net of approximately $93.8
million of loans originated and sold during 2002, and an increase in other
assets of $11.0 million due primarily to payments for an investment in bank
owned life insurance totaling $13.4 million.

         During 2001, cash and cash equivalents decreased $9.9 million from
$89.0 million as of December 2000 to $79.1 million as of December 31, 2001.
The primary reason for this decrease was the effect of the branch sale. Other
uses of funds were purchases of securities, an increase in loans and payments
for the branch sale. Purchases of securities totaled $71.7 million. Net loans
increased $46.6 million in 2001, which was net of approximately $68.3 million
of loans originated and sold during 2001. Payments for the branch sale were
$40.2 million. The major sources of funds included proceeds from sales, calls
and maturities of securities of $96.5 million and proceeds from the sale of
loans of $60.8 million. Lower interest rates created more demand for
residential real estate mortgage loans and resulted in an increase in proceeds
from the sale of mortgage loans.

         The following tables disclose information on the maturity of the
Company's contractual long-term obligations and commitments.

                                      40

                                                                                     Payments Due by Period
                                                              --------------------------------------------------------------------
                                                                              One year                                   After 5
                                                                 Total        or less      1-3 years     4-5 years        years
                                                              ------------  ------------  ------------  ------------  ------------
                                                                                         (in thousands)

Long-term debt                                                $     30,047  $     20,000  $     10,000  $          0  $         47
Operating leases                                                       451           112           203           134             2
Subordinated debentures                                             30,928             0             0             0        30,928
                                                              ------------  ------------  ------------  ------------  ------------
  Total contractual long-term cash
    obligations                                               $     61,426  $     20,112  $     10,203  $        134  $     30,977
                                                              ============  ============  ============  ============  ============

                                                                                        Amount of Commitment Expiration Per Period
                                                                                        ------------------------------------------
                                                                                             Total
                                                                                             Amount       One year      Over one
                                                                                           Committed      or less         year
                                                                                          ------------  ------------  ------------
                                                                                                       (in thousands)
Unused loan commitments                                                                   $    319,073  $    216,411  $    102,662
Commercial letters of credit                                                                       251           251             0
Standby letters of credit                                                                       11,173        10,149         1,024
                                                                                          ------------  ------------  ------------
  Total commitments and letters of credit                                                 $    330,497  $    226,811  $    103,686
                                                                                          ============  ============  ============

Inflation

         The effects of price changes and inflation can vary substantially for
most financial institutions. While management believes that inflation affects
the growth of total assets, it believes that it is difficult to assess the
overall impact. Management believes this to be the case due to the fact that
generally neither the timing nor the magnitude of the inflationary changes in
the consumer price index ("CPI") coincides with changes in interest rates. The
price of one or more of the components of the CPI may fluctuate considerably
and thereby influence the overall CPI without having a corresponding affect on
interest rates or upon the cost of those goods and services normally purchased
by the Company. In years of high inflation and high interest rates,
intermediate and long-term interest rates tend to increase, thereby adversely
impacting the market values of investment securities, mortgage loans and other
long-term fixed rate loans. In addition, higher short-term interest rates
caused by inflation tend to increase the cost of funds. In other years, the
reverse situation may occur.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Asset/Liability Management (ALCO) and Securities

         Interest rate risk represents the Company's primary market risk
exposure. The Company does not have material exposure to foreign currency
exchange risk, does not own any material derivative financial instruments and
does not maintain a trading portfolio. The Board of Directors annually reviews
and approves the ALCO policy used to manage interest rate risk. This policy
sets guidelines for balance sheet structure, which are designed to protect the
Company from the impact that interest rate changes could have on net income,
but does not necessarily indicate the effect on future net interest income.
Given the Company's mix of interest bearing liabilities and interest bearing
assets on December 31, 2003, the net interest margin could be expected to
decline in a falling interest rate environment and conversely, to increase in
a rising rate environment. The low rate environment at the end of 2002,
resulting from interest rate reductions by the Federal Open Market Committee
(the "FOMC") during 2001 and in November, 2002, continued to have an adverse
impact on the Company's net interest margin. In June, 2003, the FOMC reduced
the target for the Federal Funds rate 25 basis points from 1.25% to 1.00%.
This action resulted in the Bank lowering its Base Rate from 4.25% to 4.00%.
Due to the asset sensitive nature of the Company's balance sheet, this
reduction in the prime rate had an additional adverse impact on the net
interest margin during 2003. The Company utilizes a computer program to stress
test the balance sheet under a wide variety of interest rate scenarios. The
model quantifies the income impact of changes in customer preference for
products, basis risk between the assets and the liabilities that support them
and the risk inherent in different yield curves, as well as other factors. The
ALCO committee reviews these possible outcomes and makes loan, investment and
deposit decisions that maintain reasonable balance sheet structure in light of
potential interest rate movements. Although management does not consider GAP

                                                                41

ratios in this planning, the information can be used in a general fashion to
look at asset and liability mismatches. The Company's cumulative repricing GAP
ratio as of December 31, 2003, for the next 12 months using a rates unchanged
scenario was a negative 9.10% of earning assets.

         The following tables provide information regarding the Company's
financial instruments used for purposes other than trading that are sensitive
to changes in interest rates. For loans, securities and liabilities with
contractual maturities, the tables present principal cash flows and related
weighted-average interest rates by contractual maturities, as well as the
Company's historical experience of the impact of interest-rate fluctuations on
the prepayment of residential and home equity loans and mortgage-backed
securities. Loans are presented gross of the allowance for loan losses. For
core deposits such as demand deposits, interest-bearing checking, savings and
money market deposits that have no contractual maturity, the tables present
principal cash flows and, as applicable, related weighted-average interest
rates. These factors are based upon the Company's historical experience,
management's judgment and statistical analysis, as applicable, concerning
their most likely withdrawal behaviors. Weighted-average variable rates are
based upon rates existing at the reporting date.

                                      42

                                                                                   2003
                                                                   Principal/Notional Amount Maturing in:
                                         -----------------------------------------------------------------------------------------
                                                                               (in thousands)
                                         -----------------------------------------------------------------------------------------
                                                                                                                           Fair
                                                                                                                           Value
                                           Year 1     Year 2     Year 3     Year 4     Year 5   Thereafter    Total     12/31/2003
                                         ---------  ---------  ---------  ---------  ---------  ----------  ----------  ----------
                                                                                                
Rate sensitive assets:
  Fixed interest rate loans              $ 119,633  $  65,696  $  53,759  $  33,556  $  38,421  $   15,955  $  327,020  $  332,837
  Average interest rate                       6.49%      6.56%      6.41%      6.36%      5.92%       6.39%       6.41%
  Variable interest rate loans           $ 506,402  $   1,274  $   1,298  $   1,319  $   1,314  $   32,255  $  543,862  $  541,890
  Average interest rate                       4.30%      4.59%      4.59%      4.61%      4.54%       5.06%       4.36%
  Fixed interest rate securities         $  19,199  $  19,494  $  19,689  $  22,637  $  27,797  $  171,936  $  280,752  $  280,661
  Average interest rate                       4.58%      4.46%      4.51%      4.33%      4.18%       4.45%       4.43%
  Variable interest rate securities      $     200  $     145  $     108  $      83  $      60  $       95  $      691  $      706
  Average interest rate                       5.62%      6.58%      5.57%      4.69%      4.25%       3.42%       5.28%
  Other interest-bearing assets          $   5,144  $       -  $       -  $       -  $       -  $        -  $    5,144  $    5,144
  Average interest rate                       0.98%         -          -          -          -           -        0.98%
Rate sensitive liabilities:
  Non-interest bearing checking          $   9,658  $   8,618  $   1,560  $   1,486  $   2,173  $  162,239  $  185,734  $  185,734
  Average interest rate
  Savings & interest bearing checking    $  28,727  $  25,936  $  23,034  $  20,923  $  16,776  $  324,758  $  440,154  $  440,154
  Average interest rate                       0.91%      0.91%      0.91%      0.91%      0.91%       0.74%       0.79%
  Time deposits                          $ 175,302  $  71,067  $  15,286  $  28,526  $   9,372  $      950  $  300,503  $  305,003
  Average interest rate                       2.07%      2.87%      2.97%      4.87%      3.65%       2.89%       2.63%
  Fixed interest rate borrowings         $ 159,761  $  10,000  $       -  $       -  $       -  $       47  $  169,808  $  170,089
  Average interest rate                       1.20%      2.36%         -          -          -        6.15%       1.27%
  Variable interest rate borrowings      $  45,000  $       -  $       -  $       -  $       -  $   30,928  $   75,928  $   75,974
  Average interest rate                       1.31%         -          -          -          -        1.14%       1.24%

                                                                43

                                                                                   2002
                                                                   Principal/Notional Amount Maturing in:
                                         -----------------------------------------------------------------------------------------
                                                                               (in thousands)
                                         -----------------------------------------------------------------------------------------
                                                                                                                           Fair
                                                                                                                           Value
                                           Year 1     Year 2     Year 3     Year 4     Year 5   Thereafter    Total     12/31/2002
                                         ---------  ---------  ---------  ---------  ---------  ----------  ----------  ----------
                                                                                                
Rate sensitive assets:
  Fixed interest rate loans              $ 108,157  $  90,362  $  54,746  $  31,689  $  21,441  $    7,199  $  313,594  $  319,099
  Average interest rate                       7.11%      7.46%      7.29%      7.28%      6.72%       7.54%       7.24%
  Variable interest rate loans           $ 472,951  $   1,229  $   1,187  $   1,147  $   1,139  $   31,429  $  509,082  $  507,516
  Average interest rate                       4.53%      7.74%      7.33%      6.97%      6.64%       4.85%       4.58%
  Fixed interest rate securities         $  93,507  $  90,190  $  28,908  $  10,261  $   5,944  $   36,801  $  265,611  $  273,017
  Average interest rate                       6.21%      6.06%      5.75%      6.16%      5.50%       5.00%       5.18%
  Variable interest rate securities      $     110  $     110  $     110  $     110  $     110  $      506  $    1,056  $    1,088
  Average interest rate                       4.59%      5.22%      5.22%      5.22%      5.22%       5.44%       5.30%
  Other interest-bearing assets          $  13,000  $       -  $       -  $       -  $       -  $        -  $   13,000  $   13,000
  Average interest rate                       1.25%         -          -          -          -           -        1.25%
Rate sensitive liabilities:
  Non-interest bearing checking          $  10,025  $   8,945  $   1,620  $   1,542  $   2,256  $  168,399  $  192,787  $  192,787
  Average interest rate
  Savings & interest bearing checking    $  17,448  $  15,754  $  13,991  $  12,708  $  10,190  $  213,992  $  284,083  $  284,083
  Average interest rate                       1.23%      1.23%      1.23%      1.23%      1.23%       0.98%       1.05%
  Time deposits                          $ 335,796  $  45,339  $  22,332  $   3,229  $  28,298  $    1,461  $  436,455  $  442,948
  Average interest rate                       2.32%      3.84%      4.06%      3.82%      4.92%       2.99%       2.75%
  Fixed interest rate borrowings         $ 170,268  $  20,000  $       -  $       -  $       -  $   20,619  $  210,887  $  212,990
  Average interest rate                       1.28%      3.96%         -          -          -        8.95%       2.24%
  Variable interest rate borrowings      $  26,000  $       -  $       -  $       -  $       -  $        -  $   26,000  $   26,000
  Average interest rate                       1.33%         -          -          -          -           -        1.33%

                                                                44

         These tables illustrate the Company's growth during 2003 and the
effect of the rate cuts during fiscal years 2003 and 2002. The changes in the
balances primarily reflect the growth of the Company's existing offices and
acceptance of the one office opened during 2003. The increase in loans during
2003 was driven primarily by strong growth in the Company's commercial loan
portfolio. The average interest rates show the effect of the low interest rate
environment during the year.

         The Company's investment portfolio consists of agencies,
mortgage-backed securities and municipal bonds. During 2003, purchases in the
securities portfolio consisted primarily of agency securities and municipal
bonds. As of December 31, 2003, the Company's investment in mortgage-backed
securities represented approximately 75% of total securities and consisted of
CMOs and mortgage pools issued by GNMA, FNMA and FHLMC. The federal government
backs these securities, directly or indirectly. All mortgage securities
purchased by the Company are within risk tolerances for price, prepayment,
extension and original life risk characteristics contained in the Company's
investment policy. The Company uses Bloomberg analytics to evaluate and
monitor all purchases. As of December 31, 2003, the securities in the AFS
portfolio had approximately a three year average life with approximately 12%
price depreciation in the event of a 300 basis points upward movement. The
portfolio had approximately 6% price appreciation in the event of a 300 basis
point downward movement in rates. As of December 31, 2003, all mortgage
securities were performing in a manner consistent with management's original
expectations.

                                      45

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS (in thousands except share data)
- ----------------------------------------------------------------------------------------------------------------------------------

December 31                                                                                                 2003          2002
                                                                                                        ------------  ------------
ASSETS
                                                                                                                
Cash and due from banks                                                                                 $     52,297  $     74,149
Short-term investments                                                                                         5,144        13,000
                                                                                                        ------------  ------------
  Total cash and cash equivalents  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      57,441        87,149

Securities available for sale (carried at fair value)                                                        281,367       274,105
Real estate mortgages held for sale                                                                            3,431        10,395

Total loans                                                                                                  870,882       822,676
Less allowance for loan losses                                                                                10,234         9,533
                                                                                                        ------------  ------------
  Net loans  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     860,648       813,143

Land, premises and equipment, net                                                                             26,157        24,768
Accrued income receivable                                                                                      5,010         4,999
Goodwill                                                                                                       4,970         4,970
Other intangible assets                                                                                        1,460         1,042
Other assets                                                                                                  30,930        28,489
                                                                                                        ------------  ------------
  Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$  1,271,414  $  1,249,060
                                                                                                        ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Noninterest bearing deposits                                                                            $    185,734  $    192,787
Interest bearing deposits                                                                                    740,657       720,538
                                                                                                        ------------  ------------
  Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     926,391       913,325

Short-term borrowings
  Federal funds purchased                                                                                     24,000        30,000
  Securities sold under agreements to repurchase                                                             102,601       124,968
  U.S. Treasury demand notes                                                                                   3,160         4,000
  Other short-term borrowings                                                                                 55,000        26,000
                                                                                                        ------------  ------------
    Total short-term borrowings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     184,761       184,968

Accrued expenses payable                                                                                       7,804        12,503
Other liabilities                                                                                              1,461         2,417
Long-term borrowings                                                                                          30,047        31,348
Subordinated debentures                                                                                       30,928        20,619
                                                                                                        ------------  ------------
    Total liabilities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1,181,392     1,165,180

Commitments, off-balance sheet risks and contingencies

STOCKHOLDERS' EQUITY
Common stock:  90,000,000 shares authorized, no par value
  5,834,744 shares issued and 5,788,263 outstanding as of December 31, 2003;
  5,813,984 shares issued and 5,767,010 outstanding as of December 31, 2002                                    1,453         1,453
Additional paid-in capital                                                                                    10,509         8,537
Retained earnings                                                                                             80,260        70,819
Accumulated other comprehensive income (loss)                                                                 (1,282)        3,937
Treasury stock, at cost (2003 - 46,481 shares, 2002 - 46,974 shares)                                            (918)         (866)
                                                                                                        ------------  ------------
  Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      90,022        83,880
                                                                                                        ------------  ------------
    Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$  1,271,414  $  1,249,060
                                                                                                        ============  ============

The accompanying notes are an integral part of these consolidated financial statements.

                                                                46

CONSOLIDATED STATEMENTS OF INCOME (in thousands except share and per share data)
- ----------------------------------------------------------------------------------------------------------------------------------

Year Ended December 31                                                                        2003          2002          2001
                                                                                          ------------  ------------  ------------
NET INTEREST INCOME
                                                                                                             
Interest and fees on loans
  Taxable                                                                                 $     46,861  $     49,083  $     58,348
  Tax exempt                                                                                       280           181           138
Interest and dividends on securities
  Taxable                                                                                       10,946        13,205        15,874
  Tax exempt                                                                                     2,061         1,607         1,770
Interest on short-term investments                                                                 188           259           485
                                                                                          ------------  ------------  ------------
    Total interest income                                                                       60,336        64,335        76,615

Interest on deposits                                                                            14,079        17,091        29,850
Interest on borrowings
  Short-term                                                                                     1,110         2,552         6,904
  Long-term                                                                                      2,948         2,915         2,476
                                                                                          ------------  ------------  ------------
    Total interest expense                                                                      18,137        22,558        39,230
                                                                                          ------------  ------------  ------------

NET INTEREST INCOME  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      42,199        41,777        37,385

Provision for loan losses                                                                        2,254         3,056         2,225
                                                                                          ------------  ------------  ------------

NET INTEREST INCOME AFTER PROVISION FOR
  LOAN LOSSES  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      39,945        38,721        35,160

NONINTEREST INCOME
Trust and brokerage income                                                                       2,370         2,451         2,648
Service charges on deposit accounts                                                              6,860         6,717         5,326
Other income                                                                                     5,679         3,726         3,475
Net gain on sale of branches                                                                         0             0           753
Net gains on sale of real estate mortgages held for sale                                         3,018         1,914         1,232
Net securities gains                                                                               500            55           120
                                                                                          ------------  ------------  ------------
  Total noninterest income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         18,427        14,863        13,554

NONINTEREST EXPENSE
Salaries and employee benefits                                                                  19,829        18,501        17,324
Net occupancy expense                                                                            2,444         2,174         2,080
Equipment costs                                                                                  2,538         2,483         2,801
Loss on extinguishment of debt                                                                     804             0             0
Other expense                                                                                   12,064        11,540        11,652
                                                                                          ------------  ------------  ------------
  Total noninterest expense  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      37,679        34,698        33,857
                                                                                          ------------  ------------  ------------

INCOME BEFORE INCOME TAX EXPENSE                                                                20,693        18,886        14,857

Income tax expense                                                                               6,828         6,520         4,744
                                                                                          ------------  ------------  ------------

NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$     13,865  $     12,366  $     10,113
                                                                                          ============  ============  ============

BASIC WEIGHTED AVERAGE COMMON SHARES                                                         5,819,916     5,813,984     5,813,984
                                                                                          ============  ============  ============

BASIC EARNINGS PER COMMON SHARE                                                           $       2.38  $       2.13  $       1.74
                                                                                          ============  ============  ============

DILUTED WEIGHTED AVERAGE COMMON SHARES                                                       6,001,449     5,958,386     5,841,196
                                                                                          ============  ============  ============

DILUTED EARNINGS PER COMMON SHARE                                                         $       2.31  $       2.08  $       1.73
                                                                                          ============  ============  ============

The accompanying notes are an integral part of these consolidated financial statements.

                                                                47

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands except share and per share data)
- ----------------------------------------------------------------------------------------------------------------------------------

                                                                                          Accumulated
                                                                Additional                   Other                      Total
                                                     Common      Paid-in     Retained    Comprehensive   Treasury    Stockholders'
                                                     Stock       Capital     Earnings    Income (Loss)     Stock        Equity
                                                  -----------  -----------  -----------  -------------  -----------  -------------
                                                                                                   
Balance at January 1, 2001                        $     1,453  $     8,537  $    55,734  $        (207) $      (544) $      64,973

Comprehensive income:
  Net income                                                                     10,113                                     10,113
  Unrealized gain/(loss) on
    available for sale securities
    arising during the period                                                                    2,556                       2,556
  Reclassification adjustments
    for accumulated (gains)
    losses included in net income,
    net of taxes                                                                                   (73)                        (73)
      Net securities gain/(loss)                                                         -------------               -------------
        activity during the period
       (net of taxes of $1,411)                                                                  2,483                       2,483
  Minimum pension liability adjustment
     (net of taxes of $(290))                                                                     (441)                       (441)
                                                                                                                     -------------
      Comprehensive income                                                                                                  12,155
  Cash dividends declared, $.60
    per share                                                                    (3,469)                                    (3,469)
  Acquisition of treasury stock                                                                                (125)          (125)
                                                  -----------  -----------  -----------  -------------  -----------  -------------
Balance at December 31, 2001                            1,453        8,537       62,378          1,835         (669)        73,534

Comprehensive income:
  Net income                                                                     12,366                                     12,366
  Unrealized gain/(loss) on
    available for sale securities
    arising during the period                                                                    2,478                       2,478
  Reclassification adjustments
    for accumulated (gains)
    losses included in net income,
    net of taxes                                                                                   (33)                        (33)
      Net securities gain/(loss)                                                         -------------               -------------
        activity during the period
        (net of taxes of $1,442)                                                                 2,445                       2,445
  Minimum pension liability adjustment
     (net of taxes of $(245))                                                                     (343)                       (343)
                                                                                                                     -------------
      Comprehensive income                                                                                                  14,468
  Cash dividends declared, $.68
    per share                                                                    (3,925)                                    (3,925)
  Acquisition of treasury stock                                                                                (197)          (197)
                                                  -----------  -----------  -----------  -------------  -----------  -------------
Balance at December 31, 2002                            1,453        8,537       70,819          3,937         (866)        83,880

Comprehensive income:
  Net income                                                                     13,865                                     13,865
  Unrealized gain/(loss) on
    available for sale securities
    arising during the period                                                                   (4,591)                     (4,591)
  Reclassification adjustments
    for accumulated (gains)
    losses included in net income,
    net of taxes                                                                                  (297)                       (297)
      Net securities gain/(loss)                                                         -------------               -------------
        activity during the period
        (net of taxes of $(2,626))                                                              (4,888)                     (4,888)
  Minimum pension liability adjustment
     (net of taxes of $(226))                                                                     (331)                       (331)
                                                                                                                     -------------
      Comprehensive income                                                                                                   8,646
  Cash dividends declared, $.76
    per share                                                                    (4,424)                                    (4,424)
  Transfer of deferred directors'
    liability                                                          949                                                     949
  Treasury shares purchased under
    deferred directors' plan
    (6,022 shares)                                                     169                                     (169)             0
  Treasury stock sold and distributed
    under deferred directors'
    plan (6,515 shares)                                                 35                                      117            152
  Stock issued for stock option exercises
    (20,760 shares)                                                    484                                                     484
  Tax benefit of stock option exercises                                 81                                                      81
  Stock compensation expense                                           254                                                     254
                                                  -----------  -----------  -----------  -------------  -----------  -------------
Balance at December 31, 2003                      $     1,453  $    10,509  $    80,260  $      (1,282) $      (918) $      90,022
                                                  ===========  ===========  ===========  =============  ===========  =============

The accompanying notes are an integral part of these consolidated financial statements.

                                                                48

CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------

Year Ended December 31                                                                        2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                             
Cash flows from operating activities:
Net income                                                                                $     13,865  $     12,366  $     10,113
                                                                                          ------------  ------------  ------------
Adjustments to reconcile net income to net cash from operating
      activities:
  Depreciation                                                                                   2,210         2,291         2,338
  Provision for loan losses                                                                      2,254         3,056         2,225
  Amortization of intangible assets                                                                154           176           825
  Amortization of loan servicing rights                                                            671           452           307
  Net impairment of loan servicing rights                                                         (224)          334           388
  Loans originated for sale                                                                   (143,230)      (93,751)      (68,306)
  Net gain on sales of loans                                                                    (3,018)       (1,914)       (1,232)
  Proceeds from sale of loans                                                                  152,118        93,142        60,833
  Net (gain) loss on sale of premises and equipment                                               (101)           25           (14)
  Gain on sale of branches                                                                           0             0          (753)
  Net gain on sales of securities available for sale                                              (500)          (55)         (120)
  Net securities amortization                                                                    1,549         1,753         1,131
  Stock compensation expense                                                                       254             0             0
  Earnings on life insurance                                                                      (692)          (68)            0
  Net change:
    Income receivable                                                                              (11)          442         1,303
    Accrued expenses payable                                                                    (1,404)        1,666        (2,291)
    Other assets                                                                                 2,603         2,417           192
    Other liabilities                                                                             (958)         (680)         (127)
                                                                                          ------------  ------------  ------------
      Total adjustments                                                                         11,675         9,286        (3,301)
                                                                                          ------------  ------------  ------------
        Net cash from operating activites  . . . . . . . . . . . . . . . . . . . . . . . .      25,540        21,652         6,812

Cash flows from investing activites:
  Proceeds from sale of securities available for sale                                           14,338         5,771        18,450
  Proceeds from maturities, calls and principal paydowns of
    securities available for sale                                                              132,377        83,371        78,067
  Purchases of securities available for sale                                                  (162,540)      (89,419)      (71,665)
  Purchase of life insurance                                                                    (1,393)      (13,300)            0
  Net increase in total loans                                                                  (51,681)      (85,966)      (46,643)
  Proceeds from sales of land, premises and equipment                                              159            11             0
  Purchases of land, premises and equipment                                                     (3,627)       (2,843)       (1,476)
  Increase in investment in unconsolidated subsidiary                                             (309)            0             0
  Net payments in acquisition                                                                     (600)            0             0
  Net payments from branch divestitures                                                              0             0       (40,233)
                                                                                          ------------  ------------  ------------
        Net cash from investing activities . . . . . . . . . . . . . . . . . . . . . . . .     (73,276)     (102,375)      (63,500)

Cash flows from financing activities:
  Net increase in total deposits                                                                13,066       119,945        18,300
  Proceeds from short-term borrowings                                                       24,459,723    28,841,949    32,481,163
  Payments on short-term borrowings                                                        (24,459,930)  (28,889,098)  (32,449,124)
  Proceeds from long-term borrowings                                                            40,928        20,000             0
  Payments on long-term borrowings                                                             (31,920)          (41)          (44)
  Dividends paid                                                                                (4,306)       (3,809)       (3,352)
  Proceeds from the sale of common stock                                                           152             0             0
  Proceeds from stock option exercise                                                              484             0             0
  Purchase of treasury stock                                                                      (169)         (197)         (125)
                                                                                          ------------  ------------  ------------
        Net cash from financing activites  . . . . . . . . . . . . . . . . . . . . . . . .      18,028        88,749        46,818
                                                                                          ------------  ------------  ------------
Net change in cash and cash equivalents                                                        (29,708)        8,026        (9,870)
Cash and cash equivalents at beginning of the year                                              87,149        79,123        88,993
                                                                                          ------------  ------------  ------------
Cash and cash equivalents at end of the year . . . . . . . . . . . . . . . . . . . . . . .$     57,441  $     87,149  $     79,123
                                                                                          ============  ============  ============
Cash paid during the year for:
    Interest                                                                              $     18,935  $     22,610  $     40,963
    Income taxes                                                                                 6,955         7,249         5,345
Supplemental non-cash disclosures:
    Loans transferred to other real estate                                                       1,922            44         1,435
    Directors' deferred liability transferred from other liabilities to equity                     949             0             0

The accompanying notes are an integral part of these consolidated financial statements.

                                                                49

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            Nature of Operations and Principles of Consolidation:

         The consolidated financial statements include Lakeland Financial
Corporation and its wholly-owned subsidiary, Lake City Bank, together referred
to as (the "Company"). Also included in the consolidated financial statements
is LCB Investments Limited, a wholly-owned subsidiary of Lake City Bank, which
is a Bermuda corporation that manages a portion of the Bank's investment
portfolio. All intercompany transactions and balances are eliminated in
consolidation. As further discussed in Note 11, a trust that had previously
been consolidated with the Company is now reported separately.

         The Company provides financial services through its subsidiary, Lake
City Bank (the "Bank"), a full-service commercial bank with 43 branch offices
in twelve counties in northern Indiana. The Company provides commercial,
retail, trust and investment services to its customers. Commercial products
include commercial loans and technology-driven solutions to commercial
customers' cash management needs such as CommerciaLink Internet business
banking and on-line cash management services. Retail banking clients are
provided a wide array of traditional retail banking services, including
lending, deposit and investment services. Retail lending programs are focused
on mortgage loans, home equity lines of credit and traditional retail
installment loans. The Company also has an Honors Private Banking program that
is positioned to serve the more financially sophisticated customer with a menu
including brokerage and trust services, executive mortgage programs and access
to financial planning seminars and programs. The Company's Prospero Program is
dedicated to serving the expanding financial needs of the Latino community.
The Company provides trust clients with traditional personal and corporate
trust services. The Company also provides retail brokerage services, including
an array of financial and investment products such as annuities and life
insurance. Other financial instruments, which represent potential
concentrations of credit risk, include deposit accounts in other financial
institutions.

Use of Estimates:

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

Cash Flows:

         Cash and cash equivalents includes cash, demand deposits in other
financial institutions and short-term investments with maturities of 90 days
or less. Cash flows are reported net for customer loan and deposit
transactions.

Securities:

         Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported in other comprehensive
income (loss). Trading securities are bought for sale in the near term and are
carried at fair value, with changes in unrealized holding gains and losses
included in income. Federal Home Loan Bank stock is carried at cost in other
assets. Securities are classified as held to maturity and carried at amortized
cost when management has the positive intent and ability to hold them to
maturity.

         Interest income includes amortization of purchase premium or
discount. Gains and losses on sales are based on the amortized cost of the
security sold. Securities are written down to fair value when a decline in
fair value is not temporary.

         The Company does not have any material derivative instruments for
presentation nor does the Company participate in any hedging activities.

                                      50

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Real Estate Mortgages Held for Sale:

         Loans held for sale are reported at the lower of cost or market on an
aggregate basis. Net unrealized losses, if any, are recorded as a valuation
allowance and charged to earnings.

Loans:

         Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs,
and an allowance for loan losses.

         Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term. Interest
income is not reported when full loan repayment is in doubt and the loan is
placed on nonaccrual. All unpaid accrued interest is reversed and interest
income is subsequently recorded only to the extent cash payments are received.
Accrual status is resumed when all contractually due payments are brought
current and future payments are reasonably assured. Consumer installment
loans, except those loans that are secured by real estate, are not placed on a
nonaccrual status since these loans are charged-off when they have been
delinquent from 90 to 180 days, and when the related collateral, if any, is
not sufficient to offset the indebtedness. Advances under Mastercard and Visa
programs, as well as advances under all other consumer line of credit
programs, are charged-off when collection appears doubtful.

Allowance for Loan Losses:

         The allowance for loan losses is a valuation allowance for probable
incurred credit losses, increased by the provision for loan losses and
decreased by charge-offs less recoveries. Management estimates the allowance
balance required using past loan loss experience, known and inherent risks in
the nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, internal loan grade
classifications, economic conditions, and other factors. This evaluation is
inherently subjective, as it requires estimates that are susceptible to
significant revision, as more information becomes available or as future
events change. Allocations of the allowance may be made for specific loans,
but the entire allowance is available for any loan that, in management's
judgment, should be charged-off. Loan losses are charged against the allowance
when management believes the uncollectability of a loan balance is confirmed.

         The allowance consists of specific and general components. The
specific component relates to loans that are individually classified as
impaired or loans otherwise classified as special mention, substandard or
doubtful. The general component covers non-classified loans and is based on
historical loss experience adjusted for current factors.

         A loan is impaired when full payment under the original loan terms is
not expected. Impairment is evaluated in total for smaller-balance loans of
similar nature such as residential mortgage, consumer, and credit card loans,
and on an individual loan basis for other loans. If a loan is impaired, a
portion of the allowance may be allocated so that the loan is reported, net,
at the present value of estimated future cash flows using the loan's existing
rate or at the fair value of collateral if repayment is expected solely from
the collateral. Mortgage and commercial loans, when they have been delinquent
from 90 to 180 days, are reviewed to determine if a charge-off is necessary,
if the related collateral, if any, is not sufficient to offset the
indebtedness.

Investments in Limited Partnerships:

         Investments in limited partnerships represent the Company's
investments in affordable housing projects for the primary purpose of
available tax benefits. The Company is a limited partner in these investments
and as such, the Company is not involved in the management or operation of
such investments. These investments are accounted for using the equity method
of accounting. Under the equity method of accounting, the Company records its
share of the partnership's earnings or losses in its income statement and
adjusts the carrying amount of the investments on the balance sheet. These
investments are measured for impairment through the lower of cost or market
approach. The investment recorded at December 31, 2003 and 2002 was $500,000
and $495,000.

                                      51

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreclosed Assets:

         Assets acquired through or instead of loan foreclosure are initially
recorded at fair value when acquired, establishing a new cost basis. If fair
value declines, a valuation allowance is recorded through expense. Costs after
acquisition are expensed. At December 31, 2003 and 2002, the balance of
repossessed assets and real estate owned was $584,000 and $138,000 and are
included with other assets on the balance sheet.

 Land, Premises and Equipment:

         Land is carried at cost. Premises and equipment are stated at cost
less accumulated depreciation. Depreciation is computed on the straight-line
method over the useful lives of the assets. Premises assets have useful lives
between 7 and 50 years. Equipment assets have useful lives between 3 and 10
years.

Loan Servicing Rights:

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

Bank Owned Life Insurance:

         At December 31, 2003 and 2002, the Company owned $15.5 million and
$13.4 million of life insurance policies on certain officers to replace group
term life insurance for these individuals. Bank owned life insurance is
recorded at its cash surrender value, or the amount that can be realized. Bank
owned life insurance is included in other assets in the consolidated financial
statements.

Goodwill and Other Intangible Assets:

         Goodwill results from prior business acquisitions and represents the
excess of the purchase price over the fair value of acquired tangible assets
and liabilities and identifiable intangible assets. Upon adoption of new
accounting guidance in 2002, the Company ceased amortizing goodwill. Goodwill
is assessed at least annually for impairment and any such impairment will be
recognized in the period identified. The effect on net income of ceasing
goodwill amortization in 2002 was $274,000, net of tax.

         Other intangible assets consist of core deposit intangibles arising
from branch acquisitions and trust deposit relationships arising from a trust
acquisition. Core deposit intangibles are initially measured at fair value and
then are amortized on an accelerated method over their estimated useful lives,
which is 12 years. Trust deposit relationships are initially measured at fair
value and then amortized on an accelerated method over their estimated useful
lives, which is 10 years.

Repurchase Agreements:

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

Long-term Assets:

         Premises and equipment, core deposit and other intangible assets and
other long-term assets are reviewed for impairment when events indicate their
carrying amount may not be recoverable from future undiscounted cash flows. If
impaired, the assets are recorded at fair value.

                                      52

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Benefit Plans:

         A noncontributory defined benefit pension plan covered substantially
all employees until the plan was frozen. Funding of the plan equals or exceeds
the minimum funding requirement determined by the actuary. The projected unit
credit cost method is used to determine expense. Benefits are based on years
of service and compensation levels. Effective April 1, 2000, the defined
benefit pension plan was frozen. The Company maintains a directors' deferred
compensation plan. A participant can elect to receives a return based on the
performance of the Company's stock for their contribution. The Company
acquires shares on the open market and records such shares as treasury stock.
Effective January 1, 2003, the directors' deferred compensation plan was
amended to restrict the deferral to be in stock only and deferred directors'
fees are included in equity. Prior to amending the plan, deferred directors'
fees were included in other liabilities.

Stock Compensation:

         At the inception of the Lakeland Financial Corporation Stock Option
Plan, there were 600,000 shares of common stock reserved for grants of stock
options to employees of Lakeland Financial Corporation, its subsidiaries and
Board of Directors. As of December 31, 2003, 521,475 options had been granted
and 57,765 were available for future grants. These are accounted for under APB
No. 25. Employee compensation expense under the stock option plan is reported
if options are granted below market price at grant date. The Company has not
made any such grants. Pro forma disclosures of net income and earnings per
share are shown using the fair value method to measure expense for options
granted using an option pricing model to estimate fair value.

         Employee compensation expense under stock options is reported using
the intrinsic value method. No stock-based compensation cost is reflected in
net income, as all options granted had an exercise price equal to or greater
than the market price of the underlying common stock at date of grant. Had
compensation cost for stock options been recorded in the financial statements,
net income and earnings per common share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more
options are granted.

                                                                                                   2003        2002        2001
                                                                                                ----------  ----------  ----------
                                                                                                               
Net income (in thousands) as reported                                                           $   13,865  $   12,366  $   10,113
Deduct: stock-based compensation expense determined
  under fair value based method (in thousands)                                                         543         669         748
                                                                                                ----------  ----------  ----------
Pro forma net income (in thousands)                                                             $   13,322  $   11,697  $    9,365
                                                                                                ==========  ==========  ==========

Basic earnings per common share as reported                                                     $     2.38  $     2.13  $     1.74
Pro forma basic earnings per common share                                                       $     2.29  $     2.01  $     1.61
Diluted earnings per common share as reported                                                   $     2.31  $     2.08  $     1.73
Pro forma diluted earnings per common share                                                     $     2.22  $     1.96  $     1.60

         The pro forma effects are computed with option pricing models, using the following weighted-average assumptions as of the
grant date for all options granted to date:

Risk-free interest rate                          5.26%       5.53%       5.54%
Expected option life                        5.00 years  5.00 years  5.00 years
Expected price volatility                       73.13%      76.37%      76.23%
Dividend yield                                   2.85%       2.87%       2.86%

Income Taxes:

         Annual consolidated federal and state income tax returns are filed by
the Company. Income tax expense is recorded based on the amount of taxes due
on its tax return plus deferred taxes computed based upon the expected future
tax consequences of temporary differences between carrying amounts and tax
basis of assets and liabilities, using enacted tax rates. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be
realized.

                                                                53

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Off-Balance Sheet Financial Instruments:

         Financial instruments include credit instruments, such as commitments
to make loans and standby letters of credit, issued to meet customer financing
needs. The face amount for these items represents the exposure to loss, before
considering customer collateral or ability to repay. Such financial
instruments are recorded when they are funded. The fair value of standby
letters of credit is recorded as a liability during the commitment period in
accordance with FASB Interpretation No. 45.

Earnings Per Common Share:

         Basic earnings per common share is net income divided by the weighted
average number of common shares outstanding during the period. Diluted
earnings per common share includes the dilutive effect of additional potential
common shares issuable under stock options. Earnings and dividends per share
are restated for all stock splits and dividends through the date of issue of
the financial statements. The common shares outstanding for the Stockholders'
Equity section of the Balance Sheet for 2003 and 2002 reflect the acquisition
of 46,481 and 46,974 shares, respectively of Lakeland Financial Corporation
common stock that have been purchased under the directors' deferred
compensation plan described above. Because these shares are held in trust for
the participants, they are treated as outstanding when computing the
weighted-average common shares outstanding for the calculation of both basic
and diluted earnings per share.

Comprehensive Income:

         Comprehensive income consists of net income and other comprehensive
income. Other comprehensive income includes unrealized gains and losses on
securities available for sale during the year and changes in the minimum
pension liability, which are also recognized as separate components of equity.

Loss Contingencies:

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

Restrictions on Cash:

         The Company was required to have $6.9 million and $3.3 million of
cash on hand or on deposit with the Federal Reserve Bank to meet regulatory
reserve and clearing requirements at year-end 2003 and 2002. These balances do
not earn interest.

Dividend Restriction:

         Banking regulations require maintaining certain capital levels and
may limit the dividends paid by the Bank to the Company or by the Company to
its shareholders. These restrictions pose no practical limit on the ability of
the Bank or Company to pay dividends at historical levels.

Fair Value of Financial Instruments:

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

                                      54

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Industry Segments:

         While the Company's chief decision-makers monitor the revenue streams
of the various Company products and services, the identifiable segments
operations are managed and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the Company's financial service
operations are considered by management to be aggregated in one reportable
operating segment.

Adoption of New Accounting Standards:

         During 2003, the Company adopted FASB Statement 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, FASB Statement
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equities, FASB Statement 132 (revised 2003), Employers'
Disclosures about Pensions and Other Postretirement Benefits, FASB
Interpretation 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, and FASB Interpretation 46, Consolidation of Variable Interest
Entities. Adoption of Statements No. 149 and 150 did not materially affect the
Company's operating results or financial condition.

         Statement 132 (revised 2003) requires additional disclosures about
the assets, obligations, cash flows of defined benefit pension and
postretirement plans, as well as the expense recorded for such plans.

         Interpretation 45 requires recognizing the fair value of guarantees
made and information about maximum potential payments that might be required,
as well as the collateral or other recourse obtainable. Interpretation 45
covers guarantees such as standby letters of credit, performance guarantees,
and direct or indirect guarantees of the indebtedness of others, but not
guarantees of funding.

         Interpretation 46, as revised in December 2003, changes the
accounting model for consolidation from one based on consideration of control
through voting interests. Whether to consolidate an entity will now also
consider whether that entity has sufficient equity at risk to enable it to
operate without additional financial support, whether the equity owners in
that entity lack the obligation to absorb expected losses or the right to
receive residual returns of the entity, or whether voting rights in the entity
are not proportional to the equity interest and substantially all the entity's
activities are conducted for an investor with few voting rights. As further
discussed in Note 11, trust entities that had previously been consolidated
with the Company are now reported separately.

Newly Issued But Not Yet Effective Accounting Standards:

         No new accounting standards have been issued that are not yet
effective that would have a material impact on the Company's financial
condition or results of operations.

Reclassifications:

         Certain amounts appearing in the financial statements and notes
thereto for prior periods have been reclassified to conform with the current
presentation. The reclassifications had no effect on net income or
stockholders' equity as previously reported.

                                      55

NOTE 2 - SECURITIES

         Information related to the fair value of securities available for
sale and the related gross unrealized gains and losses recognized in
accumulated other comprehensive income (loss) at December 31 is provided in
the table below.
                                                        Gross        Gross
                                         Fair        Unrealized    Unrealized
                                         Value          Gain         Losses
                                      ------------  ------------  ------------
                                                   (in thousands)
2003
- ----
  U.S. Government agencies            $     17,280  $         51  $         (5)
  Mortgage-backed securities               211,142           885        (2,814)
  State and municipal securities            52,945         2,004          (197)
                                      ------------  ------------  -------------
    Total  . . . . . . . . . . . . . .$    281,367  $      2,940  $     (3,016)
                                      ============  ============  ============

2002
- ----
  U.S. Treasury securities            $      5,338  $        195  $          0
  U.S. Government agencies                  11,946           575             0
  Mortgage-backed securities               222,036         5,600          (183)
  State and municipal securities            34,785         1,275           (24)
                                      ------------  ------------  ------------
    Total  . . . . . . . . . . . . . .$    274,105  $      7,645  $       (207)
                                      ============  ============  ============

         Information regarding the fair value of available for sale debt
securities by maturity as of December 31, 2003 is presented below. Maturity
information is based on contractual maturity for all securities other than
mortgage-backed securities. Actual maturities of securities may differ from
contractual maturities because borrowers may have the right to prepay the
obligation without prepayment penalty.

                                                                     Fair
                                                                     Value
                                                                  ------------
                                                                 (in thousands)

Due in one year or less                                           $        101
Due after one year through five years                                   12,664
Due after five years through ten years                                   9,403
Due after ten years                                                     48,057
                                                                  ------------
                                                                        70,225
Mortgage-backed securities                                             211,142
                                                                  ------------
  Total debt securities  . . . . . . . . . . . . . . . . . . . . .$    281,367
                                                                  ============

         Security proceeds, gross gains and gross losses for 2003, 2002 and
2001 were as follows:

                                            2003         2002         2001
                                         -----------  -----------  -----------
                                                    (in thousands)
Sales and calls of securities available
  for sale
  Proceeds                               $    30,154  $    10,467  $    20,805
  Gross gains                                    508           77          310
  Gross losses                                     8           22          190

                                      56

NOTE 2 - SECURITIES (continued)

         Securities with carrying values of $197.8 million and $206.0 million
were pledged as of December 31, 2003 and 2002, as collateral for deposits of
public funds, securities sold under agreements to repurchase, borrowings from
the FHLB and for other purposes as permitted or required by law. At year-end
2003 and 2002, there were no holdings of securities of any one issuer, other
than the U.S. Government and its agencies, in an amount greater than 10% of
stockholders' equity.

         Information regarding securities with unrealized losses as of
December 31, 2003 is presented below. The table distributes the securities
between those with unrealized losses for less than twelve months and those
with unrealized losses over more than twelve months or more.

                                                 Less than 12 months           12 months or more                  Total
                                              --------------------------   --------------------------   --------------------------
                                                 Fair        Unrealized       Fair        Unrealized       Fair        Unrealized
                                                 Value         Losses         Value         Losses         Value         Losses
                                              ------------  ------------   ------------  ------------   ------------  ------------
                                                                                 (in thousands)

U.S. Government agencies                      $      3,016  $          5   $          0  $          0   $      3,016  $          5
Mortgage-backed securities                         126,347         2,215         20,637           599        146,984         2,814
State and municipal securities                      10,865           183            411            14         11,276           197
                                              ------------  ------------   ------------  ------------   ------------  ------------
  Total temporarily impaired                  $    140,228  $      2,403   $     21,048  $        613   $    161,276  $      3,016
                                              ============  ============   ============  ============   ============  ============

         All of the following are considered, to determine whether or not the
impairment of these securities is other-than-temporary. All of the securities
are backed by the U.S. Government or its agencies or are A rated or better, in
the case of non-local municipal securities. None of the securities have call
provisions (with the exception of the municipal securities) and payments as
originally agreed are being received. There are no concerns of credit losses
and there is nothing to indicate that full principal will not be received.
Management considers the unrealized losses to be market driven and no loss
will be realized unless the securities are sold. The Company does not have a
history of actively trading securities, but keeps the securities available for
sale should liquidity or other needs develop that would warrant the sale of
securities. While these securities are held in the available for sale
portfolio, the current intent and ability is to hold them until maturity.

NOTE 3 - LOANS

         Total loans outstanding as of year-end consisted of the following:

                                                        2003          2002
                                                    ------------  ------------
                                                          (in thousands)

Commercial and industrial loans                     $    593,194  $    556,800
Agri-business and agricultural loans                      82,262        68,137
Real estate mortgage loans                                40,118        44,644
Real estate construction loans                             3,932         2,540
Installment loans and credit cards                       151,376       150,555
                                                    ------------  ------------
  Total loans  . . . . . . . . . . . . . . . . . . .$    870,882  $    822,676
                                                    ============  ============

                                                                57

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

         The following is an analysis of the allowance for loan losses for 2003, 2002 and 2001:

                                                                                              2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                       (in thousands)

Balance, January 1,                                                                       $      9,533  $      7,946  $      7,124
Provision for loan losses                                                                        2,254         3,056         2,225
Loans charged-off                                                                               (1,774)       (1,875)       (1,540)
Recoveries                                                                                         221           406           137
                                                                                          ------------  ------------  ------------
  Net loans charged-off                                                                         (1,553)       (1,469)       (1,403)
                                                                                          ------------  ------------  ------------
Balance December 31  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$     10,234  $      9,533  $      7,946
                                                                                          ============  ============  ============

Nonaccrual loans                                                                          $        553  $      4,216  $      2,234
Interest not recorded on nonaccrual loans                                                          183           208           142
Loans renegotiated as troubled debt restructuring                                                    0             0             0
Interest income recognized on troubled debt restructuring                                            0             0            70
Loans past due 90 days and still accruing                                                        3,191         3,387           264

         Impaired loans were as follows:

                                                                                                            2003          2002
                                                                                                        ------------  ------------
                                                                                                              (in thousands)
                                                                                                                
Year-end loans with no allocated allowance for loan losses                                              $          0  $          0
Year-end loans with allocated allowance for loan losses                                                        3,039         7,298
                                                                                                        ------------  ------------
                                                                                                        $      3,039         7,298
                                                                                                        ============  ============

Amount of the allowance for loan losses allocated                                                       $        456  $      1,298

                                                                                              2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                       (in thousands)
                                                                                                             
Average of impaired loans during the year                                                 $      6,320  $     10,476  $      2,136
Interest income recognized during impairment                                                       226           562           340
Cash-basis interest income recognized                                                              225           555            42

         The Company is not committed to lend additional funds to debtors
whose loans have been modified. The 2003 and 2002 impaired loan totals
included $127,000 and $4.1 million which were also included in the total for
nonaccrual loans. Total impaired loans decreased by $4.3 million to $3.0
million at December 31, 2003 from $7.3 million at December 31, 2002. The
decreases in nonperforming loans and impaired loans resulted from payments on
six commercial loans, including one commercial loan of $1.7 million. The loans
delinquent 90 days or more total includes one commercial credit for $2.9
million and $3.2 million in 2003 and 2002. The renewal of this loan has been
complicated as more than one bank is involved, and it remains past maturity.
The loan first became delinquent in 2002 and the maturity has not been
extended. While this loan is current as to principal and interest, there can
be no assurance that it will remain current given the circumstances involved.

                                                                58

NOTE 5 - SECONDARY MORTGAGE MARKET ACTIVITIES

         Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal balances of
these loans were $231.8 million and $168.7 million at December 31, 2003 and
2002. Net loan servicing income/(loss) was ($166,000), ($48,000) and $82,000
for 2003, 2002 and 2001. Information on loan servicing rights follows:

Loan servicing rights:                    2003          2002          2001
                                      ------------  ------------  ------------
                                                   (in thousands)

Beginning of year                     $      1,677  $      1,507  $      1,419
Originations                                 1,094           622           395
Amortization                                  (671)         (452)         (307)
                                      ------------  ------------  ------------
  End of year  . . . . . . . . . . . .$      2,100  $      1,677  $      1,507
                                      ============  ============  ============

Valuation allowance:                      2003          2002          2001
                                      ------------  ------------  ------------
                                                   (in thousands)

Beginning of year                     $        722  $        388  $          0
Additions expensed                             421           913           705
Reductions credited to expense                (645)         (579)         (317)
                                      ------------  ------------  ------------
  End of year  . . . . . . . . . . . .$        498  $        722  $        388
                                      ============  ============  ============

NOTE 6 - LAND, PREMISES AND EQUIPMENT, NET

         Land, premises and equipment and related accumulated depreciation
were as follows at December 31:

                                                        2003          2002
                                                    ------------  ------------
                                                          (in thousands)

Land                                                $      8,456  $      8,053
Premises                                                  21,004        20,357
Equipment                                                 14,830        12,622
                                                    ------------  ------------
  Total cost . . . . . . . . . . . . . . . . . . . .      44,290        41,032
Less accumulated depreciation                             18,133        16,264
                                                    ------------  ------------
  Land, premises and equipment, net                 $     26,157  $     24,768
                                                    ============  ============

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

         The change in the carrying amount of goodwill during the year was as
follows:

                                                        2003          2002
                                                    ------------  ------------
                                                          (in thousands)

Beginning of year                                   $      4,970  $          0
Reclassified from unidentifiable intangible assets             0         4,970
                                                    ------------  ------------
End of year                                         $      4,970  $      4,970
                                                    ============  ============

                                      59

NOTE 7 - GOODWILL AND OTHER INTANGIBLE ASSETS (continued)

         Goodwill is no longer amortized starting in 2002. The effect of not amortizing goodwill is summarized as follows:

                                                                                              2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                       (in thousands)

Reported net income                                                                       $     13,865  $     12,366  $     10,113
Add back:  goodwill amortization, net of tax                                                         0             0           367
                                                                                          ------------  ------------  ------------
Adjusted net income                                                                       $     13,865  $     12,366  $     10,480
                                                                                          ============  ============  ============

Basic earnings per share:
  Reported net income                                                                     $       2.38  $       2.13  $       1.74
  Goodwill amortization, net of tax                                                                .00           .00           .06
                                                                                          ------------  ------------  ------------
  Adjusted net income                                                                     $       2.38  $       2.13  $       1.80
                                                                                          ============  ============  ============

Diluted earnings per share:
  Reported net income                                                                     $       2.31  $       2.08  $       1.73
  Goodwill amortization, net of tax                                                                .00           .00           .06
                                                                                          ------------  ------------  ------------
  Adjusted net income                                                                     $       2.31  $       2.08  $       1.79
                                                                                          ============  ============  ============

Acquired Intangible Assets

                                                                      As of December 31, 2003          As of December 31, 2002
                                                                   ------------------------------   ------------------------------
                                                                   Gross Carrying   Accumulated     Gross Carrying   Accumulated
                                                                       Amount       Amortization        Amount       Amortization
                                                                   --------------  --------------   --------------  --------------
                                                                                                        
Amortized intangible assets
  Core deposit                                                     $        2,032  $        1,139   $        2,032  $          990
  Trust deposit relationships                                                 572               5                0               0
                                                                   --------------  --------------   --------------  --------------
    Total                                                          $        2,604  $        1,144   $        2,032  $          990
                                                                   ==============  ==============   ==============  ==============

         Aggregate amortization expense was $154,000, $149,000 and $193,000
for 2003, 2002 and 2001.

         Estimated amortization expense for each of the next five years:

                                                                    Amount
                                                                  ------------
                                                                 (in thousands)
                                                                 $         214
2005                                                                       212
2006                                                                       209
2007                                                                       206
2008                                                                       206

                                                                60

NOTE 8 - DEPOSITS

         The aggregate amount of time deposits, each with a minimum
denomination of $100,000, was approximately $106.4 million and $225.0 million
at December 31, 2003 and 2002.

         At December 31, 2003, the scheduled maturities of time deposits were
as follows:

                                                                     Amount
                                                                  ------------
                                                                 (in thousands)
Maturing in 2004                                                  $    175,302
Maturing in 2005                                                        71,067
Maturing in 2006                                                        15,286
Maturing in 2007                                                        28,526
Maturing in 2008                                                         9,372
Thereafter                                                                 950
                                                                  ------------
  Total time deposits                                             $    300,503
                                                                  ============

NOTE 9 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

         Securities sold under agreements to repurchase ("repo accounts")
represent collateralized borrowings with customers located primarily within
the Company's service area. Repo accounts are not covered by federal deposit
insurance and are secured by securities owned. Information on these
liabilities and the related collateral for 2003 and 2002 is as follows:

                                                                                                            2003          2002
                                                                                                        ------------  ------------
                                                                                                              (in thousands)
                                                                                                                
Average daily balance during the year                                                                   $     97,808  $    116,214
Average interest rate during the year                                                                           0.83%         1.49%
Maximum month-end balance during the year                                                               $    108,270  $    139,857
Securities underlying the agreements at year-end
  Fair value                                                                                            $    115,708  $    161,063

                                                                                                       Collateral at Fair Values
                                                                                          Weighted    ----------------------------
                                                                                          Average                     Mortgage-
                                                                           Repurchase     Interest    U.S. Treasury     backed
          Term                                                             Liability        Rate       Securities     Securities
- -------------------------                                                 ------------  ------------  -------------  -------------
                                                                         (in thousands)                      (in thousands)
                                                                                                         
On demand                                                                 $    102,197          0.79% $           0  $     114,235
1 to 30 days                                                                         0          0.00%             0              0
31 to 90 days                                                                        0          0.00%             0              0
Over 90 days                                                                       404          0.75%             0          1,473
                                                                          ------------  ------------  -------------  -------------
  Total                                                                   $    102,601          0.79% $           0  $     115,708
                                                                          ============  ============  =============  =============

         The Company retains the right to substitute similar type securities,
and has the right to withdraw all collateral applicable to repo accounts
whenever the collateral values are in excess of the related repurchase
liabilities. At December 31, 2003, there were no material amounts of
securities at risk with any one customer. The Company maintains control of
these securities through the use of third-party safekeeping arrangements.

                                                                61

NOTE 10 - BORROWINGS

         Long-term borrowings at December 31 consisted of:

                                                                                                            2003          2002
                                                                                                        ------------  ------------
                                                                                                              (in thousands)
                                                                                                                
Federal Home Loan Bank of Indianapolis Notes, 6.15%, Due June 24, 2003                                  $          0  $      1,300
Federal Home Loan Bank of Indianapolis Notes, 3.76%, Due December 29, 2003                                         0        10,000
Federal Home Loan Bank of Indianapolis Notes, 3.96%, Due April 9, 2004                                        20,000        20,000
Federal Home Loan Bank of Indianapolis Notes, 2.36%, Due December 29, 2005                                    10,000             0
Federal Home Loan Bank of Indianapolis Notes, 6.15%, Due January 15, 2018                                         47            48
                                                                                                        ------------  ------------
  Total                                                                                                 $     30,047  $     31,348
                                                                                                        ============  ============

         All notes require monthly interest payments and were secured by
residential real estate loans and securities with a carrying value of $86.6
million at December 31, 2003. At December 31, 2003, the Company owned $4.3
million of Federal Home Loan Bank (FHLB) stock, which also secures debts to
the FHLB.

         In addition to the long-term borrowings, the Company had $55 million
and $26 million in fixed rate notes with the FHLB at December 31, 2003 and
2002. For the year-end 2003, these notes mature at various times between
January 30, 2004 and July 20, 2004. These notes are classified as short-term
borrowings in the financial statements. The Company is authorized to borrow up
to $100 million from the FHLB.

         Long-term borrowings mature over each of the next five years as
follows:

                                                                 (in thousands)
                                                                  ------------
2004                                                              $     20,000
2005                                                                    10,000
2006                                                                         0
2007                                                                         0
2008                                                                         0

                                                                62

NOTE 11 - SUBORDINATED DEBENTURES AND TRUST PREFERRED SECURITIES

         In September 1997, Lakeland Capital Trust completed a public offering
of two million shares of cumulative trust preferred securities with a
liquidation preference of $10 per security. The proceeds of the offering were
loaned to the Company in exchange for subordinated debentures with terms
similar to the preferred securities. On October 1, 2003, the subordinated
debentures were redeemed and the preferred securities called. Loss on
extinguishment of debt of $804,000 was recorded in connection with the call of
the preferred securities.

         Lakeland Statutory Trust II, a trust formed by the Company, issued
$30.0 million of floating rate trust preferred securities on October 1, 2003
as part of a privately placed offering of such securities. The Company issued
subordinated debentures to the trust in exchange for the proceeds of the
trust. Subject to the Company having received prior approval of the Federal
Reserve if then required, the Company may redeem the subordinated debentures,
in whole or in part, but in all cases in a principal amount with integral
multiples of $1,000, on any interest payment date on or after October 1, 2008
at 100% of the principal amount, plus accrued and unpaid interest. The
subordinated debentures must be redeemed no later than 2033. These securities
are considered as Tier I capital (with certain limitations applicable) under
current regulatory guidelines. The floating rate of the trust preferred
securities and subordinated debentures at December 31, 2003 was 4.205%. The
holding company's investment in the common stock of the trust was $928,000 and
is included in other assets.

         Prior to 2003, Lakeland Capital Trust was consolidated in the
Company's financial statements, with the trust preferred securities issued by
the trust reported in liabilities as "guaranteed preferred beneficial
interests" and the subordinated debentures eliminated in consolidation. The
trust preferred securities issued by Lakeland Capital Trust have been redeemed
and are no longer outstanding. The Company issued new securities through
Lakeland Statutory Trust II in 2003. Under new accounting guidance, FASB
Interpretation No. 46, as revised in December 2003, trusts for a trust
preferred offering are no longer consolidated with the Company. Accordingly,
the Company does not report the securities issued by Lakeland Statuttory Trust
II as liabilities, and instead reports as liabilities the subordinated
debentures issued by the Company and held by the trust, as these are no longer
eliminated in consolidation. Since the amount of the subordinated debentures
equals the amount of trust preferred securities and common stock, the effect
of no longer consolidating the trust changes certain balance sheet
classifications, but not equity or net income. Accordingly, the amounts
previously reported as "guaranteed preferred beneficial interest" in
liabilities have been recaptioned "subordinated debentures" and continue to be
presented in liabilities on the balance sheet.

                                      63

NOTE 12 - EMPLOYEE BENEFIT PLANS

         In April, 2000, the Lakeland Financial Corporation Pension Plan was
frozen. As a result of this curtailment, a gain was recognized in the income
statement for the second quarter of 2000. The Company also maintains a
Supplemental Executive Retirement Plan (SERP) for select officers that was
established as a funded, non-qualified deferred compensation plan.

         Information as to the Company's plans at December 31 is as follows:

                                                                                Pension Benefits              SERP Benefits
                                                                           --------------------------   --------------------------
                                                                               2003          2002           2003          2002
                                                                           ------------  ------------   ------------  ------------
                                                                                (in thousands)                (in thousands)
Change in benefit obligation:
                                                                                                          
  Beginning benefit obligation                                             $      2,279  $      2,135   $      1,412  $      1,354
  Interest cost                                                                     155           152             90            97
  Actuarial loss                                                                    306            33              0            12
  Change in discount rate                                                           269           213             94            83
  Benefits paid                                                                    (367)         (254)          (139)         (134)
                                                                           ------------  ------------   ------------  ------------
  Ending benefit obligation . . . . . . . . . . . . . . . . . . . . . . . .$      2,642  $      2,279   $      1,457  $      1,412

Change in plan assets (primarily money market funds and equity and fixed
  income investments), at fair value:

  Beginning plan assets                                                           1,501         1,920            934         1,069
  Actual return (loss)                                                              131          (165)            83           (77)
  Employer contribution                                                               0             0            130            76
  Benefits paid                                                                    (367)         (254)          (139)         (134)
                                                                           ------------  ------------   ------------  ------------
  Ending plan assets  . . . . . . . . . . . . . . . . . . . . . . . . . . .       1,265         1,501          1,008           934

Funded status                                                                    (1,377)         (778)          (449)         (478)
Unrecognized net actuarial (gain) loss                                            1,876         1,319            814           738
                                                                           ------------  ------------   ------------  ------------
Prepaid benefit cost  . . . . . . . . . . . . . . . . . . . . . . . . . . .$        499  $        541   $        365  $        260
                                                                           ============  ============   ============  ============

Amounts recognized in the consolidated balance
 sheets consist of:                                                             Pension Benefits              SERP Benefits
                                                                           --------------------------   --------------------------
                                                                               2003          2002           2003          2002
                                                                           ------------  ------------   ------------  ------------
                                                                                 (in thousands)               (in thousands)
Prepaid benefit cost                                                       $        499  $        541   $        365  $        260
Accumulated other comprehensive income                                           (1,876)       (1,319)             0             0
                                                                           ------------  ------------   ------------  ------------
Net amount recognized                                                      $     (1,377) $       (778)  $        365  $        260
                                                                           ============  ============   ============  ============

                                                                                  December 31,                 December 31,
                                                                           --------------------------   --------------------------
                                                                               2003          2002           2003          2002
                                                                           ------------  ------------   ------------  ------------
                                                                                 (in thousands)               (in thousands)
Projected benefit obligation                                               $      2,642  $      2,279   $      1,457  $      1,412
Accumulated benefit obligation                                                    2,642         2,279          1,457         1,412
Fair value of plan assets                                                         1,265         1,501          1,008           934

                                                                64

NOTE 12 - EMPLOYEE BENEFIT PLANS (continued)

         Net pension expense includes the following:

                                                           Pension Benefits                            SERP Benefits
                                               ----------------------------------------   ----------------------------------------
                                                   2003          2002          2001           2003          2002          2001
                                               ------------  ------------  ------------   ------------  ------------  ------------
                                                            (in thousands)                             (in thousands)
                                                                                                    
Service cost                                   $          0  $          0  $          0   $          0  $          0  $          0
Interest cost                                           155           152           164             91            97           101
Expected return on plan assets                         (141)         (184)         (249)           (95)         (104)         (120)
Recognized net actuarial (gain) loss                     28             7             0             29            12             6
                                               ------------  ------------  ------------   ------------  ------------  ------------
  Net pension expense (benefit)                $         42  $        (25) $        (85)  $         25  $          5  $        (13)
                                               ============  ============  ============   ============  ============  ============

Additional Information:                                    Pension Benefits                            SERP Benefits
                                               ----------------------------------------   ----------------------------------------
                                                   2003          2002          2001           2003          2002          2001
                                               ------------  ------------  ------------   ------------  ------------  ------------
Increase in minimum liability included in                   (in thousands)                             (in thousands)
other comprehensive income                     $        557  $        588           731   $          0  $          0  $          0

The following assumptions were used in
calculating the net benefit obligation:

Weighted average discount rate                         6.75%         7.50%         8.00%          6.75%         7.50%         8.00%
Rate of increase in future compensation                  N/A           N/A           N/A            N/A           N/A           N/A

The following assumptions were used in
calculating the net pension expense:

Weighted average discount rate                         6.00%         6.75%         7.50%          6.00%         6.75%         7.50%
Rate of increase in future compensation                  N/A           N/A           N/A            N/A           N/A           N/A
Expected long-term rate of return                      8.25%         8.50%        10.00%          8.25%         8.50%        10.00%

         The expected long-term rate of return on plan assets is developed in
consultation with the plan actuary. It is primarily based upon industry trends
and consensus rates of return which are then adjusted to reflect the specific
asset allocations and historical rates of return of the Company's plan assets.

         The asset allocations at the measurement dates of September 30, 2003,
and 2002, by asset category are as follows:

                          Pension Plan Assets            SERP Plan Assets
                            at September 30,             at September 30,
                       --------------------------   --------------------------
Asset Category             2003          2002           2003          2002
- --------------         ------------  ------------   ------------  ------------
Equity securities                74%           63%            59%           52%
Debt Securities                  23%           36%            36%           42%
Other                             3%            1%             5%            6%
                       ------------  ------------   ------------  ------------
      Total                     100%          100%           100%          100%
                       ============   ===========   ============  ============

         As of the measurement date, the investment objective was to realize a
rate of return on the plan assets matching that of the actuarial assumption.
The allowable asset allocation parameters were as follows: Equities: 50%-75%
and Fixed Income: 25%-50%. The equity component is managed by an outside
portfolio manager and consists of a diversified portfolio of common stocks.
The fixed income component is managed internally by the Company's Trust
Department and consists of Treasury securities and corporate bonds. The
Company has an internal Pension Administration Committee consisting of the
Human Resources Director, Chief Financial Officer, Manager of Retirement Plan
Services, Senior Personal Trust Officer and Senior Trust Investment Officer.
During 2004, the Committee will meet to review investment performance and to
prepare a formal investment policy.

                                                                65

NOTE 12 - EMPLOYEE BENEFIT PLANS (continued)

Contributions

         The Company expects to contribute $299,000 to its pension plan and
$119,000 to its SERP plan in 2004.

Other Employee Benefit Plans

         The Company maintains a 401(k) profit sharing plan for all employees
meeting age and service requirements. The Company contributions are based upon
the rate of return on stockholders' equity as of January 1st of each year. The
expense recognized was $732,000, $620,000 and $551,000 in 2003, 2002 and 2001.

         Under employment agreements with certain executives, certain events
leading to separation from the Company could result in cash payments totaling
$2.2 million as of December 31, 2003. On December 31, 2003, no amounts were
accrued on these contingent obligations.

NOTE 13 - OTHER INCOME AND EXPENSE

         Other income for the years ended December 31, was as follows:

                                                                                              2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                       (in thousands)
                                                                                                             
Loan, insurance and service fees                                                          $      2,296  $      1,704  $      1,692
Merchant card fee income                                                                         1,747         1,594         1,305
Miscellaneous                                                                                    1,636           428           478
                                                                                          ------------  ------------  ------------
  Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$      5,679  $      3,726  $      3,475
                                                                                          ============  ============  ============

         Other expense for the years ended December 31, was as follows:

                                                                                              2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                       (in thousands)
Data processing fees and supplies                                                         $      2,433  $      2,226  $      2,212
Corporate and business development                                                               1,003           985           894
Advertising                                                                                        706           681           669
Office supplies                                                                                    591           513           557
Telephone and postage                                                                            1,137         1,312         1,265
Regulatory fees and FDIC insurance                                                                 242           236           237
Professional fees                                                                                1,275           995           994
Credit card interchange                                                                            955           900           757
Amortization of goodwill                                                                             0             0           608
Amortization of other intangible assets                                                            154           149           190
Miscellaneous                                                                                    3,568         3,543         3,269
                                                                                          ------------  ------------  ------------
  Total other expense  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$     12,064  $     11,540  $     11,652
                                                                                          ============  ============  ============

                                                                66

NOTE 14 - INCOME TAXES

         Income tax expense for the years ended December 31, consisted of the following:

                                                                                              2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                       (in thousands)
                                                                                                             
Current federal                                                                           $      5,121  $      6,936  $      5,105
Deferred federal                                                                                   816        (1,134)         (630)
Current state                                                                                      773           909           445
Deferred state                                                                                     118          (191)         (176)
                                                                                          ------------  ------------  ------------
  Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$      6,828  $      6,520  $      4,744
                                                                                          ============  ============  ============

         Income tax expense included $203,000, $20,000 and $41,000 applicable
to security transactions for 2003, 2002 and 2001. The differences between
financial statement tax expense and amounts computed by applying the statutory
federal income tax rate of 35%, 35% and 34% for 2003, 2002, and 2001 to income
before income taxes were as follows:

                                                                                              2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                       (in thousands)
                                                                                                             
Income taxes at statutory federal rate                                                    $      7,243  $      6,610  $      5,051
Increase (decrease) in taxes resulting from:
  Tax exempt income                                                                               (813)         (621)         (643)
  Nondeductible expense                                                                            176           136           155
  State income tax, net of federal tax effect                                                      579           467           178
  Net operating loss, Gateway                                                                      (30)          (30)          (29)
  Tax credits                                                                                      (73)          (48)          (48)
  Bank owned life insurance                                                                       (242)          (24)            0
  Other                                                                                            (12)           30            80
                                                                                          ------------  ------------  ------------
    Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$      6,828  $      6,520  $      4,744
                                                                                          ============  ============  ============

                                                                67

NOTE 14 - INCOME TAXES (continued)

         The net deferred tax asset recorded in the consolidated balance sheets at December 31, consisted of the following:

                                                                                      2003                         2002
                                                                           --------------------------   --------------------------
                                                                              Federal       State          Federal       State
                                                                           ------------  ------------   ------------  ------------
                                                                                               (in thousands)
Deferred tax assets
                                                                                                          
  Bad debts                                                                $      3,582  $        801   $      3,406  $        768
  Pension and deferred compensation liability                                       373            88            489           110
  Intangible assets                                                                   0             0             28             6
  Net operating loss carryforward                                                   208             0            237             0
  Other                                                                             107            21            166            45
                                                                           ------------  ------------   ------------  ------------
                                                                                  4,270           910          4,326           929
Deferred tax liabilities
  Accretion                                                                          28             6             21             5
  Depreciation                                                                      660            77            173            47
  Loan servicing rights                                                             561           125            334            75
  State taxes                                                                       215             0            257             0
  Leases                                                                            186            42            242            55
  Deferred loan fees                                                                 12             3             56            13
  Intangible assets                                                                 181            41              0             0
                                                                           ------------  ------------   ------------  ------------
                                                                                  1,843           294          1,083           195
Valuation allowance                                                                   0             0              0             0
                                                                           ------------  ------------   ------------  ------------
Net deferred tax asset  . . . . . . . . . . . . . . . . . . . . . . . . . .       2,427  $        616   $      3,243  $        734
                                                                           ============  ============   ============  ============

         In addition to the net deferred tax assets included above, the
deferred income tax asset (liability) allocated to the unrealized net loss on
securities available for sale included in equity was $91,000 and $(2.7)
million for 2003 and 2002. The deferred income tax asset allocated to the
minimum pension liability included in equity was $761,000 and $535,000 for
2003 and 2002.

NOTE 15 - RELATED PARTY TRANSACTIONS

         Loans to principal officers, directors, and their affiliates as of
December 31, 2003 and 2002 were as follows:

                                                        2003          2002
                                                    ------------  ------------
                                                          (in thousands)
Beginning balance                                   $     39,931  $     39,075
New loans and advances                                    68,044        58,186
Effect of changes in related parties                       5,135            32
Repayments                                               (68,705       (57,362)
                                                    ------------  ------------
Ending balance . . . . . . . . . . . . . . . . . . .$     44,405  $     39,931
                                                    ============  ============

         Deposits from principal officers, directors, and their affiliates at
year-end 2003 and 2002 were $2.0 million and $5.0 million. In addition, the
amount owed directors for fees under the deferred directors' plan as of
December 31, 2003 and 2002 was $994,000 and $1.3 million. The related expense
for the deferred directors' plan as of December 31, 2003, 2002 and 2001 was
$235,000, $487,000 and $399,000.

                                                                68

NOTE 16 - STOCK OPTIONS

         The stock option plan requires that the exercise price for the options is the market price at the date the options are
granted. The maximum option term is ten years and the options vest over 5 years. A summary of the activity in the plan follows:

                                                         2003                         2002                         2001
                                              --------------------------   --------------------------   --------------------------
                                               Weighted-                    Weighted-                    Weighted-
                                                Average       Exercise       Average       Exercise       Average       Exercise
                                                 Shares        Price          Shares        Price          Shares        Price
                                              ------------  ------------   ------------  ------------   ------------  ------------
                                                                                                    
Outstanding at beginning of the year               495,545  $      17.26        550,345  $      17.27        454,770  $      18.79
Granted                                             64,790         34.21          2,000         23.88        147,375         13.81
Exercised                                           20,760         23.33              0          0.00              0          0.00
Forfeited                                           18,100         17.51         56,800         17.53         51,800         20.80
                                              ------------                 ------------                 ------------
Outstanding at end of the year . . . . . . . .     521,475  $      19.12        495,545  $      17.26        550,345  $      17.27
                                              ============                 ============                 ============

Options exercisable at end of the year             107,575  $      23.15          3,600  $      18.35         42,000  $      17.55
Weighted-average fair value of options
 granted during the year                                    $      11.06                 $      10.99                 $       6.01

         Options outstanding at year-end 2003 were as follows:

                                                                                                               Exercisable
                                                                            Outstanding                 --------------------------
                                                                             Weighted-
                                                                              Average       Weighted-                   Weighted-
                                                                             Remaining      Average                     Average
                                                                            Contractual     Exercise                    Exercise
                                                                 Number         Life         Price         Number        Price
                                                              ------------  ------------  ------------  ------------  ------------
Range of exercise prices
                                                                                                       
$11.20-$14.00                                                      198,225           6.6  $      13.57         7,000  $      13.55
$14.01-$16.80                                                       92,800           6.2         15.10         2,800         15.53
$16.81-$19.60                                                       73,535           4.7         19.31         7,150         19.44
$19.61-$22.40                                                        1,000           8.3         20.76             0          0.00
$22.41-$25.20                                                       83,700           4.1         24.04        82,700         24.04
$25.21-$28.00                                                        8,425           4.0         27.82         7,425         27.94
$28.01-$35.00                                                       63,790           9.9         34.37           500         34.37
                                                              ------------                              ------------
Outstanding at year-end  . . . . . . . . . . . . . . . . . . .     521,475           6.2  $      19.12       107,575  $      23.15
                                                              ============                              ============

                                                                69

NOTE 17 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

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

         Quantitative measures established by regulation to ensure capital
adequacy require the Company and Bank to maintain minimum amounts and ratios
(set forth in the following table) of total and Tier I capital (as defined in
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, 2003 and 2002, that the Company and Bank meet all capital
adequacy requirements to which they are subject.

         As of December 31, 2003, the most recent notification from the
federal regulators categorized the Company and Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Company and 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 Company's or Bank's category.

                                                                                                            Minium Required to
                                                                                Minimum Required            Be Well Capitalized
                                                                                   For Capital            Under Prompt Corrective
                                                        Actual                  Adequacy Purposes           Action Regulations
                                              --------------------------   --------------------------   --------------------------
                                                 Amount        Ratio          Amount        Ratio          Amount        Ratio
                                              ------------  ------------   ------------  ------------   ------------  ------------
                                                                                 (in thousands)
                                                                                                    
As of December 31, 2003:
Total Capital (to Risk Weighted Assets)
  Consolidated                                $    124,941         12.83%  $     77,919          8.00%  $     97,399         10.00%
  Bank                                        $    122,909         12.65%  $     77,709          8.00%  $     97,136         10.00%
Tier I Capital (to Risk Weighted Assets)
  Consolidated                                $    114,707         11.78%  $     38,959          4.00%  $     58,439          6.00%
  Bank                                        $    112,675         11.60%  $     38,855          4.00%  $     58,282          6.00%
Tier I Capital (to Average Assets)
  Consolidated                                $    114,707          9.15%  $     50,131          4.00%  $     62,664          5.00%
  Bank                                        $    112,675          9.00%  $     50,064          4.00%  $     62,580          5.00%

As of December 31, 2002:
Total Capital (to Risk Weighted Assets)
  Consolidated                                $    103,368         11.08%  $     74,647          8.00%  $     93,309         10.00%
  Bank                                        $    101,510         10.91%  $     74,433          8.00%  $     93,041         10.00%
Tier I Capital (to Risk Weighted Assets)
  Consolidated                                $     93,836         10.06%  $     37,323          4.00%  $     55,985          6.00%
  Bank                                        $     91,977          9.89%  $     37,216          4.00%  $     55,825          6.00%
Tier I Capital (to Average Assets)
  Consolidated                                $     93,836          7.89%  $     47,562          4.00%  $     59,453          5.00%
  Bank                                        $     91,977          7.75%  $     47,463          4.00%  $     59,329          5.00%

                                                                70

NOTE 17 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (continued)

         Indiana law prohibits the Bank from paying dividends in an amount
greater than its undivided profits. The Bank is required to obtain the
approval of the Department of Financial Institutions for the payment of any
dividend if the total amount of all dividends declared by the Bank during the
calendar year, including the proposed dividend, would exceed the sum of the
retained net income for the year to date combined with its retained net income
for the previous two years. Indiana law defines "retained net income" to mean
the net income of a specified period, calculated under the consolidated report
of income instructions, less the total amount of all dividends declared for
the specified period. As of December 31, 2003, approximately $19.8 million was
available to be paid as dividends to the Company by the Bank.

         The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant
to applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described
above, the Bank exceeded its minimum capital requirements under applicable
guidelines as of December 31, 2003. Notwithstanding the availability of funds
for dividends, however, the FDIC may prohibit the payment of any dividends by
the Bank if the FDIC determines such payment would constitute an unsafe or
unsound practice.

NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS

         The following table contains the estimated fair values and the
related carrying values of the Company's financial instruments at December 31,
2003 and 2002. Items, which are not financial instruments, are not included.

                                                                                      2003                         2002
                                                                           --------------------------   --------------------------
                                                                             Carrying     Estimated       Carrying     Estimated
                                                                              Value       Fair Value       Value       Fair Value
                                                                           ------------  ------------   ------------  ------------
                                                                                               (in thousands)
Financial Assets:
                                                                                                          
 Cash and cash equivalents                                                 $     57,441  $     57,441   $     87,149  $     87,149
 Real estate mortgages held for sale                                              3,431         3,431         10,395        10,395
 Securities available for sale                                                  281,367       281,367        274,105       274,105
 Loans, net                                                                     860,648       864,493        813,143       817,082
 Federal Home Loan Bank stock                                                     4,252         4,252          3,568         3,568
 Accrued interest receivable                                                      4,997         4,997          4,985         4,985
Financial Liabilities:
 Certificates of deposit                                                       (300,503)     (305,003)      (436,455)     (442,948)
 All other deposits                                                            (625,888)     (625,888)      (476,870)     (476,870)
 Securities sold under agreements to repurchase                                (102,601)     (102,601)      (124,968)     (124,968)
 Other short-term borrowings                                                    (82,160)      (82,184)       (60,000)      (60,000)
 Long-term borrowings                                                           (30,047)      (30,304)       (31,348)      (32,248)
 Subordinated debentures                                                        (30,928)      (30,974)       (20,619)      (21,774)
 Accrued interest payable                                                        (2,376)       (2,376)        (3,197)       (3,197)

         For purposes of the above disclosures of estimated fair value, the
following assumptions were used as of December 31, 2003 and 2002. The
estimated fair value for cash, cash equivalents, accrued interest and Federal
Home Loan Bank stock is considered to approximate cost. Real estate mortgages
held for sale are based upon the actual contracted price for those loans sold
but not yet delivered, or the current Federal Home Loan Mortgage Corporation
price for normal delivery of mortgages with similar coupons and maturities at
year-end. The estimated fair value of loans is based on estimates of the rate
the Company would charge for similar loans at December 31, 2003 and 2002,
applied for the time period until estimated repayment. The estimated fair
value for demand and savings deposits is based on their carrying value. The
estimated fair value for certificates of deposit and borrowings is based on
estimates of the rate the Company would pay on such deposits or borrowings at
December 31, 2003 and 2002, applied for the time period until maturity. The
estimated fair value of variable rate short-term borrowed funds is considered
to approximate carrying value. The estimated fair value of other financial
instruments and off-balance sheet loan commitments approximate cost and are
not considered significant to this presentation.

                                                                71

NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS (continued)

         While these estimates of fair value are based on management's
judgment of the most appropriate factors, there is no assurance that, were the
Company to have disposed of such items at December 31, 2003 and 2002, the
estimated fair values would necessarily have been achieved at that date, since
market values may differ depending on various circumstances. The estimated
fair values at December 31, 2003 and 2002 should not necessarily be considered
to apply at subsequent dates.

NOTE 19 - COMMITMENTS, OFF-BALANCE SHEET RISKS AND CONTINGENCIES

         During the normal course of business, the Company becomes a party to
financial instruments with off-balance sheet risk in order to meet the
financing needs of its customers. These financial instruments include
commitments to make loans and open-ended revolving lines of credit. Amounts as
of December 31, 2003 and 2002, were as follows:

                                                                                      2003                              2002
                                                                           --------------------------   --------------------------
                                                                              Fixed        Variable        Fixed        Variable
                                                                               Rate          Rate           Rate          Rate
                                                                           ------------  ------------   ------------  ------------
                                                                                               (in thousands)
                                                                                                          
Commercial loan lines of credit                                            $      4,308  $    222,755   $     12,643  $    208,383
Commercial loan letters of credit                                                     0        11,424              0         8,365
Real estate mortgage loans                                                        5,405         1,392         18,631           479
Real estate construction mortgage loans                                             535         2,605              0         2,117
Credit card open-ended revolving lines                                            8,560         1,582          7,477           388
Home equity mortgage open-ended revolving lines                                       0        68,030              0        54,069
Consumer loan open-ended revolving lines                                              0         3,901              0         3,649
                                                                           ------------  ------------   ------------  ------------
  Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$     18,808  $    311,689   $     38,751  $    277,450
                                                                           ============  ============   ============  ============

         At December 31, 2003 and 2002, the range of interest rates for
commercial loan commitments with a fixed rate was 2.00% to 10.75% and 2.00% to
11.00%. The range of interest rates for commercial loan commitments with
variable rates was 2.67% to 9.00% and 3.00% to 10.25% at December 31, 2003 and
2002. The index on variable rate commercial loan commitments is principally
the Company's base rate, which is the national prime rate. The range of
interest rates for mortgage loan commitments with a fixed rate was 4.88% to
7.25% at December 31, 2003 and 2002. The range of interest rates for mortgage
loan commitments with a variable rate was 5.00% to 7.00% and 6.00% to 6.50% at
December 31, 2003 and 2002. At December 31, 2003 and 2002, the range of
interest rates for fixed rate credit card commitments was 14.95% to 17.95%. At
December 31, 2003 and 2002 the rate on variable credit card commitments was
7.00% and 7.25%. The range of interest rates for open-ended revolving line
commitments with a variable rate was 2.99% to 15.00% and 3.99% to 15.00% at
December 31, 2003 and 2002.

         Commitments, excluding open-ended revolving lines, generally have
fixed expiration dates of one year or less. Open-ended revolving lines are
monitored for proper performance and compliance on a monthly basis. Since many
commitments expire without being drawn upon, the total commitment amount does
not necessarily represent future cash requirements. The Company follows the
same credit policy (including requiring collateral, if deemed appropriate) to
make such commitments as is followed for those loans that are recorded in its
financial statements.

         The Company's exposure to credit losses in the event of
nonperformance is represented by the contractual amount of the commitments.
Management does not expect any significant losses as a result of these
commitments.

                                                                72

NOTE 20 - PARENT COMPANY STATEMENTS

         The Company operates primarily in the banking industry, which accounts for substantially all of its revenues, operating
income, and assets. Presented below are parent only financial statements:

                           CONDENSED BALANCE SHEETS
                                                                                                               December 31,
                                                                                                        --------------------------
                                                                                                            2003          2002
                                                                                                        ------------  ------------
                                                                                                              (in thousands)
ASSETS
                                                                                                                
Deposits with Lake City Bank                                                                            $        861  $      1,443
Investments in banking subsidiary                                                                            117,990       102,091
Investments in Lakeland Statutory Trust II                                                                       928           619
Other assets                                                                                                   2,394         2,677
                                                                                                        ------------  ------------
  Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$    122,173  $    106,830
                                                                                                        ============  ============

LIABILITIES
Dividends payable and other liabilities                                                                 $      1,223  $      2,331
Subordinated debt                                                                                             30,928        20,619

STOCKHOLDERS' EQUITY                                                                                          90,022        83,880
                                                                                                        ------------  ------------
  Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$    122,173  $    106,830
                                                                                                        ============  ============

                                                          CONDENSED STATEMENTS OF INCOME
                                                                                                  Years Ended December 31,
                                                                                          ----------------------------------------
                                                                                              2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                       (in thousands)
                                                                                                             
Dividends from Lake City Bank, Lakeland Statutory Trust II
 and Lakeland Capital Trust                                                               $      3,980  $      5,730  $      5,184
Interest on deposits and repurchase agreements, Lake City Bank                                       1             4             7
Equity in undistributed income of subsidiaries                                                  11,648         8,129         6,364
Interest expense on subordinated debt                                                            1,725         1,856         1,856
Miscellaneous expense                                                                            1,264           620           490
                                                                                          ------------  ------------  ------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      12,640        11,387         9,209
  Income tax benefit                                                                             1,225           979           904
                                                                                          ------------  ------------  ------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$     13,865  $     12,366  $     10,113
                                                                                          ============  ============  ============

                                                       CONDENSED STATEMENTS OF CASH FLOWS
                                                                                                  Years ended December 31,
                                                                                          ----------------------------------------
                                                                                              2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                       (in thousands)
                                                                                                             
Cash flows from operating activities:
  Net income                                                                              $     13,865  $     12,366  $     10,113
  Adjustments to net cash from operating activities
    Equity in undistributed income of subsidiaries                                             (11,648)       (8,129)       (6,364)
    Other changes                                                                                  510          (101)           56
                                                                                          ------------  ------------  ------------
      Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . . .       2,727         4,136         3,805
Cash flows from investing activities                                                            (9,779)            0             0
Cash flows from financing activities                                                             6,470        (4,006)       (3,594)
                                                                                          ------------  ------------  ------------
Net increase in cash and cash equivalents  . . . . . . . . . . . . . . . . . . . . . . . .        (582)          130           211
Cash and cash equivalents at beginning of the year                                               1,443         1,313         1,102
                                                                                          ------------  ------------  ------------
Cash and cash equivalents at end of the year . . . . . . . . . . . . . . . . . . . . . . .$        861  $      1,443  $      1,313
                                                                                          ============  ============  ============

                                                                73

NOTE 21 - EARNINGS PER SHARE

         Following are the factors used in the earnings per share computations:

                                                                                              2003          2002          2001
                                                                                          ------------  ------------  ------------
                                                                                                             
Basic earnings per common share
  Net income                                                                              $ 13,865,000  $ 12,366,000  $ 10,113,000

  Weighted-average common shares outstanding                                                 5,819,916     5,813,984     5,813,984

  Basic earnings per common share                                                         $       2.38  $       2.13  $       1.74

Diluted earnings per common share
  Net income                                                                              $ 13,865,000  $ 12,366,000  $ 10,113,000

  Weighted-average common shares outstanding for
    basic earnings per common share                                                          5,819,916     5,813,984     5,813,984

  Add: Dilutive effect of assumed exercises of stock options                                   181,533       144,402        27,212

  Average shares and dilutive potential common shares                                        6,001,449     5,958,386     5,841,196

  Diluted earnings per common share                                                       $       2.31  $       2.08  $       1.73

         Stock options for 63,790 and 93,460 shares of common stock were not considered in computing diluted earnings per common
share for 2003 and 2002 because they were antidilutive.

                                                                74

NOTE 22 - SELECTED QUARTERLY DATA (UNAUDITED)
(in thousands except per share data)

2003                                                                             4th           3rd           2nd           1st
                                                                               Quarter       Quarter       Quarter       Quarter
                                                                            ------------  ------------  ------------  ------------
                                                                                                          
Interest income                                                             $     14,513  $     14,833  $     15,537  $     15,453
Interest expense                                                                   4,013         4,429         4,793         4,902
                                                                            ------------  ------------  ------------  ------------
Net interest income  . . . . . . . . . . . . . . . . . . . . . . . . . . . .$     10,500  $     10,404  $     10,744  $     10,551

Provision for loan losses                                                            490           380           717           667

Noninterest income                                                                 4,621         4,481         4,939         4,386
Noninterest expense                                                               10,345         9,095         9,268         8,971
Income tax expense                                                                 1,276         1,819         1,949         1,784
                                                                            ------------  ------------  ------------  ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$      3,010  $      3,591  $      3,749  $      3,515
                                                                            ============  ============  ============  ============

Basic earnings per common share                                             $       0.52  $       0.62  $       0.64  $       0.60
                                                                            ============  ============  ============  ============
Diluted earnings per common share                                           $       0.49  $       0.60  $       0.63  $       0.59
                                                                            ============  ============  ============  ============

2002                                                                             4th           3rd           2nd           1st
                                                                               Quarter       Quarter       Quarter       Quarter
                                                                            ------------  ------------  ------------  ------------
                                                                                                          
Interest income                                                                   15,773  $     16,216  $     16,281  $     16,065
Interest expense                                                                   5,486         5,598         5,623         5,851
                                                                            ------------  ------------  ------------  ------------
Net interest income  . . . . . . . . . . . . . . . . . . . . . . . . . . . .$     10,295  $     10,625  $     10,665  $     10,221

Provision for loan losses                                                            766         1,041           747           502

Noninterest income                                                                 4,281         3,649         3,574         3,359
Noninterest expense                                                                8,716         8,600         8,806         8,576
Income tax expense                                                                 1,754         1,605         1,619         1,542
                                                                            ------------  ------------  ------------  ------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$      3,332  $      3,021  $      3,060  $      2,953
                                                                            ============  ============  ============  ============

Basic earnings per common share                                             $       0.57  $       0.52  $       0.53  $       0.51
                                                                            ============  ============  ============  ============
Diluted earnings per common share                                           $       0.57  $       0.50  $       0.51  $       0.50
                                                                            ============  ============  ============  ============

         Data for the first 3 quarters may not necessarily agree with that issued in the Company's quarterly filings for those
quarters. On October 1,2002, the Company adopted new accounting guidance, which resulted in the reversal of 2002 goodwill
amortization. Prior quarters have been restated to reflect this reversal. Below is a reconciliation of the previously reported Net
Income and EPS to the restated amounts above.

                                                                75

NOTE 22 - SELECTED QUARTERLY DATA (UNAUDITED)
(in thousands except per share data) (continued)

2002                                                                                           3rd           2nd           1st
                                                                                             Quarter       Quarter       Quarter
                                                                                          ------------  ------------  ------------
                                                                                                             
Reported net income                                                                       $      2,953  $      2,993  $      2,885
Net goodwill amortization reversed, net of tax                                                      68            67            68
                                                                                          ------------  ------------  ------------
Adjusted net income                                                                       $      3,021  $      3,060  $      2,953
                                                                                          ============  ============  ============

Reported basic earnings per common share                                                  $        .51  $        .51  $        .50
Net goodwill amortization                                                                          .01           .02           .01
                                                                                          ------------  ------------  ------------
Adjusted basic earnings per common share                                                  $        .52  $        .53  $        .51
                                                                                          ============  ============  ============

Reported diluted earnings per common share                                                $        .49  $        .50  $        .49
Net goodwill amortization                                                                          .01           .01           .01
                                                                                          ------------  ------------  ------------
Adjusted diluted earnings per common share                                                $        .50  $        .51  $        .50
                                                                                          ============  ============  ============

NOTE 23 - BRANCH DIVESTITURES

         On September 21, 2001, the Company sold its Greentown, Logansport,
Peru, Roann and Wabash, Indiana offices. The Company paid $39.8 million to
settle the net liabilities assumed by the buyer and recorded a gain of
$753,000.

NOTE 24 - TRUST ACQUISITION

         On December 1, 2003, the Company acquired the Fort Wayne, Indiana
office of Indiana Capital Management Bank & Trust. The Company paid $600,000
to settle the net assets acquired. Summary information regarding the effect of
the sale on the balance sheet is presented below. In addition, the Company
received $60.0 million in trust assets that are not included in these
financial statements.
                                                                     Amount
                                                                  ------------
Assets:                                                          (in thousands)
 Equipment                                                        $         30
 Intangible assets                                                         572
Liabilities:
 Other liabilities                                                $          2

                                                                76

REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
Lakeland Financial Corporation
Warsaw, Indiana

         We have audited the accompanying consolidated balance sheets of
Lakeland Financial Corporation ("Company") and subsidiaries as of December 31,
2003 and 2002, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Lakeland Financial Corporation and subsidiaries as of December 31, 2003 and
2002, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003 in conformity with
accounting principles generally accepted in the United States of America.

                                                   Crowe Chizek and Company LLC
South Bend, Indiana
January 9, 2004

                                      77

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

         Management is responsible for the preparation of the Company's
consolidated financial statements and related information. Management believes
that the consolidated financial statements fairly reflect the form and
substance of transactions and that the financial statements reasonably present
the Company's financial position and results of operations and were prepared
in conformity with accounting principles generally accepted in the United
States of America. Management also has included in the Company's financial
statements amounts that are based on estimates and judgments, which it
believes, are reasonable under the circumstances.

         The Company maintains a system of internal controls designed to
provide reasonable assurance that all assets are safeguarded, financial
records are reliable for preparing consolidated financial statements and the
Company complies with laws and regulations relating to safety and soundness
which are designated by the FDIC and other appropriate federal banking
agencies. The selection and training of qualified personnel and the
establishment and communication of accounting and administrative policies and
procedures are elements of this control system. The effectiveness of the
internal control system is monitored by a program of internal audit and by
independent certified public accountants (independent auditors). Management
recognizes that the cost of a system of internal controls should not exceed
the benefits derived and that there are inherent limitations to be considered
in the potential effectiveness of any system. Management believes the
Company's system provides the appropriate balance between costs of controls
and the related benefits.

         The independent auditors have audited the Company's consolidated
financial statements in accordance with auditing standards generally accepted
in the United States of America and provide an objective, independent review
of the fairness of the reported operating results and financial position. The
board of directors of the Company has an audit review committee composed of
six non-management directors. The committee meets periodically with the
internal auditors and the independent auditors.

                                      78

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

         An evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rule 13a -15(e) promulgated under the Securities and Exchange Act of 1934, as
amended) as of December 31, 2003. Based on that evaluation, the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
concluded that the Company's disclosure controls and procedures were
effective. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information appearing in the definitive Proxy Statement, dated as
of March 5, 2004, is incorporated herein by reference in response to this
item.

ITEM 11. EXECUTIVE COMPENSATION

         The information appearing in the definitive Proxy Statement, dated as
of March 5, 2004, is incorporated herein by reference in response to this
item. The sections in the Proxy Statement marked "Report of the Compensation
Committee on Executive Compensation", "Stock Price Performance" and "Audit
Committee Report" are furnished for the information of the Commission and are
not deemed to be "filed" as part of the Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information appearing in the definitive Proxy Statement, dated as
of March 5, 2004, is incorporated herein by reference in response to this
item.

Equity Compensation Plan Information

         The table below sets forth the following information as of December
31, 2003 for (i) all compensation plans previously approved by the Company's
shareholders and (ii) all compensation plans not previously approved by the
Company's shareholders:
       (a) the number of securities to be issued upon the exercise of
           outstanding options, warrants and rights;

       (b) the weighted-average exercise price of such outstanding options,
           warrants and rights;

       (c) other than securities to be issued upon the exercise of such
           outstanding options, warrants and rights, the number of securities
           remaining available for future issuance under the plans.

                                      79

==================================================================================================================================

                                               EQUITY COMPENSATION PLAN INFORMATION

- ----------------------------------------------------------------------------------------------------------------------------------
                                       Number of securities to be
            Plan category               issued upon exercise of        Weighted-average exercise     Number of securities remaining
                                          outstanding options        price of outstanding options     available for future issuance
==================================================================================================================================

Equity compensation plans approved
by security holders...............                   521,475                       19.12                          57,765
- ----------------------------------------------------------------------------------------------------------------------------------

Equity compensation plans not
approved by security holders......                         0                        0.00                               0

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

Total.............................                   521,475                       19.12                          57,765

==================================================================================================================================

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information appearing in the definitive Proxy Statement, dated as
of March 5, 2004, is incorporated herein by reference in response to this
item.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

         The information appearing in the definitive proxy statement, dated as
of March 5, 2004, is incorporated herein by reference in response to this
item.

                                                                80

                                    PART IV

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

         The documents listed below are filed as a part of this report:

         (a)      Exhibits

    Exhibit No.                     Document                                            Incorporated by reference to

         3.1                        Amended and Restated Articles                       Exhibit 4.1 to the Company's
                                    of Incorporation of Lakeland                        Form S-8 filed with the
                                    Financial Corporation                               Commission on April 15, 1998

         3.2                        Bylaws of Lakeland                                  Exhibit 3(ii) to the Company's
                                    Financial Corporation                               Form 10-Q for the quarter
                                                                                        ended June 30, 1996

         4.1                        Form of Common Stock Certificate                    Attached hereto

        10.1                        Lakeland Financial                                  Exhibit 4.3 to the Company's
                                    Corporation 1997 Share                              Form S-8 filed with the
                                    Incentive Plan                                      Commission on April 15, 1998

        10.3                        Form of Indenture for Trust Preferred               Attached hereto
                                    Issuance

        10.4                        Lakeland Financial Corporation 401(k)               Exhibit 10.1 to the Company's Form S-8
                                    Plan                                                filed with the Commission on October
                                                                                        23, 2000

        10.5                        Amended and Restated Lakeland Financial             Exhibit 10.5 to the  Company's Form
                                    Corporation Director's Fee Deferral Plan            10-K for the fiscal year ended December
                                                                                        31, 2002

        21.0                        Subsidiaries                                        Attached hereto

        23.1                        Report of Independent Auditors                      Item 8 herein

        31.1                        Certification of Chief Executive Officer            Attached hereto
                                    Pursuant to Rule 13a-14(a)/15d-14(a)

        31.2                        Certification of Chief Financial Officer            Attached hereto
                                    Pursuant to Rule 13a-14(a)/15d-14(a)

        32.1                        Certification of Chief Executive Officer            Attached hereto
                                    Pursuant to 18 U.S.C. Section 1350, as
                                    adopted Pursuant to Section 906 of the
                                    Sarbanes-Oxley Act of 2002

        32.2                        Certification of Chief Executive Officer            Attached hereto
                                    Pursuant to 18 U.S.C. Section 1350, as
                                    adopted Pursuant to Section 906 of the
                                    Sarbanes-Oxley Act of 2002

                                                                81

         (b) Reports on Form 8-K

                  A report on Form 8-K was filed on October 15, 2003 under
      Item 12 which reported the Company's third quarter financial information
      in the form of a press release.

                  A report on Form 8-K was filed on January 15, 2004 under
      Item 12 which reported the Company's fourth quarter and fiscal year
      financial information in the form of a press release.

                                      82

                                  SIGNATURES

         Pursuant to the requirements of Section 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                        LAKELAND FINANCIAL CORPORATION

Date: February 25, 2004                     By    /s/ Michael L. Kubacki
                                                  Michael L. Kubacki, Chairman

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

Name                                     Title                      Date

/s/ Michael L. Kubacki
Michael L. Kubacki           Principal Executive Officer     February 25, 2004
                             and Director

/s/ David M. Findlay
David M. Findlay             Principal Financial Officer     February 25, 2004

/s/ Teresa A. Bartman
Teresa A. Bartman            Principal Accounting Officer    February 25, 2004

Robert E. Bartels, Jr        Director                        February 25, 2004

/s/ L. Craig Fulmer
L. Craig Fulmer              Director                        February 25, 2004

/s/ Allan J. Ludwig
Allan J. Ludwig              Director                        February 25, 2004

/s/ Charles E. Niemier
Charles E. Niemier           Director                        February 25, 2004

/s/ Emily E. Pichon
Emily E. Pichon              Director                        February 25, 2004

/s/ Richard L. Pletcher
Richard L. Pletcher          Director                        February 25, 2004

                                      83

Steven D. Ross               Director                        February 25, 2004

Donald B. Steininger         Director                        February 25, 2004

Terry L. Tucker              Director                        February 25, 2004

M. Scott Welch               Director                        February 25, 2004

                                      84

                                                                    Exhibit 21

                                 Subsidiaries

1. Lake City Bank, Warsaw, Indiana, a banking corporation organized under the
   laws of the State of Indiana.

2. Lakeland Statutory Trust II, a statutory business trust formed under
   Connecticut law.

3. LCB Investments Limited, a subsidiary of Lake City Bank formed under the
   laws of Bermuda to manage a portion of the Bank's investment portfolio.

                                      85

                        Lakeland Financial Corporation
                                WARSAW, INDIANA
              INCORPORATED UNDER THE LAWS OF THE STATE OF INDIANA

NUMBER                                                                  SHARES

           THIS                                                         IS THE
           CERTIFIES                                                  OWNER OF
           THAT

                                                             CUSIP 511656 10 0

               fully paid and non-assessable shares of the common capital
               stock, no par value, of LAKELAND FINANCIAL CORPORATION,
               (hereinafter called "Corporation"), transferable only on the
               books of the Corporation by the holder hereof in person, or
               by attorney, upon surrender of this Certificate properly
               endorsed. In Witness Whereof, the said Corporation has
               caused this Certificate to be signed in facsimile by its
               duly  authorized  officers.

               Dated:

                                            COUNTERSIGNED AND REGISTERED:
                                       AMERICAN STOCK TRANSFER & TRUST COMPANY
                                                  (NEW YORK, N.Y.)
                                            TRANSFER AGENT AND REGISTRAR
                       /s/Michael L. Kubacki
                       PRESIDENT & CHIEF EXECUTIVE OFFICER

                       /s/David M. Findlay       BY:__________________________
                       SECRETARY                    AUTHORIZED SIGNATURE

     A full statement of the kinds and classes of shares and the relative
rights, interests, preferences and restrictions of each class of shares which
the Corporation is authorized to issue will be furnished by the Corporation to
any shareholder upon a written request and without charge.
     The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written but in full
according to applicable laws or regulations:

  TEN COM - as tenants in common             UNIF GIFT MIN ACT-...Custodian....
  TEN ENT - as tenants by the entireties          (Cust)     (Minor)
  JT TEN - as joint tenants with right of         under Uniform Gifts to
           survivorship and not as tenants        Minors Act ..................
           in common                                             (State)

For value received ____________ hereby sell, assign and transfer unto PLEASE
INSERT SOCIEL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE   _____________________________________________
(PLEASE PRINT ON TYPEWRTE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
of the Common Capital Shares represented by the within Certificate and do hereby
irrevocably constitute and appoint_____________________________________________
_______________________________________________________________________Attorney
to transfer the said shares on the books of the within-named Corporation with
full power of substitution in the premises.

Dated _______________________

Signature guaranteed by:               Signature

____________________________________   _______________________________________
____________________________________   _______________________________________
  COMMERCIAL BANK OR MEMBER FIRM
    OF A MAJOR STOCK EXCHANGE

SIGNATURE(S) GUARANTEED:______________________________________________________
                        THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
                        GUARANTOR INSTITUTION (BANKS STOCKBROKERS, SAVINGS AND
                        LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
                        AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
                        PURSUANT TO S.E.C. RULE 17Ad-15,

NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.

                        LAKELAND FINANCIAL CORPORATION,
                                   as Issuer

                                   INDENTURE

                          Dated as of October 1, 2003

                        U.S. BANK NATIONAL ASSOCIATION,
                                  as Trustee

       FLOATING RATE JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

                                   DUE 2033

                               TABLE OF CONTENTS

INDENTURE         1

ARTICLE I         DEFINITIONS................................................1
   Section 1.1.   Definitions................................................1

ARTICLE II.       DEBENTURES.................................................9
   Section 2.1.   Authentication and Dating..................................9
   Section 2.2.   Form of Trustee's Certificate of Authentication...........10
   Section 2.3.   Form and Denomination of Debentures.......................10
   Section 2.4.   Execution of Debentures...................................10
   Section 2.5.   Exchange and Registration of Transfer of Debentures.......10
   Section 2.6.   Mutilated, Destroyed, Lost or Stolen Debentures...........13
   Section 2.7.   Temporary Debentures......................................14
   Section 2.8.   Payment of Interest and Additional Interest...............14
   Section 2.9.   Cancellation of Debentures Paid, etc......................16
   Section 2.10.  Computation of Interest Rate..............................16
   Section 2.11.  Extension of Interest Payment Period......................18
   Section 2.12.  CUSIP Numbers.............................................19
   Section 2.13.  Global Debentures.........................................19
ARTICLE III.      PARTICULAR COVENANTS OF THE COMPANY.......................21
   Section 3.1.   Payment of Principal, Premium and Interest; Agreed
                  Treatment of the Debentures...............................21
   Section 3.2.   Offices for Notices and Payments, etc.....................22
   Section 3.3.   Appointments to Fill Vacancies in Trustee's Office........23
   Section 3.4.   Provision as to Paying Agent..............................23
   Section 3.5.   Certificate to Trustee....................................24
   Section 3.6.   Additional Sums...........................................24
   Section 3.7.   Compliance with Consolidation Provisions..................24
   Section 3.8.   Limitation on Dividends...................................24
   Section 3.9.   Covenants as to the Trust.................................25
   Section 3.10.  Additional Junior Indebtedness............................25

ARTICLE IV.       SECURITYHOLDERS' LISTS AND REPORTS BY THE
                     COMPANY AND THE TRUSTEE................................26
   Section 4.1.   Securityholders' Lists....................................26
   Section 4.2.   Preservation and Disclosure of Lists......................26

ARTICLE V.        REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
                     UPON AN EVENT OF DEFAULT...............................27
   Section 5.1.   Events of Default.........................................27
   Section 5.2.   Payment of Debentures on Default, Suit Therefor...........29
   Section 5.3.   Application of Moneys Collected by Trustee................31
   Section 5.4.   Proceedings by Securityholders............................31
   Section 5.5.   Proceedings by Trustee....................................32
   Section 5.6.   Remedies Cumulative and Continuing; Delay or Omission
                  Not a Waiver..............................................32
   Section 5.7.   Direction of Proceedings and Waiver of Defaults by
                  Majority of Securityholders...............................32
   Section 5.8.   Notice of Defaults........................................33
   Section 5.9.   Undertaking, to Pay Costs.................................33

ARTICLE VI.       CONCERNING THE TRUSTEE....................................34
   Section 6.1.   Duties and Responsibilities of Trustee....................34
   Section 6.2.   Reliance on Documents, Opinions, etc......................35

                                      i

   Section 6.3.   No Responsibility for Recitals, etc.......................36
   Section 6.4.   Trustee, Authenticating Agent, Paying Agents,
                  Transfer Agents or Registrar May Own Debentures...........36
   Section 6.5.   Moneys to be Held in Trust................................36
   Section 6.6.   Compensation and Expenses of Trustee......................36
   Section 6.7.   Officers' Certificate as Evidence.........................37
   Section 6.8.   Eligibility of Trustee....................................37
   Section 6.9.   Resignation or Removal of Trustee.........................38
   Section 6.10.  Acceptance by Successor Trustee...........................39
   Section 6.11.  Succession by Merger, etc.................................40
   Section 6.12.  Authenticating Agents.....................................40

ARTICLE VII.      CONCERNING THE SECURITYHOLDERS............................41
   Section 7.1.   Action by Securityholders.................................41
   Section 7.2.   Proof of Execution by Securityholders.....................42
   Section 7.3.   Who Are Deemed Absolute Owners............................42
   Section 7.4.   Debentures Not Outstanding................................42
   Section 7.5.   Revocation of Consents; Future Holders Bound..............43

ARTICLE VIII.     SECURITYHOLDERS' MEETINGS.................................43
   Section 8.1.   Purposes of Meetings......................................43
   Section 8.2.   Call of Meetings by Trustee...............................44
   Section 8.3.   Call of Meetings by Company or Securityholders............44
   Section 8.4.   Qualifications for Voting.................................44
   Section 8.5.   Regulations...............................................44
   Section 8.6.   Voting....................................................45
   Section 8.7.   Quorum; Actions...........................................45

ARTICLE IX.       SUPPLEMENTAL INDENTURES...................................46
   Section 9.1.   Supplemental Indentures without Consent of
                  Securityholders...........................................46
   Section 9.2.   Supplemental Indentures with Consent of Securityholders...47
   Section 9.3.   Effect of Supplemental Indentures.........................48
   Section 9.4.   Notation on Debentures....................................48
   Section 9.5.   Evidence of Compliance of Supplemental Indenture to be
                  Furnished to Trustee......................................49

ARTICLE X.        REDEMPTION OF SECURITIES..................................49
   Section 10.1.  Optional Redemption.......................................49
   Section 10.2.  Special Event Redemption..................................49
   Section 10.3.  Notice of Redemption; Selection of Debentures.............49
   Section 10.4.  Payment of Debentures Called for Redemption...............50

ARTICLE XI.       CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE.........51
   Section 11.1.  Company May Consolidate, etc., on Certain Terms...........51
   Section 11.2.  Successor Entity to be Substituted........................51
   Section 11.3.  Opinion of Counsel to be Given to Trustee.................51

ARTICLE XII.      SATISFACTION AND DISCHARGE OF INDENTURE...................52
   Section 12.1.  Discharge of Indenture....................................52
   Section 12.2.  Deposited Moneys to be Held in Trust by Trustee...........52
   Section 12.3.  Paying Agent to Repay Moneys Held.........................52
   Section 12.4.  Return of Unclaimed Moneys................................53

ARTICLE XIII.     IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND
                  DIRECTORS.................................................53
   Section 13.1.  Indenture and Debentures Solely Corporate Obligations.....53

                                      ii

ARTICLE XIV.      MISCELLANEOUS PROVISIONS..................................53
   Section 14.1.  Successors................................................53
   Section 14.2.  Official Acts by Successor Entity.........................53
   Section 14.3.  Surrender of Company Powers...............................53
   Section 14.4.  Addresses for Notices, etc................................54
   Section 14.5.  Governing, Law............................................54
   Section 14.6.  Evidence of Compliance with Conditions Precedent..........54
   Section 14.7.  Non-Business Days.........................................54
   Section 14.8.  Table of Contents, Headings, etc..........................55
   Section 14.9.  Execution in Counterparts.................................55
   Section 14.10. Separability..............................................55
   Section 14.11. Assignment................................................55
   Section 14.12. Acknowledgment of Rights..................................55

ARTICLE XV.       SUBORDINATION OF DEBENTURES...............................55
   Section 15.1.  Agreement to Subordinate..................................55
   Section 15.2.  Default on Senior Indebtedness............................56
   Section 15.3   Liquidation, Dissolution, Bankruptcy......................56
   Section 15.4.  Subrogation...............................................57
   Section 15.5.  Trustee to Effectuate Subordination.......................58
   Section 15.6.  Notice by the Company.....................................58
   Section 15.7.  Rights of the Trustee; Holders of Senior Indebtedness.....59
   Section 15.8.  Subordination May Not Be Impaired.........................59

                                      iii

                                   INDENTURE

         THIS INDENTURE, dated as of October 1, 2003, between Lakeland
Financial Corporation, an Indiana corporation (the "Company"), and U.S. Bank
National Association, a national banking association organized under the laws
of the United States of America, as debenture trustee (the "Trustee").

                                  WITNESSETH:

         WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the issuance of its Floating Rate Junior Subordinated Deferrable
Interest Debentures due 2033 (the "Debentures") under this Indenture to
provide, among other things, for the execution and authentication, delivery
and administration thereof, and the Company has duly authorized the execution
of this Indenture; and

         WHEREAS, all acts and things necessary to make this Indenture a valid
agreement according to its terms, have been done and performed;

         NOW, THEREFORE, This Indenture Witnesseth:

         In consideration of the premises, and the purchase of the Debentures
by the holders thereof, the Company covenants and agrees with the Trustee for
the equal and proportionate benefit of the respective holders from time to
time of the Debentures as follows:

                                  ARTICLE I.
                                  DEFINITIONS

         Section 1.1. Definitions. The terms defined in this Section 1.1
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.1. All
accounting terms used herein and not expressly defined shall have the meanings
assigned to such terms in accordance with generally accepted accounting
principles and the term "generally accepted accounting principles" means such
accounting principles as are generally accepted in the United States at the
time of any computation. The words "herein," "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.

         "Additional Interest" means interest, if any, that shall accrue on
any interest on the Debentures the payment of which has not been made on the
applicable Interest Payment Date and which shall accrue at the Interest Rate,
compounded quarterly (to the extent permitted by law).

         "Additional Junior Indebtedness" means, without duplication and other
than the Debentures, any indebtedness, liabilities or obligations of the
Company, or any Affiliate of the Company, under debt securities (or guarantees

in respect of debt securities) initially issued to any trust, or a trustee of
a trust, partnership or other entity affiliated with the Company that is,
directly or indirectly, a finance subsidiary (as such term is defined in Rule
3a-5 under the Investment Company Act of 1940) or other financing vehicle of
the Company or any Affiliate of the Company in connection with the issuance by
that entity of preferred securities or other securities that are eligible to
qualify for Tier 1 capital treatment (or its then equivalent) for purposes of
the capital adequacy guidelines of the Federal Reserve, as then in effect and
applicable to the Company (or, if the Company is not a bank holding company,
such guidelines applied to the Company as if the Company were subject to such
guidelines); provided, however, that the inability of the Company to treat all
or any portion of the Additional Junior Indebtedness as Tier 1 capital shall
not disqualify it as Additional Junior Indebtedness if such inability results
from the Company having cumulative preferred stock, minority interests in
consolidated subsidiaries, or any other class of security or interest which
the Federal Reserve now or may hereafter accord Tier 1 capital treatment
(including the Debentures) in excess of the amount which may qualify for
treatment as Tier 1 capital under applicable capital adequacy guidelines.

         "Additional Sums" has the meaning set forth in Section 3.6.

         "Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor rule thereunder.

         "Applicable Depository Procedures" means, with respect to any
transfer or transaction involving a Global Debenture or beneficial interest
therein, the rules and procedures of the Depositary for such Debenture, in
each case to the extent applicable to such transaction and as in effect from
time to time.

         "Authenticating Agent" means any agent or agents of the Trustee which
at the time shall be appointed and acting pursuant to Section 6.12.

         "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.

         "Board of Directors" means the board of directors or the executive
committee or any other duly authorized designated officers of the Company.

         "Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of
such certification and delivered to the Trustee.

         "Business Day" means any day other than a Saturday, Sunday or any
other day on which banking institutions in the city in which the Company's
principal place of business is located, New York City or Hartford, Connecticut
are permitted or required by any applicable law to close.

         "Capital Securities" means undivided beneficial interests in the
assets of Lakeland Statutory Trust II which rank pari passu with Common
Securities issued by the Trust; provided, however, that upon the occurrence of

                                      2

an Event of Default (as defined in the Declaration), the rights of holders of
such Common Securities to payment in respect of distributions and payments
upon liquidation, redemption and otherwise are subordinated to the rights of
holders of such Capital Securities.

         "Capital Securities Guarantee" means the guarantee agreement that the
Company enters into with U.S. Bank National Association, as guarantee trustee,
or other Persons that operates directly or indirectly for the benefit of
holders of Capital Securities of the Trust.

         "Capital Treatment Event" means the receipt by the Company and the
Trust of an opinion of counsel experienced in such matters to the effect that,
as a result of the occurrence of any amendment to, or change (including any
announced prospective change) in, the laws, rules or regulations of the United
States or any political subdivision thereof or therein, or as the result of
any official or administrative pronouncement or action or decision
interpreting or applying such laws, rules or regulations, which amendment or
change is effective or which pronouncement, action or decision is announced on
or after the date of original issuance of the Debentures, there is more than
an insubstantial risk that the Company will not, within 90 days of the date of
such opinion be entitled to treat an amount equal to the aggregate liquidation
amount of the Debentures as "Tier 1 Capital" (or its then equivalent) for
purposes of the capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company (or if the Company is not a bank holding
company, such guidelines applied to the Company as if the Company were subject
to such guidelines); provided, however, that the inability of the Company to
treat all or any portion of the liquidation amount of the Debentures as Tier 1
Capital shall not constitute the basis for a Capital Treatment Event, if such
inability results from the Company having cumulative preferred stock, minority
interests in consolidated subsidiaries, or any other class of security or
interest which the Federal Reserve or OTS, as applicable, may now or hereafter
accord Tier 1 Capital treatment in excess of the amount which may now or
hereafter qualify for treatment as Tier 1 Capital under applicable capital
adequacy guidelines; provided further, however, that the distribution of
Debentures in connection with the liquidation of the Trust shall not in and of
itself constitute a Capital Treatment Event unless such liquidation shall have
occurred in connection with a Tax Event or an Investment Company Event.

         "Certificate" means a certificate signed by any one of the principal
executive officer, the principal financial officer or the principal accounting
officer of the Company.

         "Common Securities" means undivided beneficial interests in the
assets of the Trust which rank pari passu with Capital Securities issued by
the Trust; provided, however, that upon the occurrence of an Event of Default
(as defined in the Declaration), the rights of holders of such Common
Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights of
holders of such Capital Securities.

         "Company" means Lakeland Financial Corporation, an Indiana
corporation, and, subject to the provisions of Article XI, shall include its
successors and assigns.

         "Company Order" means a written order signed in the name of the
Company by its Chairman of the Board of Directors, Vice Chairman, Chief

                                      3

Executive Officer, President, Chief Financial Officer, one of its Managing
Directors or one of its Executive Vice Presidents, Senior Vice Presidents or
Vice Presidents, and delivered to the Trustee.

         "Coupon Rate" has the meaning set forth in Section 2.8.

         "Debenture" or "Debentures" has the meaning stated in the first
recital of this Indenture.

         "Debenture Register" has the meaning specified in Section 2.5.

         "Declaration" means the Amended and Restated Declaration of Trust of
the Trust, as amended or supplemented from time to time.

         "Default" means any event, act or condition that with notice or lapse
of time, or both, would constitute an Event of Default.

         "Defaulted Interest" has the meaning set forth in Section 2.8.

         "Depositary" means an organization registered as a clearing agency
under the Exchange Act that is designated as Depositary by the Company or any
successor thereto. DTC will be the initial Depositary.

         "Distribution Period" has the meaning set forth in Section 2.8.

         "Determination Date" has the meaning set forth in Section 2.10.

         "Depository Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Depositary
effects book-entry transfers and pledges of securities deposited with the
Depositary.

         "DTC" means The Depository Trust Company, a New York corporation.

         "Event of Default" means any event specified in Section 5.1,
continued for the period of time, if any, and after the giving of the notice,
if any, therein designated.

         "Extension Period" has the meaning set forth in Section 2.11.

         "Federal Reserve" means the Board of Governors of the Federal Reserve
System and any successor federal agency that is primarily responsible for
regulating the activities of bank holding companies.

         "Global Debenture" means a security that evidences all or part of the
Debentures, the ownership and transfers of which shall be made through book
entries by a Depositary.

         "Indenture" means this instrument as originally executed or, if
amended or supplemented as herein provided, as so amended or supplemented, or
both.

         "Institutional Trustee" has the meaning set forth in the Declaration.

                                      4

         "Interest Payment Date" means each March 31, June 30, September 30
and December 31 during the term of this Indenture and on the Maturity Date.

         "Interest Rate" means for the period beginning on (and including) the
date of original issuance and ending on (but excluding) December 31, 2003 the
rate per annum of 4.21% and for each Distribution Period thereafter, the
Coupon Rate.

         "Investment Company Event" means the receipt by the Company and the
Trust of an opinion of counsel experienced in such matters to the effect that,
as a result of the occurrence of a change in law or regulation or written
change (including any announced prospective change) in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, there is more than an insubstantial risk that
the Trust is or will be considered an "investment company" that is required to
be registered under the Investment Company Act of 1940, as amended, which
change or prospective change becomes effective or would become effective, as
the case may be, on or after the date of the issuance of the Debentures.

         "Liquidation Amount" means the stated amount of $1,000.00 per Trust
Security.

         "Maturity Date" means October 1, 2033.

         "Officers' Certificate" means a certificate signed by the Chairman of
the Board, the Vice Chairman, the Chief Executive Officer, the President, the
Chief Financial Officer, any Managing Director or any Vice President, and by
the Treasurer, an Assistant Treasurer, the Comptroller, an Assistant
Comptroller, the Secretary or an Assistant Secretary of the Company, and
delivered to the Trustee. Each such certificate shall include the statements
provided for in Section 14.6 if and to the extent required by the provisions
of such Section.

         "Opinion of Counsel" means an opinion in writing signed by legal
counsel, who may be an employee of or counsel to the Company, or may be other
counsel reasonably satisfactory to the Trustee. Each such opinion shall
include the statements provided for in Section 14.6 if and to the extent
required by the provisions of such Section.

         "OTS" means the Office of Thrift Supervision and any successor
federal agency that is primarily responsible for regulating the activities of
savings and loan holding companies.

         "Outstanding" means, when used with reference to Debentures, subject
to the provisions of Section 7.4, as of any particular time, all Debentures
authenticated and delivered by the Trustee or the Authenticating Agent under
this Indenture, except:

         (a) Debentures theretofore canceled by the Trustee or the
Authenticating Agent or delivered to the Trustee for cancellation;

         (b) Debentures, or portions thereof, for the payment or redemption of
which moneys in the necessary amount shall have been deposited in trust with

                                      5

the Trustee or with any paying agent (other than the Company) or shall have
been set aside and segregated in trust by the Company (if the Company shall
act as its own paying agent); provided, however, that, if such Debentures, or
portions thereof, are to be redeemed prior to maturity thereof, notice of such
redemption shall have been given as provided in Section 10.3 or provision
satisfactory to the Trustee shall have been made for giving such notice;

         (c) Debentures paid pursuant to Section 2.6 or in lieu of or in
substitution for which other Debentures shall have been authenticated and
delivered pursuant to the terms of Section 2.6 unless proof satisfactory to
the Company and the Trustee is presented that any such Debentures are held by
bona fide holders in due course; and

         (d) Debentures held in accordance with Section 7.4 hereof.

         "Person" means an individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.

         "Predecessor Security" of any particular Debenture means every
previous Debenture evidencing all or a portion of the same debt as that
evidenced by such particular Debenture; and, for the purposes of this
definition, any Debenture authenticated and delivered under Section 2.6 in
lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the
same debt as the lost, destroyed or stolen Debenture.

         "Principal Office of the Trustee," or other similar term, means the
office of the Trustee, at which at any particular time its corporate trust
business shall be principally administered, which at the time of the execution
of this Indenture shall be 225 Asylum Street, Goodwin Square, Hartford,
Connecticut 06103.

         "Redemption Date" means the Interest Payment Date fixed for the
redemption of Debentures.

         "Redemption Price" means 100% of the principal amount of the
Debentures being redeemed, plus accrued and unpaid interest on such Debentures
to the Redemption Date.

         "Responsible Officer" means, with respect to the Trustee, any officer
within the Principal Office of the Trustee, including any vice-president, any
assistant vice-president, any secretary, any assistant secretary, the
treasurer, any assistant treasurer, any trust officer or other officer of the
Principal Trust Office of the Trustee customarily performing functions similar
to those performed by any of the above designated officers and also means,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of that officer's knowledge of and familiarity
with the particular subject.

         "Securities Act" means the Securities Act of 1933, as amended from
time to time or any successor legislation.

                                      6

         "Securityholder," "holder of Debentures," or other similar terms,
means any Person in whose name at the time a particular Debenture is
registered on the register kept by the Company or the Trustee for that purpose
in accordance with the terms hereof.

         "Senior Indebtedness" means, with respect to the Company, whether
incurred on or prior to the date of this Indenture or thereafter incurred, (i)
the principal, premium, if any, and interest in respect of (A) indebtedness of
the Company for money borrowed and (B) indebtedness evidenced by securities,
debentures, notes, bonds or other similar instruments issued by the Company;
(ii) all capital lease obligations of the Company; (iii) all obligations of
the Company issued or assumed as the deferred purchase price of property, all
conditional sale obligations of the Company and all obligations of the Company
under any title retention agreement; (iv) all obligations of the Company for
the reimbursement of any letter of credit, any banker's acceptance, any
security purchase facility, any repurchase agreement or similar arrangement,
any interest rate swap, any other hedging arrangement, any obligation under
options or any similar credit or other transaction; (v) all obligations of the
type referred to in clauses (i) through (iv) above of other Persons for the
payment of which the Company is responsible or liable as obligor, guarantor or
otherwise; and (vi) all obligations of the type referred to in clauses (i)
through (v) above of other Persons secured by any lien on any property or
asset of the Company (whether or not such obligation is assumed by the
Company). Notwithstanding the foregoing, "Senior Indebtedness" shall not
include (1) any Additional Junior Indebtedness, (2) Debentures issued pursuant
to this Indenture and guarantees in respect of such Debentures, (3) trade
accounts payable of the Company arising in the ordinary course of business
(such trade accounts payable being pari passu in right of payment to the
Debentures), or (4) obligations with respect to which (a) in the instrument
creating or evidencing the same or pursuant to which the same is outstanding,
it is provided that such obligations are pari passu, junior or otherwise not
superior in right of payment to the Debentures and (b) the Company, prior to
the issuance thereof, has notified (and, if then required under the applicable
guidelines of the regulating entity, has received approval from) the Federal
Reserve (if the Company is a bank holding company) or the OTS (if the Company
is a savings and loan holding company). Senior Indebtedness shall continue to
be Senior Indebtedness and be entitled to the subordination provisions
irrespective of any amendment, modification or waiver of any term of such
Senior Indebtedness.

         "Special Event" means any of a Capital Treatment Event, an Investment
Company Event or a Tax Event.

          "Subsidiary" means with respect to any Person, (i) any corporation
at least a majority of the outstanding voting stock of which is owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries,
or by such Person and one or more of its Subsidiaries, (ii) any general
partnership, joint venture, limited liability company or similar entity, at
least a majority of the outstanding partnership or similar interests of which
shall at the time be owned by such Person, or by one or more of its
Subsidiaries, or by such Person and one or more of its Subsidiaries and (iii)
any limited partnership of which such Person or any of its Subsidiaries is a
general partner. For the purposes of this definition, "voting stock" means
shares, interests, participations or other equivalents in the equity interest
(however designated) in such Person having ordinary voting power for the
election of a majority of the directors (or the equivalent) of such Person,

                                      7

other than shares, interests, participations or other equivalents having such
power only by reason of the occurrence of a contingency.

         "Tax Event" means the receipt by the Company and the Trust of an
opinion of counsel experienced in such matters to the effect that, as a result
of any amendment to or change (including any announced prospective change) in
the laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement (including any private letter ruling,
technical advice memorandum, field service advice, regulatory procedure,
notice or announcement, including any notice or announcement of intent to
adopt such procedures or regulations (an "Administrative Action")) or judicial
decision interpreting or applying such laws or regulations, regardless of
whether such Administrative Action or judicial decision is issued to or in
connection with a proceeding involving the Company or the Trust and whether or
not subject to review or appeal, which amendment, clarification, change,
Administrative Action or decision is enacted, promulgated or announced, in
each case on or after the date of original issuance of the Debentures, there
is more than an insubstantial risk that: (i) the Trust is, or will be within
90 days of the date of such opinion, subject to United States federal income
tax with respect to income received or accrued on the Debentures; (ii)
interest payable by the Company on the Debentures is not, or within 90 days of
the date of such opinion, will not be, deductible by the Company, in whole or
in part, for United States federal income tax purposes; or (iii) the Trust is,
or will be within 90 days of the date of such opinion, subject to more than a
de minimis amount of other taxes, duties or other governmental charges.
Provided, however, if the Company may eliminate the results described in (i)
through (iii) of such Administrative Action or judicial decision interpreting
or applying such laws or regulations by taking some ministerial action, such
as filing a form or making an election, or pursuing some other similar
reasonable measure which has no adverse effect on the Company, the Trustee,
the Trust or the Holders of the Capital Securities issued by the Trust, such
Administrative Action or judicial decision shall not be deemed a Tax Event.

         "3-Month LIBOR" has the meaning set forth in Section 2.10.

         "Telerate Page 3750" has the meaning set forth in Section 2.10.

         "Trust" shall mean Lakeland Statutory Trust II, a Connecticut
statutory trust, or any other similar trust created for the purpose of issuing
Capital Securities in connection with the issuance of Debentures under this
Indenture, of which the Company is the sponsor.

         "Trust Agreement" means the Amended and Restated Declaration of
Trust, dated October 1, 2003, by and among U.S. Bank National Association, as
Institutional Trustee, Lakeland Financial Corporation, as Sponsor, and the
Administrators named therein, and any amendments or supplements thereto.

         "Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended from time to time, or any successor legislation.

         "Trust Securities" means Common Securities and Capital Securities of
the Trust.

                                      8

         "Trustee" means U.S. Bank National Association, and, subject to the
provisions of Article VI hereof, shall also include its successors and assigns
as Trustee hereunder.

                                  ARTICLE II.
                                  DEBENTURES

         Section 2.1. Authentication and Dating. Upon the execution and
delivery of this Indenture, or from time to time thereafter, Debentures in an
aggregate principal amount not in excess of $30,928,000 may be executed and
delivered by the Company to the Trustee for authentication, and the Trustee
shall thereupon authenticate and make available for delivery said Debentures
to or upon the written order of the Company, signed by its Chairman of the
Board of Directors, Vice Chairman, the Chief Executive Officer, the President,
the Chief Financial Officer, one of its Managing Directors or one of its Vice
Presidents without any further action by the Company hereunder. In
authenticating such Debentures, and accepting the additional responsibilities
under this Indenture in relation to such Debentures, the Trustee shall be
entitled to receive, and (subject to Section 6.1) shall be fully protected in
relying upon:

         (a) a copy of any Board Resolution or Board Resolutions relating
thereto and, if applicable, an appropriate record of any action taken pursuant
to such resolution, in each case certified by the Secretary or an Assistant
Secretary of the Company, as the case may be and

         (b) an Opinion of Counsel prepared in accordance with Section 14.6
which shall also state:

                  (1) that such Debentures, when authenticated and delivered
by the Trustee and issued by the Company in each case in the manner and
subject to any conditions specified in such Opinion of Counsel, will
constitute valid and legally binding obligations of the Company, subject to or
limited by applicable bankruptcy, insolvency, reorganization, conservatorship,
receivership, moratorium and other statutory or decisional laws relating to or
affecting creditors' rights or the reorganization of financial institutions
(including, without limitation, preference and fraudulent conveyance or
transfer laws), heretofore or hereafter enacted or in effect, affecting the
rights of creditors generally; and

                  (2) that all laws and requirements in respect of the
execution and delivery by the Company of the Debentures have been complied
with and that authentication and delivery of the Debentures by the Trustee
will not violate the terms of this Indenture.

         The Trustee shall have the right to decline to authenticate and
deliver any Debentures under this Section if the Trustee, being advised in
writing by counsel, determines that such action may not lawfully be taken or
if a Responsible Officer of the Trustee in good faith shall determine that
such action would expose the Trustee to personal liability to existing
holders.

         The definitive Debentures shall be typed, printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner, all
as determined by the officers executing such Debentures, as evidenced by their
execution of such Debentures.

                                      9

         Section 2.2. Form of Trustee's Certificate of Authentication. The
Trustee's certificate of authentication on all Debentures shall be in
substantially the following form:

         This is one of the Debentures referred to in the within-mentioned
         Indenture.
         U.S. Bank National Association, as Trustee
         By
            --------------------------------------------
            Authorized Signer

         Section 2.3. Form and Denomination of Debentures. The Debentures
shall be substantially in the form of Exhibit A attached hereto. The
Debentures shall be in registered, certificated form without coupons and in
minimum denominations of $500,000.00 and any multiple of $1,000.00 in excess
thereof. Any attempted transfer of the Debentures in a block having an
aggregate principal amount of less than $500,000.00 shall be deemed to be void
and of no legal effect whatsoever. Any such purported transferee shall be
deemed not to be a holder of such Debentures for any purpose, including, but
not limited to the receipt of payments on such Debentures, and such purported
transferee shall be deemed to have no interest whatsoever in such Debentures.
The Debentures shall be numbered, lettered, or otherwise distinguished in such
manner or in accordance with such plans as the officers executing the same may
determine with the approval of the Trustee as evidenced by the execution and
authentication thereof.

         Section 2.4. Execution of Debentures. The Debentures shall be signed
in the name and on behalf of the Company by the manual or facsimile signature
of its Chairman of the Board of Directors, Vice Chairman, Chief Executive
Officer, President, Chief Financial Officer, one of its Managing Directors or
one of its Executive Vice Presidents, Senior Vice Presidents or Vice
Presidents. Only such Debentures as shall bear thereon a certificate of
authentication substantially in the form herein before recited, executed by
the Trustee or the Authenticating Agent by the manual signature of an
authorized signer, shall be entitled to the benefits of this Indenture or be
valid or obligatory for any purpose. Such certificate by the Trustee or the
Authenticating Agent upon any Debenture executed by the Company shall be
conclusive evidence that the Debenture so authenticated has been duly
authenticated and delivered hereunder and that the holder is entitled to the
benefits of this Indenture.

         In case any officer of the Company who shall have signed any of the
Debentures shall cease to be such officer before the Debentures so signed
shall have been authenticated and delivered by the Trustee or the
Authenticating Agent, or disposed of by the Company, such Debentures
nevertheless may be authenticated and delivered or disposed of as though the
Person who signed such Debentures had not ceased to be such officer of the
Company; and any Debenture may be signed on behalf of the Company by such
Persons as, at the actual date of the execution of such Debenture, shall be
the proper officers of the Company, although at the date of the execution of
this Indenture any such person was not such an officer.

         Every Debenture shall be dated the date of its authentication.

         Section 2.5. Exchange and Registration of Transfer of Debentures. The
Company shall cause to be kept, at the office or agency maintained for the
purpose of registration of transfer and for exchange as provided in Section

                                      10

3.2, a register (the "Debenture Register") for the Debentures issued hereunder
in which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration and transfer of all Debentures as
in this Article II provided. The Debenture Register shall be in written form
or in any other form capable of being converted into written form within a
reasonable time.

         Debentures to be exchanged may be surrendered at the Principal Office
of the Trustee or at any office or agency to be maintained by the Company for
such purpose as provided in Section 3.2, and the Company shall execute, the
Company or the Trustee shall register and the Trustee or the Authenticating
Agent shall authenticate and make available for delivery in exchange therefor
the Debenture or Debentures which the Securityholder making the exchange shall
be entitled to receive. Upon due presentment for registration of transfer of
any Debenture at the Principal Office of the Trustee or at any office or
agency of the Company maintained for such purpose as provided in Section 3.2,
the Company shall execute, the Company or the Trustee shall register and the
Trustee or the Authenticating Agent shall authenticate and make available for
delivery in the name of the transferee or transferees a new Debenture for a
like aggregate principal amount. Registration or registration of transfer of
any Debenture by the Trustee or by any agent of the Company appointed pursuant
to Section 3.2, and delivery of such Debenture, shall be deemed to complete
the registration or registration of transfer of such Debenture.

         All Debentures presented for registration of transfer or for exchange
or payment shall (if so required by the Company or the Trustee or the
Authenticating Agent) be duly endorsed by, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company and
the Trustee or the Authenticating Agent duly executed by the holder or his
attorney duly authorized in writing.

         No service charge shall be made for any exchange or registration of
transfer of Debentures, but the Company or the Trustee may require payment of
a sum sufficient to cover any tax, fee or other governmental charge that may
be imposed in connection therewith.

         The Company or the Trustee shall not be required to exchange or
register a transfer of any Debenture for a period of 15 days next preceding
the date of selection of Debentures for redemption.

         Notwithstanding anything herein to the contrary, Debentures may not
be transferred except in compliance with the restricted securities legend set
forth below, unless otherwise determined by the Company, upon the advice of
counsel experienced in securities law, in accordance with applicable law:

         THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

                                      11

THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN
ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION
IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER
THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT
IN ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE
COMPANY.

         THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES,
REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL
RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE")
(EACH A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY
REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING "PLAN
ASSETS" OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST
THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF
AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS
EXEMPTION 96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION
OR ITS PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406
OF ERISA OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING.
ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE
DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i)
IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF
ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR
OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY
OTHER PERSON OR ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN
TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A

                                      12

PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE
FOR WHICH THERE IS NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

         THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS
HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $500,000.00 AND
MULTIPLES OF $1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS
SECURITY IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN
$500,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

         THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE
FOREGOING RESTRICTIONS.

         Section 2.6. Mutilated, Destroyed, Lost or Stolen Debentures. In case
any Debenture shall become mutilated or be destroyed, lost or stolen, the
Company shall execute, and upon its written request the Trustee shall
authenticate and deliver, a new Debenture bearing a number not
contemporaneously outstanding, in exchange and substitution for the mutilated
Debenture, or in lieu of and in substitution for the Debenture so destroyed,
lost or stolen. In every case the applicant for a substituted Debenture shall
furnish to the Company and the Trustee such security or indemnity as may be
required by them to save each of them harmless, and, in every case of
destruction, loss or theft, the applicant shall also furnish to the Company
and the Trustee evidence to their satisfaction of the destruction, loss or
theft of such Debenture and of the ownership thereof.

         The Trustee may authenticate any such substituted Debenture and
deliver the same upon the written request or authorization of any officer of
the Company. Upon the issuance of any substituted Debenture, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
connected therewith. In case any Debenture which has matured or is about to
mature or has been called for redemption in full shall become mutilated or be
destroyed, lost or stolen, the Company may, instead of issuing a substitute
Debenture, pay or authorize the payment of the same (without surrender thereof
except in the case of a mutilated Debenture) if the applicant for such payment
shall furnish to the Company and the Trustee such security or indemnity as may
be required by them to save each of them harmless and, in case of destruction,
loss or theft, evidence satisfactory to the Company and to the Trustee of the
destruction, loss or theft of such Debenture and of the ownership thereof.

         Every substituted Debenture issued pursuant to the provisions of this
Section 2.6 by virtue of the fact that any such Debenture is destroyed, lost
or stolen shall constitute an additional contractual obligation of the
Company, whether or not the destroyed, lost or stolen Debenture shall be found
at any time, and shall be entitled to all the benefits of this Indenture
equally and proportionately with any and all other Debentures duly issued
hereunder. All Debentures shall be held and owned upon the express condition
that, to the extent permitted by applicable law, the foregoing provisions are
exclusive with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Debentures and shall preclude any and all other rights or
remedies notwithstanding any law or statute existing or hereafter enacted to

                                      13

the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.

         Section 2.7. Temporary Debentures. Pending the preparation of
definitive Debentures, the Company may execute and the Trustee shall
authenticate and make available for delivery temporary Debentures that are
typed, printed or lithographed. Temporary Debentures shall be issuable in any
authorized denomination, and substantially in the form of the definitive
Debentures in lieu of which they are issued but with such omissions,
insertions and variations as may be appropriate for temporary Debentures, all
as may be determined by the Company. Every such temporary Debenture shall be
executed by the Company and be authenticated by the Trustee upon the same
conditions and in substantially the same manner, and with the same effect, as
the definitive Debentures. Without unreasonable delay the Company will execute
and deliver to the Trustee or the Authenticating Agent definitive Debentures
and thereupon any or all temporary Debentures may be surrendered in exchange
therefor, at the principal corporate trust office of the Trustee or at any
office or agency maintained by the Company for such purpose as provided in
Section 3.2, and the Trustee or the Authenticating Agent shall authenticate
and make available for delivery in exchange for such temporary Debentures a
like aggregate principal amount of such definitive Debentures. Such exchange
shall be made by the Company at its own expense and without any charge
therefor except that in case of any such exchange involving a registration of
transfer the Company may require payment of a sum sufficient to cover any tax,
fee or other governmental charge that may be imposed in relation thereto.
Until so exchanged, the temporary Debentures shall in all respects be entitled
to the same benefits under this Indenture as definitive Debentures
authenticated and delivered hereunder.

         Section 2.8. Payment of Interest and Additional Interest. Interest at
the Interest Rate and any Additional Interest on any Debenture that is
payable, and is punctually paid or duly provided for, on any Interest Payment
Date for Debentures shall be paid to the Person in whose name said Debenture
(or one or more Predecessor Securities) is registered at the close of business
on the regular record date for such interest installment except that interest
and any Additional Interest payable on the Maturity Date shall be paid to the
Person to whom principal is paid. In the event that any Debenture or portion
thereof is called for redemption and the Redemption Date is subsequent to a
regular record date with respect to any Interest Payment Date and prior to
such Interest Payment Date, interest on such Debenture will be paid upon
presentation and surrender of such Debenture.

         Each Debenture shall bear interest for the period beginning on (and
including) the date of original issuance and ending on (but excluding)
December 31, 2003 at a rate per annum of 4.21%, and shall bear interest for
each successive period beginning on (and including) December 31, 2003, and
each succeeding Interest Payment Date, and ending on (but excluding) the next
succeeding Interest Payment Date (each, a "Distribution Period") at a rate per
annum equal to the 3-Month LIBOR, determined as described in Section 2.10,
plus 3.05% (the "Coupon Rate"), applied to the principal amount thereof, until
the principal thereof becomes due and payable, and on any overdue principal
and to the extent that payment of such interest is enforceable under
applicable law (without duplication) on any overdue installment of interest at
the Interest Rate compounded quarterly. Interest shall be payable (subject to

                                      14

any relevant Extension Period) quarterly in arrears on each Interest Payment
Date with the first installment of interest to be paid on December 31, 2003.

         In the event that the 3-Month LIBOR is indeterminable by the methods
described in Section 2.10, the Coupon Rate shall equal the 3-Month LIBOR in
effect on the most recent Determination Date (whether or not 3-Month LIBOR for
such period was in fact determined on such Determination Date) plus 3.05%.

         Any interest on any Debenture, including Additional Interest, that is
payable, but is not punctually paid or duly provided for, on any Interest
Payment Date (herein called "Defaulted Interest") shall forthwith cease to be
payable to the registered holder on the relevant regular record date by virtue
of having been such holder; and such Defaulted Interest shall be paid by the
Company to the Persons in whose names such Debentures (or their respective
Predecessor Securities) are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be fixed
in the following manner: the Company shall notify the Trustee in writing at
least 25 days prior to the date of the proposed payment of the amount of
Defaulted Interest proposed to be paid on each such Debenture and the date of
the proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid
in respect of such Defaulted Interest or shall make arrangements satisfactory
to the Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided. Thereupon the
Trustee shall fix a special record date for the payment of such Defaulted
Interest which shall not be more than 15 nor less than 10 days prior to the
date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payments. The Trustee shall promptly
notify the Company of such special record date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the special record date therefor to be mailed, first
class postage prepaid, to each Securityholder at its address as it appears in
the Debenture Register, not less than 10 days prior to such special record
date. Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the Persons in whose names such Debentures (or their
respective Predecessor Securities) are registered on such special record date
and shall be no longer payable.

         The Company may make payment of any Defaulted Interest on any
Debentures in any other lawful manner after notice given by the Company to the
Trustee of the proposed payment method, provided, however, the Trustee in its
sole discretion deems such payment method to be practical.

         Any interest scheduled to become payable on an Interest Payment Date
occurring during an Extension Period shall not be Defaulted Interest and shall
be payable on such other date as may be specified in the terms of such
Debentures.

         The term "regular record date" as used in this Section shall mean the
close of business on the 15th day next preceding the applicable Interest
Payment Date.

                                      15

         Subject to the foregoing provisions of this Section, each Debenture
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Debenture shall carry the rights to interest
accrued and unpaid, and to accrue, that were carried by such other Debenture.

         Section 2.9. Cancellation of Debentures Paid, etc. All Debentures
surrendered for the purpose of payment, redemption, exchange or registration
of transfer, shall, if surrendered to the Company or any paying agent, be
surrendered to the Trustee and promptly canceled by it, or, if surrendered to
the Trustee or any Authenticating Agent, shall be promptly canceled by it, and
no Debentures shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Indenture. All Debentures canceled by any
Authenticating Agent shall be delivered to the Trustee. The Trustee shall
destroy all canceled Debentures unless the Company otherwise directs the
Trustee in writing. If the Company shall acquire any of the Debentures,
however, such acquisition shall not operate as a redemption or satisfaction of
the indebtedness represented by such Debentures unless and until the same are
surrendered to the Trustee for cancellation.

         Section 2.10. Computation of Interest Rate. The amount of interest
payable for the Distribution Period commencing on December 31, 2003 and each
succeeding Distribution Period will be calculated by applying the Interest
Rate to the principal amount outstanding at the commencement of the
Distribution Period and multiplying each such amount by the actual number of
days in the Distribution Period concerned divided by 360. In the event that
any date on which interest is payable on the Debentures is not a Business Day,
then payment of interest payable on such date shall be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), with the same force and effect as if
made on the date such payment was originally payable. All percentages
resulting from any calculations on the Debentures will be rounded, if
necessary, to the nearest one hundred-thousandth of a percentage point, with
five one-millionths of a percentage point rounded upward (e.g., 9.876545% or
..09876545 being rounded to 9.87655% or .0987655) and all dollar amounts used
in or resulting from such calculation will be rounded to the nearest cent,
with one-half cent being rounded upward.

         (a) "3-Month LIBOR" means the London interbank offered rate for
three-month, U.S. dollar deposits determined by the Trustee in the following
order of priority:

                  (1) the rate (expressed as a percentage per annum) for U.S.
dollar deposits of an amount equal or comparable to the aggregate liquidation
amount of the Debentures having a three-month maturity that appears on
Telerate Page 3750 as of 11:00 a.m. (London time) on the particular
Determination Date (as defined below). "Telerate Page 3750" means the display
designated as "Page 3750" on the Dow Jones Telerate Service or such other page
as may replace Page 3750 on that service or such other service or services as
may be nominated by the British Bankers' Association as the information vendor
for the purpose of displaying London interbank offered rates for U.S. dollars
deposits;

                  (2) if such rate does not appear on Telerate Page 3750 as of
11:00 a.m. (London time) on the Determination Date, 3-Month LIBOR will be the

                                      16

arithmetic mean of the rates (expressed as percentages per annum) for U.S.
dollar deposits of an amount equal or comparable to the aggregate liquidation
amount of the Debentures having a three-month maturity that appear on Reuters
Monitor Money Rates Page LIBO ("Reuters Page LIBO") as of 11:00 a.m. (London
time) on such Determination Date;

                  (3) if such rate does not appear on Reuters Page LIBO as of
11:00 a.m. (London time) on the related Determination Date, the Trustee will
request the principal London offices of four leading banks in the London
interbank market to provide such banks' offered quotations (expressed as
percentages per annum) to prime banks in the London interbank market for U.S.
dollar deposits of an amount equal or comparable to the aggregate liquidation
amount of the Debentures having a three-month maturity as of 11:00 a.m.
(London time) on such Determination Date. If at least two quotations are
provided, 3-Month LIBOR will be the arithmetic mean of such quotations; and

                  (4) if fewer than two such quotations are provided as
requested in clause (3) above, the Trustee will request four major New York
City banks to provide such banks' offered quotations (expressed as percentages
per annum) to leading European banks for loans in U.S. dollars of an amount
equal or comparable to the aggregate liquidation amount of the Debentures as
of 11:00 a.m. (London time) on such Determination Date. If at least two such
quotations are provided, 3-Month LIBOR will be the arithmetic mean of such
quotations.

         If the rate for U.S. dollar deposits of an amount equal or comparable
to the aggregate liquidation amount of the Debentures having a three-month
maturity that initially appears on Telerate Page 3750 or Reuters Page LIBO, as
the case may be, as of 11:00 a.m. (London time) on the related Determination
Date is superseded on the Telerate page 3750 or Reuters Page LIBO, as the case
may be, by a corrected rate by 12:00 noon (London time) on such Determination
Date, then the corrected rate as so substituted on the applicable page will be
the applicable 3-Month LIBOR for such Determination Date.

                  (5) The Coupon Rate for any Distribution Period will at no
time be higher than the maximum rate then permitted by New York law as the
same may be modified by United States law.

         "Determination Date" means the date that is two London Banking Days
(i.e., a business day in which dealings in deposits in U.S. dollars are
transacted in the London interbank market) preceding the particular
Distribution Period for which a Coupon Rate is being determined.

         (b) The Trustee shall notify the Company, the Institutional Trustee
and any securities exchange or interdealer quotation system on which the
Capital Securities are listed, of the Coupon Rate and the Determination Date
for each Distribution Period, in each case as soon as practicable after the
determination thereof but in no event later than the thirtieth (30th) Business
Day of the relevant Distribution Period. Failure to notify the Company, the
Institutional Trustee or any securities exchange or interdealer quotation
system, or any defect in said notice, shall not affect the obligation of the
Company to make payment on the Debentures at the applicable Coupon Rate. Any
error in the calculation of the Coupon Rate by the Institutional Trustee may
be corrected at any time by notice delivered as above provided. Upon the

                                      17

request of a holder of a Debenture, the Trustee shall provide the Coupon Rate
then in effect and, if determined, the Coupon Rate for the next Distribution
Period.

         (c) Subject to the corrective rights set forth above, all
certificates, communications, opinions, determinations, calculations,
quotations and decisions given, expressed, made or obtained for the purposes
of the provisions relating, to the payment and calculation of interest on the
Debentures and distributions on the Capital Securities by the Trustee or the
Institutional Trustee will (in the absence of willful default, bad faith or
manifest error) be final, conclusive and binding on the Trust, the Company and
all of the holders of the Debentures and the Capital Securities, and no
liability shall (in the absence of willful default, bad faith or manifest
error) attach to the Trustee or the Institutional Trustee in connection with
the exercise or non-exercise by either of them or their respective powers,
duties and discretion.

         Section 2.11. Extension of Interest Payment Period. So long as no
Event of Default has occurred and is continuing, the Company shall have the
right, from time to time, and without causing an Event of Default, to defer
payments of interest on the Debentures by extending the interest payment
period on the Debentures at any time and from time to time during the term of
the Debentures, for up to 20 consecutive quarterly periods (each such extended
interest payment period, an "Extension Period"), during which Extension Period
no interest (including Additional Interest) shall be due and payable. No
Extension Period may end on a date other than an Interest Payment Date. At the
end of any such Extension Period the Company shall pay all interest then
accrued and unpaid on the Debentures (together with Additional Interest
thereon); provided, however, that no Extension Period may extend beyond the
Maturity Date; provided further, however, that during any such Extension
Period, the Company shall not and shall not permit any Affiliate to (i)
declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the Company's
or such Affiliate's capital stock (other than payments of dividends or
distributions to the Company) or make any guarantee payments with respect to
the foregoing or (ii) make any payment of principal or interest or premium, if
any, on or repay, repurchase or redeem any debt securities of the Company or
any Affiliate that rank pari passu in all respects with or junior in interest
to the Debentures (other than, with respect to clauses (i) or (ii) above, (a)
repurchases, redemptions or other acquisitions of shares of capital stock of
the Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of
capital stock of the Company (or securities convertible into or exercisable
for such capital stock) as consideration in an acquisition transaction entered
into prior to the applicable Extension Period, (b) as a result of any exchange
or conversion of any class or series of the Company's capital stock (or any
capital stock of a subsidiary of the Company) for any class or series of the
Company's capital stock or of any class or series of the Company's
indebtedness for any class or series of the Company's capital stock, (c) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholders' rights plan, or the issuance of rights,
stock or other property under any stockholders' rights plan, or the redemption
or repurchase of rights pursuant thereto, (e) any dividend in the form of
stock, warrants, options or other rights where the dividend stock or the stock

                                      18

issuable upon exercise of such warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks pari passu with or
junior to such stock and any cash payments in lieu of fractional shares issued
in connection therewith, or (f) payments under the Capital Securities
Guarantee. Prior to the termination of any Extension Period, the Company may
further extend such period, provided that such period together with all such
previous and further consecutive extensions thereof shall not exceed 20
consecutive quarterly periods, or extend beyond the Maturity Date. Upon the
termination of any Extension Period and upon the payment of all accrued and
unpaid interest and Additional Interest, the Company may commence a new
Extension Period, subject to the foregoing requirements. No interest or
Additional Interest shall be due and payable during an Extension Period,
except at the end thereof, but each installment of interest that would
otherwise have been due and payable during such Extension Period shall bear
Additional Interest to the extent permitted by applicable law. The Company
must give the Trustee notice of its election to begin or extend such Extension
Period at least 5 Business Days prior to the regular record date (as such term
is used in Section 2.8) immediately preceding the Interest Payment Date with
respect to which interest on the Debentures would have been payable except for
the election to begin or extend such Extension Period.

         Section 2.12. CUSIP Numbers. The Company in issuing the Debentures
may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee
shall use CUSIP numbers in notices of redemption as a convenience to
Securityholders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Debentures or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Debentures, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company will promptly notify the Trustee in
writing of any change in the CUSIP numbers.

         Section 2.13.     Global Debentures.

         (a) Upon the election of the holder of Outstanding Debentures, which
election need not be in writing, the Debentures owned by such holder shall be
issued in the form of one or more Global Debentures registered in the name of
the Depositary or its nominee. Each Global Debenture issued under this
Indenture shall be registered in the name of the Depositary designated by the
Company for such Global Debenture or a nominee thereof and delivered to such
Depositary or a nominee thereof or custodian therefor, and each such Global
Debenture shall constitute a single Debenture for all purposes of this
Indenture.

         (b) Notwithstanding any other provision in this Indenture, no Global
Debenture may be exchanged in whole or in part for Debentures registered, and
no transfer of a Global Debenture in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Debenture or
a nominee thereof unless (i) such Depositary advises the Trustee and the
Company in writing that such Depositary is no longer willing or able to
properly discharge its responsibilities as Depositary with respect to such
Global Debenture, and no qualified successor is appointed by the Company
within ninety (90) days of receipt by the Company of such notice, (ii) such
Depositary ceases to be a clearing agency registered under the Exchange Act
and no successor is appointed by the Company within ninety (90) days after
obtaining knowledge of such event, (iii) the Company executes and delivers to
the Trustee a Company Order stating that the Company elects to terminate the

                                      19

book-entry system through the Depositary or (iv) an Event of Default shall
have occurred and be continuing. Upon the occurrence of any event specified in
clause (i), (ii), (iii) or (iv) above, the Trustee shall notify the Depositary
and instruct the Depositary to notify all owners of beneficial interests in
such Global Debenture of the occurrence of such event and of the availability
of Debentures to such owners of beneficial interests requesting the same. Upon
the issuance of such Debentures and the registration in the Debenture Register
of such Debentures in the names of the Holders of the beneficial interests
therein, the Trustee shall recognize such holders of beneficial interests as
Holders.

         (c) If any Global Debenture is to be exchanged for other Debentures
or canceled in part, or if another Debenture is to be exchanged in whole or in
part for a beneficial interest in any Global Debenture, then either (i) such
Global Debenture shall be so surrendered for exchange or cancellation as
provided in this Article II or (ii) the principal amount thereof shall be
reduced or increased by an amount equal to the portion thereof to be so
exchanged or canceled, or equal to the principal amount of such other
Debenture to be so exchanged for a beneficial interest therein, as the case
may be, by means of an appropriate adjustment made on the records of the
Debenture registrar, whereupon the Trustee, in accordance with the Applicable
Depository Procedures, shall instruct the Depositary or its authorized
representative to make a corresponding adjustment to its records. Upon any
such surrender or adjustment of a Global Debenture by the Depositary,
accompanied by registration instructions, the Company shall execute and the
Trustee shall authenticate and deliver any Debentures issuable in exchange for
such Global Debenture (or any portion thereof) in accordance with the
instructions of the Depositary. The Trustee shall not be liable for any delay
in delivery of such instructions and may conclusively rely on, and shall be
fully protected in relying on, such instructions.

         (d) Every Debenture authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Debenture or any
portion thereof shall be authenticated and delivered in the form of, and shall
be, a Global Debenture, unless such Debenture is registered in the name of a
Person other than the Depositary for such Global Debenture or a nominee
thereof.

         (e) Debentures distributed to holders of Book-Entry Capital
Securities (as defined in the Trust Agreement) upon the dissolution of the
Trust shall be distributed in the form of one or more Global Debentures
registered in the name of a Depositary or its nominee, and deposited with the
Debentures registrar, as custodian for such Depositary, or with such
Depositary, for credit by the Depositary to the respective accounts of the
beneficial owners of the Debentures represented thereby (or such other
accounts as they may direct). Debentures distributed to holders of Capital
Securities other than Book-Entry Capital Securities upon the dissolution of
the Trust shall not be issued in the form of a Global Debenture or any other
form intended to facilitate book-entry trading in beneficial interests in such
Debentures.

         (f) The Depositary or its nominee, as the registered owner of a
Global Debenture, shall be the Holder of such Global Debenture for all
purposes under this Indenture and the Debentures, and owners of beneficial
interests in a Global Debenture shall hold such interests pursuant to the
Applicable Depository Procedures. Accordingly, any such owner's beneficial
interest in a Global Debenture shall be shown only on, and the transfer of
such interest shall be effected only through, records maintained by the
Depositary or its nominee or its Depositary Participants. The Debentures

                                      20

registrar and the Trustee shall be entitled to deal with the Depositary for
all purposes of this Indenture relating to a Global Debenture (including the
payment of principal and interest thereon and the giving of instructions or
directions by owners of beneficial interests therein and the giving of
notices) as the sole Holder of the Debenture and shall have no obligations to
the owners of beneficial interests therein. Neither the Trustee nor the
Debentures registrar shall have any liability in respect of any transfers
effected by the Depositary.

         (g) The rights of owners of beneficial interests in a Global
Debenture shall be exercised only through the Depositary and shall be limited
to those established by law and agreements between such owners and the
Depositary and/or its Depositary Participants.

         (h) No holder of any beneficial interest in any Global Debenture held
on its behalf by a Depositary shall have any rights under this Indenture with
respect to such Global Debenture, and such Depositary may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the owner
of such Global Debenture for all purposes whatsoever. None of the Company, the
Trustee nor any agent of the Company or the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of a Global
Debenture or maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or
the Trustee from giving effect to any written certification, proxy or other
authorization furnished by a Depositary or impair, as between a Depositary and
such holders of beneficial interests, the operation of customary practices
governing the exercise of the rights of the Depositary (or its nominee) as
holder of any Debenture.

                                 ARTICLE III.
                      PARTICULAR COVENANTS OF THE COMPANY

         Section 3.1. Payment of Principal, Premium and Interest; Agreed
Treatment of the Debentures.

         (a) The Company covenants and agrees that it will duly and punctually
pay or cause to be paid the principal of and premium, if any, and Interest and
any Additional Interest on the Debentures at the place, at the respective
times and in the manner provided in this Indenture and the Debentures. Each
installment of interest on the Debentures may be paid (i) by mailing checks
for such interest payable to the order of the holder of Debentures entitled
thereto as they appear on the registry books of the Company if a request for a
wire transfer has not been received by the Company or (ii) by wire transfer to
any account with a banking institution located in the United States designated
in writing by such Person to the paying agent no later than the related record
date. Notwithstanding the foregoing, so long as the Institutional Trustee, not
in its individual capacity but solely as Institutional Trustee for Lakeland
Statutory Trust II, is the holder of the Debentures, the payment of the
principal and Interest on the Debentures shall be made by wire transfer of
immediately available funds to the Institutional Trustee, to be received not
later than 1:00 p.m., New York City time, on the Interest Payment Date of such
payment at the Principal Office of the Trustee for distribution to the holders
of the Capital Securities. Notwithstanding any other provision of this

                                      21

Indenture to the contrary, the Institutional Trustee shall not be required to
make, or cause to be made, distributions to the holders of the Capital
Securities, as aforesaid prior to the first Business Day on which it is
practicable for the Institutional Trustee to do so in view of the time of day
when the funds to be so transferred were received by it if such funds were
received after 1:00 p.m., New York City time.

         (b) The Company will treat the Debentures as indebtedness, and the
amounts payable in respect of the principal amount of such Debentures as
interest, for all United States federal income tax purposes. All payments in
respect of such Debentures will be made free and clear of United States
withholding tax to any beneficial owner thereof that has provided an Internal
Revenue Service Form W8 BEN (or any substitute or successor form) establishing
its non-United States status for United States federal income tax purposes.

         (c) As of the date of this Indenture, the Company has no present
intention to exercise its right under Section 2.11 to defer payments of
interest on the Debentures by commencing an Extension Period.

         (d) As of the date of this Indenture, the Company believes that the
likelihood that it would exercise its right under Section 2.11 to defer
payments of interest on the Debentures by commencing an Extension Period at
any time during which the Debentures are outstanding is remote because of the
restrictions that would be imposed on the Company's ability to declare or pay
dividends or distributions on, or to redeem, purchase or make a liquidation
payment with respect to, any of its outstanding equity and on the Company's
ability to make any payments of principal of or interest on, or repurchase or
redeem, any of its debt securities that rank pari passu in all respects with
(or junior in interest to) the Debentures.

         Section 3.2. Offices for Notices and Payments, etc. So long as any of
the Debentures remain outstanding, the Company will maintain in Hartford,
Connecticut, an office or agency where the Debentures may be presented for
payment, an office or agency where the Debentures may be presented for
registration of transfer and for exchange as in this Indenture provided and an
office or agency where notices and demands to or upon the Company in respect
of the Debentures or of this Indenture may be served. The Company will give to
the Trustee written notice of the location of any such office or agency and of
any change of location thereof. Until otherwise designated from time to time
by the Company in a notice to the Trustee, or specified as contemplated by
Section 2.5, such office or agency for all of the above purposes shall be the
office or agency of the Trustee. In case the Company shall fail to maintain
any such office or agency in Hartford, Connecticut, or shall fail to give such
notice of the location or of any change in the location thereof, presentations
and demands may be made and notices may be served at the Principal Office of
the Trustee.

         In addition to any such office or agency, the Company may from time
to time designate one or more offices or agencies outside Hartford,
Connecticut, where the Debentures may be presented for registration of
transfer and for exchange in the manner provided in this Indenture, and, the
Company may from time to time rescind such designation, as the Company may
deem desirable or expedient; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to

                                      22

maintain any such office or agency in Hartford, Connecticut, for the purposes
above mentioned. The Company will give to the Trustee prompt written notice of
any such designation or rescission thereof.

         Section 3.3. Appointments to Fill Vacancies in Trustee's Office. The
Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 6.9, a Trustee, so
that there shall at all times be a Trustee hereunder.

         Section 3.4.      Provision as to Paying Agent.

         (a) If the Company shall appoint a paying agent other than the
Trustee, it will cause such paying agent to execute and deliver to the Trustee
an instrument in which such agent shall agree with the Trustee, subject to the
provision of this Section 3.4;

                  (1) that it will hold all sums held by it as such agent for
the payment of the principal of and premium, if any, or interest, if any, on
the Debentures (whether such sums have been paid to it by the Company or by
any other obligor on the Debentures) in trust for the benefit of the holders
of the Debentures;

                  (2) that it will give the Trustee prompt written notice of
any failure by the Company (or by any other obligor on the Debentures) to make
any payment of the principal of and premium, if any, or interest, if any, on
the Debentures when the same shall be due and payable; and

                  (3) that it will, at any time during the continuance of any
Event of Default, upon the written request of the Trustee, forthwith pay to
the Trustee all sums so held in trust by such paying agent.

         (b) If the Company shall act as its own paying agent, it will, on or
before each due date of the principal of and premium, if any, or interest, if
any, on the Debentures, set aside, segregate and hold in trust for the benefit
of the holders of the Debentures a sum sufficient to pay such principal,
premium or interest so becoming due and will notify the Trustee in writing of
any failure to take such action and of any failure by the Company (or by any
other obligor under the Debentures) to make any payment of the principal of
and premium, if any, or interest, if any, on the Debentures when the same
shall become due and payable.

         Whenever the Company shall have one or more paying agents for the
Debentures, it will, on or prior to each due date of the principal of and
premium, if any, or interest, if any, on the Debentures, deposit with a paying
agent a sum sufficient to pay the principal, premium or interest so becoming
due, such sum to be held in trust for the benefit of the Persons entitled
thereto and (unless such paying agent is the Trustee) the Company shall
promptly notify the Trustee in writing of its action or failure to act.

         (c) Anything in this Section 3.4 to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge with respect to the Debentures, or for any other reason pay, or

                                      23

direct any paying agent to pay to the Trustee all sums held in trust by the
Company or any such paying agent, such sums to be held by the Trustee upon the
trusts herein contained.

         (d) Anything in this Section 3.4 to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section 3.4 is subject to
Sections 12.3 and 12.4.

         Section 3.5. Certificate to Trustee. The Company will deliver to the
Trustee on or before 120 days after the end of each fiscal year, so long as
Debentures are outstanding hereunder, a Certificate stating that in the course
of the performance by the signers of their duties as officers of the Company
they would normally have knowledge of any default during such fiscal year by
the Company in the performance of any covenants contained herein, stating
whether or not they have knowledge of any such default and, if so, specifying
each such default of which the signers have knowledge and the nature and
status thereof. The Trustee shall provide a copy of such Certificate to any
collateral manager for a securitized pool that owns any of the Capital
Securities upon request by or on behalf of such manager.

         Section 3.6. Additional Sums. If and for so long as the Trust is the
holder of all Debentures and the Trust is required to pay any additional
taxes, duties, assessments or other governmental charges as a result of a Tax
Event, the Company will pay such additional amounts ("Additional Sums") on the
Debentures as shall be required so that the net amounts received and retained
by the Trust after paying taxes, duties, assessments or other governmental
charges will be equal to the amounts the Trust would have received if no such
taxes, duties, assessments or other governmental charges had been imposed.
Whenever in this Indenture or the Debentures there is a reference in any
context to the payment of principal of or interest on the Debentures, such
mention shall be deemed to include mention of payments of the Additional Sums
provided for in this paragraph to the extent that, in such context, Additional
Sums are, were or would be payable in respect thereof pursuant to the
provisions of this paragraph and express mention of the payment of Additional
Sums (if applicable) in any provisions hereof shall not be construed as
excluding Additional Sums in those provisions hereof where such express
mention is not made; provided, however, that the deferral of the payment of
interest during an Extension Period pursuant to Section 2.11 shall not defer
the payment of any Additional Sums that may be due and payable.

         Section 3.7. Compliance with Consolidation Provisions. The Company
will not, while any of the Debentures remain outstanding, consolidate with, or
merge into, or merge into itself, or sell or convey all or substantially all
of its property to any other Person unless the provisions of Article XI hereof
are complied with.

         Section 3.8. Limitation on Dividends. If Debentures are initially
issued to the Trust or a trustee of such trust in connection with the issuance
of Trust Securities by the Trust (regardless of whether Debentures continue to
be held by such Trust) and (i) there shall have occurred and be continuing an
Event of Default, (ii) the Company shall be in default with respect to its
payment of any obligations under the Capital Securities Guarantee, or (iii)
the Company shall have given notice of its election to defer payments of
interest on the Debentures by extending the interest payment period as
provided herein and such period, or any extension thereof, shall be
continuing, then the Company shall not, and shall not allow any Affiliate of
the Company to, (x) declare or pay any dividends or distributions on, or

                                      24

redeem, purchase, acquire, or make a liquidation payment with respect to, any
of the Company's capital stock or its Affiliates' capital stock (other than
payments of dividends or distributions to the Company) or make any guarantee
payments with respect to the foregoing or (y) make any payment of principal of
or interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company or any Affiliate that rank pari passu in all
respects with or junior in interest to the Debentures (other than, with
respect to clauses (x) and (y) above, (1) repurchases, redemptions or other
acquisitions of shares of capital stock of the Company in connection with any
employment contract, benefit plan or other similar arrangement with or for the
benefit of one or more employees, officers, directors or consultants, in
connection with a dividend reinvestment or stockholder stock purchase plan or
in connection with the issuance of capital stock of the Company (or securities
convertible into or exercisable for such capital stock) as consideration in an
acquisition transaction entered into prior to the applicable Extension Period,
if any, (2) as a result of any exchange or conversion of any class or series
of the Company's capital stock (or any capital stock of a subsidiary of the
Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (3) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, (4) any
declaration of a dividend in connection with any stockholders' rights plan, or
the issuance of rights, stock or other property under any stockholders' rights
plan, or the redemption or repurchase of rights pursuant thereto, (5) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options
or other rights is the same stock as that on which the dividend is being paid
or ranks pari passu with or junior to such stock and any cash payments in lieu
of fractional shares issued in connection therewith, or (6) payments under the
Capital Securities Guarantee).

         Section 3.9. Covenants as to the Trust. For so long as the Trust
Securities remain outstanding, the Company shall maintain 100% ownership of
the Common Securities; provided, however, that any permitted successor of the
Company under this Indenture may succeed to the Company's ownership of such
Common Securities. The Company, as owner of the Common Securities, shall,
except in connection with a distribution of Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption of all of the Trust
Securities or certain mergers, consolidations or amalgamations, each as
permitted by the Declaration, take all steps necessary for the Company to
cause the Trust (a) to remain a statutory trust, (b) to otherwise continue to
be classified as a grantor trust for United States federal income tax
purposes, and (c) to cause each holder of Trust Securities to be treated as
owning an undivided beneficial interest in the Debentures.

         Section 3.10. Additional Junior Indebtedness. The Company shall not,
and it shall not cause or permit any Affiliate of the Company to, incur, issue
or be obligated on any Additional Junior Indebtedness, either directly or
indirectly, by way of guarantee, suretyship or otherwise, other than: (i)
Additional Junior Indebtedness that, by its terms, is expressly stated to be
either junior and subordinate or pari passu in all respects to the Debentures,
and (ii) Additional Junior Indebtedness of which the Company has notified
(and, if then required under the applicable guidelines of the regulating
entity, has received approval from) the Federal Reserve, if the Company is a
bank holding company, or the OTS, if the Company is a savings and loan holding
company.

                                      25

                                  ARTICLE IV.
                      SECURITYHOLDERS' LISTS AND REPORTS
                        BY THE COMPANY AND THE TRUSTEE

         Section 4.1. Securityholders' Lists. The Company covenants and agrees
that it will furnish or caused to be furnished to the Trustee:

(a) on each regular record date for the Debentures, a list, in such form as
the Trustee may reasonably require, of the names and addresses of the
Securityholders of the Debentures as of such record date; and

         (b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the time
such list is furnished;

except that no such lists need be furnished under this Section 4.1 so long as
the Trustee is in possession thereof by reason of its acting as Debenture
registrar.

         Section 4.2.      Preservation and Disclosure of Lists.

         (a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures (1) contained in the most recent list furnished to it as provided
in Section 4.1 or (2) received by it in the capacity of Debentures registrar
(if so acting) hereunder. The Trustee may destroy any list furnished to it as
provided in Section 4.1 upon receipt of a new list so furnished.

         (b) In case three or more holders of Debentures (hereinafter referred
to as "applicants") apply in writing to the Trustee and furnish to the Trustee
reasonable proof that each such applicant has owned a Debenture for a period
of at least 6 months preceding the date of such application, and such
application states that the applicants desire to communicate with other
holders of Debentures with respect to their rights under this Indenture or
under such Debentures and is accompanied by a copy of the form of proxy or
other communication which such applicants propose to transmit, then the
Trustee shall within 5 Business Days after the receipt of such application, at
its election, either:

                  (1) afford such applicants access to the information
preserved at the time by the Trustee in accordance with the provisions of
subsection (a) of this Section 4.2, or

                  (2) inform such applicants as to the approximate number of
holders of Debentures whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with the provisions of
subsection (a) of this Section 4.2, and as to the approximate cost of mailing
to such Securityholders the form of proxy or other communication, if any,
specified in such application.

                                      26

         If the Trustee shall elect not to afford such applicants access to
such information, the Trustee shall, upon the written request of such
applicants, mail to each Securityholder whose name and address appear in the
information preserved at the time by the Trustee in accordance with the
provisions of subsection (a) of this Section 4.2 a copy of the form of proxy
or other communication which is specified in such request with reasonable
promptness after a tender to the Trustee of the material to be mailed and of
payment, or provision for the payment, of the reasonable expenses of mailing,
unless within five days after such tender, the Trustee shall mail to such
applicants and file with the Securities and Exchange Commission, if permitted
or required by applicable law, together with a copy of the material to be
mailed, a written statement to the effect that, in the opinion of the Trustee,
such mailing would be contrary to the best interests of the holders of all
Debentures, as the case may be, or would be in violation of applicable law.
Such written statement shall specify the basis of such opinion. If said
Commission, as permitted or required by applicable law, after opportunity for
a hearing upon the objections specified in the written statement so filed,
shall enter an order refusing to sustain any of such objections or if, after
the entry of an order sustaining one or more of such objections, said
Commission shall find, after notice and opportunity for hearing, that all the
objections so sustained have been met and shall enter an order so declaring,
the Trustee shall mail copies of such material to all such Securityholders
with reasonable promptness after the entry of such order and the renewal of
such tender; otherwise the Trustee shall be relieved of any obligation or duty
to such applicants respecting their application.

         (c) Each and every holder of Debentures, by receiving and holding the
same, agrees with Company and the Trustee that neither the Company nor the
Trustee nor any paying agent shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the
holders of Debentures in accordance with the provisions of subsection (b) of
this Section 4.2, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of
mailing any material pursuant to a request made under said subsection (b).

                                  ARTICLE V.
                  REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
                           UPON AN EVENT OF DEFAULT

         Section 5.1. Events of Default. "Event of Default" wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):

         (a) the Company defaults in the payment of any interest upon any
Debenture when it becomes due and payable, and fails to cure such default for
a period of 30 days; provided, however, that a valid extension of an interest
payment period by the Company in accordance with the terms of this Indenture
shall not constitute a default in the payment of interest for this purpose; or

                                      27

         (b) the Company defaults in the payment of all or any part of the
principal of (or premium, if any, on) any Debentures as and when the same
shall become due and payable either at maturity, upon redemption, by
declaration of acceleration or otherwise; or

         (c) the Company defaults in the performance of, or breaches, any of
its covenants or agreements in this Indenture or in the terms of the
Debentures established as contemplated in this Indenture (other than a
covenant or agreement a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and continuance of such
default or breach for a period of 60 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the Company
and the Trustee by the holders of at least 25% in aggregate principal amount
of the Outstanding Debentures, a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or

         (d) a court of competent jurisdiction shall enter a decree or order
for relief in respect of the Company in an involuntary case under any
applicable bankruptcy, insolvency, reorganization or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of the Company or for
any substantial part of its property, or ordering the winding-up or
liquidation of its affairs and such decree or order shall remain unstayed and
in effect for a period of 90 consecutive days; or

         (e) the Company shall commence a voluntary case under any applicable
bankruptcy, insolvency, reorganization or other similar law now or hereafter
in effect, shall consent to the entry of an order for relief in an involuntary
case under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Company or of any substantial
part of its property, or shall make any general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due; or

         (f) the Trust shall have voluntarily or involuntarily liquidated,
dissolved, wound-up its business or otherwise terminated its existence except
in connection with (i) the distribution of the Debentures to holders of such
Trust Securities in liquidation of their interests in the Trust, (ii) the
redemption of all of the outstanding Trust Securities or (iii) certain
mergers, consolidations or amalgamations, each as permitted by the
Declaration.

         If an Event of Default occurs and is continuing with respect to the
Debentures, then, and in each and every such case, unless the principal of the
Debentures shall have already become due and payable, either the Trustee or
the holders of not less than 25% in aggregate principal amount of the
Debentures then Outstanding hereunder, by notice in writing to the Company
(and to the Trustee if given by Securityholders), may declare the entire
principal of the Debentures and the interest accrued thereon, if any, to be
due and payable immediately, and upon any such declaration the same shall
become immediately due and payable.

         The foregoing provisions, however, are subject to the condition that
if, at any time after the principal of the Debentures shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided,
the Company shall pay or shall deposit with the Trustee a sum sufficient to

                                      28

pay all matured installments of interest upon all the Debentures and the
principal of and premium, if any, on the Debentures which shall have become
due otherwise than by acceleration (with interest upon such principal and
premium, if any, and Additional Interest) and such amount as shall be
sufficient to cover reasonable compensation to the Trustee and each
predecessor Trustee, their respective agents, attorneys and counsel, and all
other amounts due to the Trustee pursuant to Section 6.6, and if any and all
Events of Default under this Indenture, other than the non-payment of the
principal of or premium, if any, on Debentures which shall have become due by
acceleration, shall have been cured, waived or otherwise remedied as provided
herein -- then and in every such case the holders of a majority in aggregate
principal amount of the Debentures then outstanding, by written notice to the
Company and to the Trustee, may waive all defaults and rescind and annul such
declaration and its consequences, but no such waiver or rescission and
annulment shall extend to or shall affect any subsequent default or shall
impair any right consequent thereon.

         In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such rescission or annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company, the Trustee and the holders of the Debentures shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the Trustee and the holders of the
Debentures shall continue as though no such proceeding had been taken.

         Section 5.2. Payment of Debentures on Default, Suit Therefor. The
Company covenants that upon the occurrence of an Event of Default pursuant to
Section 5.1(a) or Section 5.1(b) then, upon demand of the Trustee, the Company
will pay to the Trustee, for the benefit of the holders of the Debentures the
whole amount that then shall have become due and payable on all Debentures for
principal and premium, if any, or interest, or both, as the case may be, with
Additional Interest accrued on the Debentures (to the extent that payment of
such interest is enforceable under applicable law and, if the Debentures are
held by the Trust or a trustee of such Trust, without duplication of any other
amounts paid by the Trust or a trustee in respect thereof); and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including a reasonable compensation to the Trustee,
its agents, attorneys and counsel, and any other amounts due to the Trustee
under Section 6.6. In case the Company shall fail forthwith to pay such
amounts upon such demand, the Trustee, in its own name and as trustee of an
express trust, shall be entitled and empowered to institute any actions or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Company
or any other obligor on such Debentures and collect in the manner provided by
law out of the property of the Company or any other obligor on such Debentures
wherever situated the moneys adjudged or decreed to be payable.

         In case there shall be pending proceedings for the bankruptcy or for
the reorganization of the Company or any other obligor on the Debentures under
Bankruptcy Law, or in case a receiver or trustee shall have been appointed for
the property of the Company or such other obligor, or in the case of any other
similar judicial proceedings relative to the Company or other obligor upon the
Debentures, or to the creditors or property of the Company or such other
obligor, the Trustee, irrespective of whether the principal of the Debentures

                                      29

shall then be due and payable as therein expressed or by declaration of
acceleration or otherwise and irrespective of whether the Trustee shall have
made any demand pursuant to the provisions of this Section 5.2, shall be
entitled and empowered, by intervention in such proceedings or otherwise,

                           (i) to file and prove a claim or claims for the
                  whole amount of principal and interest owing and unpaid in
                  respect of the Debentures and, in case of any judicial
                  proceedings,

                           (ii) to file such proofs of claim and other papers
                  or documents as may be necessary or advisable in order to
                  have the claims of the Trustee (including any claim for
                  reasonable compensation to the Trustee and each predecessor
                  Trustee, and their respective agents, attorneys and counsel,
                  and for reimbursement of all other amounts due to the
                  Trustee under Section 6.6), and of the Securityholders
                  allowed in such judicial proceedings relative to the Company
                  or any other obligor on the Debentures, or to the creditors
                  or property of the Company or such other obligor, and unless
                  prohibited by applicable law and regulations, to vote on
                  behalf of the holders of the Debentures in any election of a
                  trustee or a standby trustee in arrangement, reorganization,
                  liquidation or other bankruptcy or insolvency proceedings or
                  Person performing similar functions in comparable
                  proceedings,

                           (iii) to collect and receive any moneys or other
                  property payable or deliverable on any such claims, and

                           (iv) to distribute the same after the deduction of
                  its charges and expenses.

         Any receiver, assignee or trustee in bankruptcy or reorganization is
hereby authorized by each of the Securityholders to make such payments to the
Trustee, and, in the event that the Trustee shall consent to the making of
such payments directly to the Securityholders, to pay to the Trustee such
amounts as shall be sufficient to cover reasonable compensation to the
Trustee, each predecessor Trustee and their respective agents, attorneys and
counsel, and all other amounts due to the Trustee under Section 6.6.

         Nothing herein contained shall be construed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting
the Debentures or the rights of any holder thereof or to authorize the Trustee
to vote in respect of the claim of any Securityholder in any such proceeding.

         All rights of action and of asserting claims under this Indenture, or
under any of the Debentures, may be enforced by the Trustee without the
possession of any of the Debentures, or the production thereof at any trial or
other proceeding relative thereto, and any such suit or proceeding instituted
by the Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment shall be for the ratable benefit of the
holders of the Debentures.

         In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the

                                      30

Trustee shall be a party), the Trustee shall be held to represent all the
holders of the Debentures, and it shall not be necessary to make any holders
of the Debentures parties to any such proceedings.

         Section 5.3. Application of Moneys Collected by Trustee. Any moneys
collected by the Trustee pursuant to this Article V shall be applied in the
following order, at the date or dates fixed by the Trustee for the
distribution of such moneys, upon presentation of the several Debentures in
respect of which moneys have been collected, and stamping thereon the payment,
if only partially paid, and upon surrender thereof if fully paid:

         First: To the payment of costs and expenses incurred by, and
reasonable fees of, the Trustee, its agents, attorneys and counsel, and of all
other amounts due to the Trustee under Section 6.6;

         Second:  To the payment of all Senior Indebtedness of the Company if
and to the extent required by Article XV;

         Third: To the payment of the amounts then due and unpaid upon
Debentures for principal (and premium, if any), and interest on the
Debentures, in respect of which or for the benefit of which money has been
collected, ratably, without preference or priority of any kind, according to
the amounts due on such Debentures for principal (and premium, if any) and
interest, respectively; and

         Fourth:  The balance, if any, to the Company.

         Section 5.4. Proceedings by Securityholders. No holder of any
Debenture shall have any right to institute any suit, action or proceeding for
any remedy hereunder, unless such holder previously shall have given to the
Trustee written notice of an Event of Default with respect to the Debentures
and unless the holders of not less than 25% in aggregate principal amount of
the Debentures then Outstanding shall have given the Trustee a written request
to institute such action, suit or proceeding and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred thereby, and the Trustee for 60 days
after its receipt of such notice, request and offer of indemnity shall have
failed to institute any such action, suit or proceeding.

         Notwithstanding any other provisions in this Indenture, however, the
right of any holder of any Debenture to receive payment of the principal of,
premium, if any, and interest, on such Debenture when due, or to institute
suit for the enforcement of any such payment, shall not be impaired or
affected without the consent of such holder and by accepting a Debenture
hereunder it is expressly understood, intended and covenanted by the taker and
holder of every Debenture with every other such taker and holder and the
Trustee, that no one or more holders of Debentures shall have any right in any
manner whatsoever by virtue or by availing itself of any provision of this
Indenture to affect, disturb or prejudice the rights of the holders of any
other Debentures, or to obtain or seek to obtain priority over or preference
to any other such holder, or to enforce any right under this Indenture, except
in the manner herein provided and for the equal, ratable and common benefit of
all holders of Debentures. For the protection and enforcement of the

                                      31

provisions of this Section, each and every Securityholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.

         Section 5.5. Proceedings by Trustee. In case of an Event of Default
hereunder the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any
power granted in this Indenture, or to enforce any other legal or equitable
right vested in the Trustee by this Indenture or by law.

         Section 5.6. Remedies Cumulative and Continuing; Delay or Omission
Not a Waiver. Except as otherwise provided in Section 2.6, all powers and
remedies given by this Article V to the Trustee or to the Securityholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive
of any other powers and remedies available to the Trustee or the holders of
the Debentures, by judicial proceedings or otherwise, to enforce the
performance or observance of the covenants and agreements contained in this
Indenture or otherwise established with respect to the Debentures, and no
delay or omission of the Trustee or of any holder of any of the Debentures to
exercise any right or power accruing upon any Event of Default occurring and
continuing as aforesaid shall impair any such right or power, or shall be
construed to be a waiver of any such default or an acquiescence therein; and,
subject to the provisions of Section 5.4, every power and remedy given by this
Article V or by law to the Trustee or to the Securityholders may be exercised
from time to time, and as often as shall be deemed expedient, by the Trustee
or by the Securityholders.

         No delay or omission of the Trustee or any Securityholder to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to any Securityholder may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee (in accordance with
its duties under Section 6.1 hereof) or by such holder, as the case may be.

         Section 5.7. Direction of Proceedings and Waiver of Defaults by
Majority of Securityholders. The holders of a majority in aggregate principal
amount of the Debentures affected (voting as one class) at the time
outstanding shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee with respect to such
Debentures; provided, however, that (subject to the provisions of Section 6.1)
the Trustee shall have the right to decline to follow any such direction if
the Trustee shall determine that the action so directed would be unjustly
prejudicial to the holders not taking part in such direction or if the Trustee
being advised by counsel determines that the action or proceeding so directed
may not lawfully be taken or if a Responsible Officer of the Trustee shall
determine that the action or proceedings so directed would involve the Trustee
in personal liability.

         The holders of a majority in aggregate principal amount of the
Debentures at the time outstanding may on behalf of the holders of all of the

                                      32

Debentures waive (or modify any previously granted waiver of) any past default
or Event of Default, and its consequences, except a default (a) in the payment
of principal of, premium, if any, or interest on any of the Debentures, (b) in
respect of covenants or provisions hereof which cannot be modified or amended
without the consent of the holder of each Debenture affected, or (c) in
respect of the covenants contained in Section 3.9; provided, however, that if
the Debentures are held by the Trust or a trustee of such trust, such waiver
or modification to such waiver shall not be effective until the holders of a
majority in Liquidation Amount of Trust Securities of the Trust shall have
consented to such waiver or modification to such waiver, provided, further,
that if the consent of the holder of each outstanding Debenture is required,
such waiver shall not be effective until each holder of the Trust Securities
of the Trust shall have consented to such waiver. Upon any such waiver, the
default covered thereby shall be deemed to be cured for all purposes of this
Indenture and the Company, the Trustee and the holders of the Debentures shall
be restored to their former positions and rights hereunder, respectively; but
no such waiver shall extend to any subsequent or other default or Event of
Default or impair any right consequent thereon. Whenever any default or Event
of Default hereunder shall have been waived as permitted by this Section, said
default or Event of Default shall for all purposes of the Debentures and this
Indenture be deemed to have been cured and to be not continuing.

         Section 5.8. Notice of Defaults. The Trustee shall, within 90 days
after the actual knowledge by a Responsible Officer of the Trustee of the
occurrence of a default with respect to the Debentures, mail to all
Securityholders, as the names and addresses of such holders appear upon the
Debenture Register, notice of all defaults with respect to the Debentures
known to the Trustee, unless such defaults shall have been cured before the
giving of such notice (the term "defaults" for the purpose of this Section 5.8
being hereby defined to be the events specified in clauses (a), (b), (c), (d),
(e) and (f) of Section 5.1, not including periods of grace, if any, provided
for therein); provided, however, that, except in the case of default in the
payment of the principal of, premium, if any, or interest on any of the
Debentures, the Trustee shall be protected in withholding such notice if and
so long as a Responsible Officer of the Trustee in good faith determines that
the withholding of such notice is in the interests of the Securityholders.

         Section 5.9. Undertaking to Pay Costs. All parties to this Indenture
agree, and each holder of any Debenture by his acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any
suit for the enforcement of any right or remedy under this Indenture, or in
any suit against the Trustee for any action taken or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the
costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees and expenses, against
any party litigant in such suit, having due regard to the merits and good
faith of the claims or defenses made by such party litigant; provided,
however, that the provisions of this Section 5.9 shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Securityholder, or
group of Securityholders, holding in the aggregate more than 10% in principal
amount of the Debentures outstanding, or to any suit instituted by any
Securityholder for the enforcement of the payment of the principal of (or
premium, if any) or interest on any Debenture against the Company on or after
the same shall have become due and payable.

                                      33

                                  ARTICLE VI.
                            CONCERNING THE TRUSTEE

         Section 6.1. Duties and Responsibilities of Trustee. With respect to
the holders of Debentures issued hereunder, the Trustee, prior to the
occurrence of an Event of Default with respect to the Debentures and after the
curing or waiving of all Events of Default which may have occurred, with
respect to the Debentures, undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants shall be read into this Indenture against the Trustee. In case an
Event of Default with respect to the Debentures has occurred (which has not
been cured or waived), the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.

         No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:

         (a) prior to the occurrence of an Event of Default with respect to
Debentures and after the curing or waiving of all Events of Default which may
have occurred;

                  (1) the duties and obligations of the Trustee with respect
to Debentures shall be determined solely by the express provisions of this
Indenture, and the Trustee shall not be liable except for the performance of
such duties and obligations with respect to the Debentures as are specifically
set forth in this Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and

                  (2) in the absence of bad faith on the part of the Trustee,
the Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates or
opinions furnished to the Trustee and conforming to the requirements of this
Indenture; but, in the case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Indenture;

         (b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Officers of the Trustee, unless it
shall be proved that the Trustee was negligent in ascertaining the pertinent
facts; and

         (c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith, in accordance with the direction
of the Securityholders pursuant to Section 5.7, relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee, under
this Indenture.

         None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of

                                      34

its rights or powers, if there is ground for believing that the repayment of
such funds or liability is not assured to it under the terms of this Indenture
or indemnity satisfactory to the Trustee against such risk is not reasonably
assured to it.

         The Trustee shall provide the Company with written notice of the
Interest Rate for each Distribution Period no later than the thirtieth (30th)
Business Day of the relevant Distribution Period.

         Section 6.2. Reliance on Documents, Opinions, etc. Except as otherwise
provided in Section 6.1:

         (a) the Trustee may conclusively rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, note,
debenture or other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;

         (b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by an Officers' Certificate (unless
other evidence in respect thereof be herein specifically prescribed), and any
Board Resolution may be evidenced to the Trustee by a copy thereof certified
by the Secretary or an Assistant Secretary of the Company;

         (c) the Trustee may consult with counsel of its selection and any
advice or Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with such advice or Opinion of Counsel;

         (d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders, pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby;

(e) the Trustee shall not be liable for any action taken or omitted by it in
good faith and believed by it to be authorized or within the discretion or
rights or powers conferred upon it by this Indenture; nothing contained herein
shall, however, relieve the Trustee of the obligation, upon the occurrence of
an Event of Default with respect to the Debentures (that has not been cured or
waived) to exercise with respect to Debentures such of the rights and powers
vested in it by this Indenture, and to use the same degree of care and skill
in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;

(f) the Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond, debenture, coupon or
other paper or document, unless requested in writing to do so by the holders
of not less than a majority in aggregate principal amount of the outstanding
Debentures affected thereby, provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses or liabilities likely to
be incurred by it in the making of such investigation is, in the opinion of

                                      35

the Trustee, not reasonably assured to the Trustee by the security afforded to
it by the terms of this Indenture, the Trustee may require reasonable
indemnity against such expense or liability as a condition to so proceeding;

         (g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents
(including any Authenticating Agent) or attorneys, and the Trustee shall not
be responsible for any misconduct or negligence on the part of any such agent
or attorney appointed by it with due care; and

         (h) with the exceptions of defaults under Sections 5.1(a) or 5.1(b),
the Trustee shall not be charged with knowledge of any Default or Event of
Default with respect to the Debentures unless a written notice of such Default
or Event of Default shall have been given to the Trustee by the Company or any
other obligor on the Debentures or by any holder of the Debentures.

         Section 6.3. No Responsibility for Recitals, etc. The recitals
contained herein and in the Debentures (except in the certificate of
authentication of the Trustee or the Authenticating Agent) shall be taken as
the statements of the Company, and the Trustee and the Authenticating Agent
assume no responsibility for the correctness of the same. The Trustee and the
Authenticating Agent make no representations as to the validity or sufficiency
of this Indenture or of the Debentures. The Trustee and the Authenticating
Agent shall not be accountable for the use or application by the Company of
any Debentures or the proceeds of any Debentures authenticated and delivered
by the Trustee or the Authenticating Agent in conformity with the provisions
of this Indenture.

         Section 6.4. Trustee, Authenticating Agent, Paying Agents, Transfer
Agents or Registrar May Own Debentures. The Trustee or any Authenticating
Agent or any paying agent or any transfer agent or any Debenture registrar, in
its individual or any other capacity, may become the owner or pledgee of
Debentures with the same rights it would have if it were not Trustee,
Authenticating Agent, paying agent, transfer agent or Debenture registrar.

         Section 6.5. Moneys to be Held in Trust. Subject to the provisions of
Section 12.4, all moneys received by the Trustee or any paying agent shall,
until used or applied as herein provided, be held in trust for the purpose for
which they were received, but need not be segregated from other funds except
to the extent required by law. The Trustee and any paying agent shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company. So long as no Event of Default
shall have occurred and be continuing, all interest allowed on any such moneys
shall be paid from time to time upon the written order of the Company, signed
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, the Chief Financial Officer, a Managing Director, a Vice President,
the Treasurer or an Assistant Treasurer of the Company.

         Section 6.6. Compensation and Expenses of Trustee. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, such compensation as shall be agreed to in writing
between the Company and the Trustee (which shall not be limited by any
provision of law in regard to the compensation of a trustee of an express
trust), and the Company will pay or reimburse the Trustee upon its request for
all reasonable expenses, disbursements and advances incurred or made by the

                                      36

Trustee in accordance with any of the provisions of this Indenture (including
the reasonable compensation and the expenses and disbursements of its counsel
and of all Persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or willful
misconduct. The Company also covenants to indemnify each of the Trustee or any
predecessor Trustee (and its officers, agents, directors and employees) for,
and to hold it harmless against, any and all loss, damage, claim, liability or
expense including taxes (other than taxes based on the income of the Trustee)
incurred without negligence or willful misconduct on the part of the Trustee
and arising out of or in connection with the acceptance or administration of
this trust, including the costs and expenses of defending itself against any
claim of liability. The obligations of the Company under this Section 6.6 to
compensate and indemnify the Trustee and to pay or reimburse the Trustee for
expenses, disbursements and advances shall constitute additional indebtedness
hereunder. Such additional indebtedness shall be secured by a lien prior to
that of the Debentures upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the benefit of the holders of
particular Debentures.

         Without prejudice to any other rights available to the Trustee under
applicable law, when the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Sections 5.1(d), 5.1(e) or
5.1(f), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable federal or state bankruptcy,
insolvency or other similar law.

         The provisions of this Section shall survive the resignation or
removal of the Trustee and the defeasance or other termination of this
Indenture.

         Notwithstanding anything in this Indenture or any Debenture to the
contrary, the Trustee shall have no obligation whatsoever to advance funds to
pay any principal of or interest on or other amounts with respect to the
Debentures or otherwise advance funds to or on behalf of the Company.

         Section 6.7. Officers' Certificate as Evidence. Except as otherwise
provided in Sections 6.1 and 6.2, whenever in the administration of the
provisions of this Indenture the Trustee shall deem it necessary or desirable
that a matter be proved or established prior to taking or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or willful
misconduct on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to the Trustee, and such
certificate, in the absence of negligence or willful misconduct on the part of
the Trustee, shall be full warrant to the Trustee for any action taken or
omitted by it under the provisions of this Indenture upon the faith thereof.

         Section 6.8. Eligibility of Trustee. The Trustee hereunder shall at
all times be a corporation organized and doing business under the laws of the
United States of America or any state or territory thereof or of the District
of Columbia or a corporation or other Person authorized under such laws to
exercise corporate trust powers, having (or whose obligations under this
Indenture are guaranteed by an affiliate having) a combined capital and
surplus of at least 50 million U.S. dollars ($50,000,000.00) and subject to
supervision or examination by federal, state, territorial, or District of

                                      37

Columbia authority. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section 6.8
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent records of
condition so published.

         The Company may not, nor may any Person directly or indirectly
controlling, controlled by, or under common control with the Company, serve as
Trustee.

         In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 6.8, the Trustee shall resign
immediately in the manner and with the effect specified in Section 6.9. If the
Trustee has or shall acquire any "conflicting interest" within the meaning of
Section 310(b) of the Trust Indenture Act, the Trustee shall either eliminate
such interest or resign, to the extent and in the manner described by this
Indenture.

         Section 6.9.      Resignation or Removal of Trustee.

         (a) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign by giving written notice of such resignation to the Company
and by mailing notice thereof, at the Company's expense, to the holders of the
Debentures at their addresses as they shall appear on the Debenture Register.
Upon receiving such notice of resignation, the Company shall promptly appoint
a successor trustee or trustees by written instrument, in duplicate, executed
by order of its Board of Directors, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor Trustee. If
no successor Trustee shall have been so appointed and have accepted
appointment within 30 days after the mailing of such notice of resignation to
the affected Securityholders, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee, or any
Securityholder who has been a bona fide holder of a Debenture or Debentures
for at least six months may, subject to the provisions of Section 5.9, on
behalf of himself and all others similarly situated, petition any such court
for the appointment of a successor Trustee. Such court may thereupon, after
such notice, if any, as it may deem proper and prescribe, appoint a successor
Trustee.

         (b) In case at any time any of the following shall occur --

                  (1) the Trustee shall fail to comply with the provisions of
Section 6.8 after written request therefor by the Company or by any
Securityholder who has been a bona fide holder of a Debenture or Debentures
for at least 6 months, or

                  (2) the Trustee shall cease to be eligible in accordance
with the provisions of Section 6.8 and shall fail to resign after written
request therefor by the Company or by any such Securityholder, or

                  (3) the Trustee shall become incapable of acting, or shall
be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,

                                      38

         -- then, in any such case, the Company may remove the Trustee and
appoint a successor Trustee by written instrument, in duplicate, executed by
order of the Board of Directors, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor Trustee, or,
subject to the provisions of Section 5.9, any Securityholder who has been a
bona fide holder of a Debenture or Debentures for at least 6 months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee. Such court may thereupon, after such notice, if any, as it
may deem proper and prescribe, remove the Trustee and appoint successor
Trustee.

(c) Upon prior written notice to the Company and the Trustee, the holders of a
majority in aggregate principal amount of the Debentures at the time
outstanding may at any time remove the Trustee and nominate a successor
Trustee, which shall be deemed appointed as successor Trustee unless within
ten (10) Business Days after such nomination the Company objects thereto, in
which case, or in the case of a failure by such holders to nominate a
successor Trustee, the Trustee so removed or any Securityholder, upon the
terms and conditions and otherwise as in subsection (a) of this Section 6.9
provided, may petition any court of competent jurisdiction for an appointment
of a successor.

         (d) Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall
become effective upon acceptance of appointment by the successor Trustee as
provided in Section 6.10.

         Section 6.10. Acceptance by Successor Trustee. Any successor Trustee
appointed as provided in Section 6.9 shall execute, acknowledge and deliver to
the Company and to its predecessor Trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations with respect to the Debentures of its
predecessor hereunder, with like effect as if originally named as Trustee
herein; but, nevertheless, on the written request of the Company or of the
successor Trustee, the Trustee ceasing to act shall, upon payment of any
amounts then due it pursuant to the provisions of Section 6.6, execute and
deliver an instrument transferring to such successor Trustee all the rights
and powers of the Trustee so ceasing to act and shall duly assign, transfer
and deliver to such successor Trustee all property and money held by such
retiring Trustee thereunder. Upon request of any such successor Trustee, the
Company shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor Trustee all such rights
and powers. Any Trustee ceasing to act shall, nevertheless, retain a lien upon
all property or funds held or collected by such Trustee to secure any amounts
then due it pursuant to the provisions of Section 6.6.

         If a successor Trustee is appointed, the Company, the retiring
Trustee and the successor Trustee shall execute and deliver an indenture
supplemental hereto which shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and
duties of the retiring Trustee with respect to the Debentures as to which the
predecessor Trustee is not retiring shall continue to be vested in the
predecessor Trustee, and shall add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the Trust hereunder by more than one Trustee, it being

                                      39

understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be Trustee of a trust or trusts hereunder separate and apart
from any trust or trusts hereunder administered by any other such Trustee.

         No successor Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Trustee shall be
eligible under the provisions of Section 6.8.

         In no event shall a retiring Trustee be liable for the acts or
omissions of any successor Trustee hereunder.

         Upon acceptance of appointment by a successor Trustee as provided in
this Section 6.10, the Company shall mail notice of the succession of such
Trustee hereunder to the holders of Debentures at their addresses as they
shall appear on the Debenture Register. If the Company fails to mail such
notice within 10 Business Days after the acceptance of appointment by the
successor Trustee, the successor Trustee shall cause such notice to be mailed
at the expense of the Company.

         Section 6.11. Succession by Merger, etc. Any corporation into which
the Trustee may be merged or converted or with which it may be consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Trustee shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto; provided
such corporation shall be otherwise eligible and qualified under this Article.

         In case at the time such successor to the Trustee shall succeed to
the trusts created by this Indenture any of the Debentures shall have been
authenticated but not delivered, any such successor to the Trustee may adopt
the certificate of authentication of any predecessor Trustee, and deliver such
Debentures so authenticated; and in case at that time any of the Debentures
shall not have been authenticated, any successor to the Trustee may
authenticate such Debentures either in the name of any predecessor hereunder
or in the name of the successor Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Debentures
or in this Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication
of any predecessor Trustee or authenticate Debentures in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.

         Section 6.12. Authenticating Agents. There may be one or more
Authenticating Agents appointed by the Trustee upon the request of the Company
with power to act on its behalf and subject to its direction in the
authentication and delivery of Debentures issued upon exchange or registration
of transfer thereof as fully to all intents and purposes as though any such
Authenticating Agent had been expressly authorized to authenticate and deliver
Debentures; provided, however, that the Trustee shall have no liability to the
Company for any acts or omissions of the Authenticating Agent with respect to
the authentication and delivery of Debentures. Any such Authenticating Agent
shall at all times be a corporation organized and doing business under the
laws of the United States or of any state or territory thereof or of the

                                      40

District of Columbia authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of at least $50,000,000.00 and
being subject to supervision or examination by federal, state, territorial or
District of Columbia authority. If such corporation publishes reports of
condition at least annually pursuant to law or the requirements of such
authority, then for the purposes of this Section 6.12 the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If
at any time an Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect herein specified in this Section.

         Any corporation into which any Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, consolidation or conversion to which any Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate trust business of any Authenticating Agent, shall be the
successor of such Authenticating Agent hereunder if such successor corporation
is otherwise eligible under this Section 6.12 without the execution or filing
of any paper or any further act on the part of the parties hereto or such
Authenticating Agent.

         Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at
any time terminate the agency of any Authenticating Agent with respect to the
Debentures by giving written notice of termination to such Authenticating
Agent and to the Company. Upon receiving such a notice of resignation or upon
such a termination, or in case at any time any Authenticating Agent shall
cease to be eligible under this Section 6.12, the Trustee may, and upon the
request of the Company shall, promptly appoint a successor Authenticating
Agent eligible under this Section 6.12, shall give written notice of such
appointment to the Company and shall mail notice of such appointment to all
holders of Debentures as the names and addresses of such holders appear on the
Debenture Register. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all rights, powers, duties and
responsibilities with respect to the Debentures of its predecessor hereunder,
with like effect as if originally named as Authenticating Agent herein.

         The Company agrees to pay to any Authenticating Agent from time to
time reasonable compensation for its services. Any Authenticating Agent shall
have no responsibility or liability for any action taken by it as such in
accordance with the directions of the Trustee.

                                 ARTICLE VII.
                        CONCERNING THE SECURITYHOLDERS

         Section 7.1. Action by Securityholders. Whenever in this Indenture it
is provided that the holders of a specified percentage in aggregate principal
amount of the Debentures may take any action (including the making of any
demand or request, the giving of any notice, consent or waiver or the taking
of any other action) the fact that at the time of taking any such action the
holders of such specified percentage have joined therein may be evidenced (a)
by any instrument or any number of instruments of similar tenor executed by
such Securityholders in person or by agent or proxy appointed in writing, or
(b) by the record of such holders of Debentures voting in favor thereof at any

                                      41

meeting of such Securityholders duly called and held in accordance with the
provisions of Article VIII, or (c) by a combination of such instrument or
instruments and any such record of such a meeting of such Securityholders or
(d) by any other method the Trustee deems satisfactory.

         If the Company shall solicit from the Securityholders any request,
demand, authorization, direction, notice, consent, waiver or other action or
revocation of the same, the Company may, at its option, as evidenced by an
Officers' Certificate, fix in advance a record date for such Debentures for
the determination of Securityholders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other action or
revocation of the same, but the Company shall have no obligation to do so. If
such a record date is fixed, such request, demand, authorization, direction,
notice, consent, waiver or other action or revocation of the same may be given
before or after the record date, but only the Securityholders of record at the
close of business on the record date shall be deemed to be Securityholders for
the purposes of determining whether Securityholders of the requisite
proportion of outstanding Debentures have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or
other action or revocation of the same, and for that purpose the outstanding
Debentures shall be computed as of the record date; provided, however, that no
such authorization, agreement or consent by such Securityholders on the record
date shall be deemed effective unless it shall become effective pursuant to
the provisions of this Indenture not later than six (6) months after the
record date.

         Section 7.2. Proof of Execution by Securityholders. Subject to the
provisions of Section 6.1, 6.2 and 8.5, proof of the execution of any
instrument by a Securityholder or his agent or proxy shall be sufficient if
made in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee. The ownership of Debentures shall be proved by the Debenture Register
or by a certificate of the Debenture registrar. The Trustee may require such
additional proof of any matter referred to in this Section as it shall deem
necessary.

         The record of any Securityholders' meeting shall be proved in the
manner provided in Section 8.6.

         Section 7.3. Who Are Deemed Absolute Owners. Prior to due presentment
for registration of transfer of any Debenture, the Company, the Trustee, any
Authenticating Agent, any paying agent, any transfer agent and any Debenture
registrar may deem the Person in whose name such Debenture shall be registered
upon the Debenture Register to be, and may treat him as, the absolute owner of
such Debenture (whether or not such Debenture shall be overdue) for the
purpose of receiving payment of or on account of the principal of, premium, if
any, and interest on such Debenture and for all other purposes; and neither
the Company nor the Trustee nor any Authenticating Agent nor any paying agent
nor any transfer agent nor any Debenture registrar shall be affected by any
notice to the contrary. All such payments so made to any holder for the time
being or upon his order shall be valid, and, to the extent of the sum or sums
so paid, effectual to satisfy and discharge the liability for moneys payable
upon any such Debenture.

         Section 7.4. Debentures Not Outstanding. In determining whether the
holders of the requisite aggregate principal amount of Debentures have
concurred in any direction, consent or waiver under this Indenture, Debentures

                                      42

which are owned by the Company or any other obligor on the Debentures or by
any Person directly or indirectly controlling or controlled by or under direct
or indirect common control with the Company or any other obligor on the
Debentures shall be disregarded and deemed not to be outstanding for the
purpose of any such determination; provided, however, that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, consent or waiver, only Debentures which a Responsible Officer of
the Trustee actually knows are so owned shall be so disregarded. Debentures so
owned which have been pledged in good faith may be regarded as outstanding for
the purposes of this Section 7.4 if the pledgee shall establish to the
satisfaction of the Trustee the pledgee's right to vote such Debentures and
that the pledgee is not the Company or any such other obligor or Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company or any such other obligor. In the
case of a dispute as to such right, any decision by the Trustee taken upon the
advice of counsel shall be full protection to the Trustee.

         Section 7.5. Revocation of Consents; Future Holders Bound. At any
time prior to (but not after) the evidencing to the Trustee, as provided in
Section 7.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Debentures specified in this Indenture in
connection with such action, any holder (in cases where no record date has
been set pursuant to Section 7. 1) or any holder as of an applicable record
date (in cases where a record date has been set pursuant to Section 7.1) of a
Debenture (or any Debenture issued in whole or in part in exchange or
substitution therefor) the serial number of which is shown by the evidence to
be included in the Debentures the holders of which have consented to such
action may, by filing written notice with the Trustee at the Principal Office
of the Trustee and upon proof of holding as provided in Section 7.2, revoke
such action so far as concerns such Debenture (or so far as concerns the
principal amount represented by any exchanged or substituted Debenture).
Except as aforesaid any such action taken by the holder of any Debenture shall
be conclusive and binding upon such holder and upon all future holders and
owners of such Debenture, and of any Debenture issued in exchange or
substitution therefor or on registration of transfer thereof, irrespective of
whether or not any notation in regard thereto is made upon such Debenture or
any Debenture issued in exchange or substitution therefor.

                                 ARTICLE VIII.
                           SECURITYHOLDERS' MEETINGS

         Section 8.1. Purposes of  Meetings. A meeting of Securityholders may
be called at any time and from time to
time pursuant to the provisions of this Article VIII for any of the following
purposes:

         (a) to give any notice to the Company or to the Trustee, or to give
any directions to the Trustee, or to consent to the waiving of any default
hereunder and its consequences, or to take any other action authorized to be
taken by Securityholders pursuant to any of the provisions of Article V;

         (b) to remove the Trustee and nominate a successor trustee pursuant
to the provisions of Article VI;

                                      43

         (c) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 9.2; or

         (d) to take any other action authorized to be taken by or on behalf of
the holders of any specified aggregate principal amount of such Debentures
under any other provision of this Indenture or under applicable law.

         Section 8.2. Call of Meetings by Trustee. The Trustee may at any time
call a meeting of Securityholders to take any action specified in Section 8.1,
to be held at such time and at such place as the Trustee shall determine.
Notice of every meeting of the Securityholders, setting forth the time and the
place of such meeting and in general terms the action proposed to be taken at
such meeting, shall be mailed to holders of Debentures affected at their
addresses as they shall appear on the Debentures Register and, if the Company
is not a holder of Debentures, to the Company. Such notice shall be mailed not
less than 20 nor more than 180 days prior to the date fixed for the meeting.

         Section 8.3. Call of Meetings by Company or Securityholders. In case
at any time the Company pursuant to a Board Resolution, or the holders of at
least 10% in aggregate principal amount of the Debentures, as the case may be,
then outstanding, shall have requested the Trustee to call a meeting of
Securityholders, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting, and the Trustee shall not have
mailed the notice of such meeting within 20 days after receipt of such
request, then the Company or such Securityholders may determine the time and
the place for such meeting and may call such meeting to take any action
authorized in Section 8.1, by mailing notice thereof as provided in Section
8.2.

         Section 8.4. Qualifications for Voting. To be entitled to vote at any
meeting of Securityholders a Person shall (a) be a holder of one or more
Debentures with respect to which the meeting is being held or (b) a Person
appointed by an instrument in writing as proxy by a holder of one or more such
Debentures. The only Persons who shall be entitled to be present or to speak
at any meeting of Securityholders shall be the Persons entitled to vote at
such meeting and their counsel and any representatives of the Trustee and its
counsel and any representatives of the Company and its counsel.

         Section 8.5. Regulations. Notwithstanding any other provisions of
this Indenture, the Trustee may make such reasonable regulations as it may
deem advisable for any meeting of Securityholders, in regard to proof of the
holding of Debentures and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination
of proxies, certificates and other evidence of the right to vote, and such
other matters concerning the conduct of the meeting as it shall think fit.

         The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by the
Company or by Securityholders as provided in Section 8.3, in which case the
Company or the Securityholders calling the meeting, as the case may be, shall
in like manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by majority vote of the
meeting.

                                      44

         Subject to the provisions of Section 7.4, at any meeting each holder
of Debentures with respect to which such meeting is being held or proxy
therefor shall be entitled to one vote for each $1,000.00 principal amount of
Debentures held or represented by him; provided, however, that no vote shall
be cast or counted at any meeting in respect of any Debenture challenged as
not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other
than by virtue of Debentures held by him or instruments in writing as
aforesaid duly designating him as the Person to vote on behalf of other
Securityholders. Any meeting of Securityholders duly called pursuant to the
provisions of Section 8.2 or 8.3 may be adjourned from time to time by a
majority of those present, whether or not constituting a quorum, and the
meeting may be held as so adjourned without further notice.

         Section 8.6. Voting. The vote upon any resolution submitted to any
meeting of holders of Debentures with respect to which such meeting is being
held shall be by written ballots on which shall be subscribed the signatures
of such holders or of their representatives by proxy and the serial number or
numbers of the Debentures held or represented by them. The permanent chairman
of the meeting shall appoint two inspectors of votes who shall count all votes
cast at the meeting for or against any resolution and who shall make and file
with the secretary of the meeting their verified written reports in triplicate
of all votes cast at the meeting. A record in duplicate of the proceedings of
each meeting of Securityholders shall be prepared by the secretary of the
meeting and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one
or more Persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 8.2. The record shall show the serial numbers of the Debentures voting
in favor of or against any resolution. The record shall be signed and verified
by the affidavits of the permanent chairman and secretary of the meeting and
one of the duplicates shall be delivered to the Company and the other to the
Trustee to be preserved by the Trustee, the latter to have attached thereto
the ballots voted at the meeting.

         Any record so signed and verified shall be conclusive evidence of the
matters therein stated.

         Section 8.7. Quorum; Actions. The Persons entitled to vote a majority
in principal amount of the Debentures then outstanding shall constitute a
quorum for a meeting of Securityholders; provided, however, that if any action
is to be taken at such meeting with respect to a consent, waiver, request,
demand, notice, authorization, direction or other action which may be given by
the holders of not less than a specified percentage in principal amount of the
Debentures then outstanding, the Persons holding or representing such
specified percentage in principal amount of the Debentures then outstanding
will constitute a quorum. In the absence of a quorum within 30 minutes of the
time appointed for any such meeting, the meeting shall, if convened at the
request of Securityholders, be dissolved. In any other case the meeting may be
adjourned for a period of not less than 10 days as determined by the permanent
chairman of the meeting prior to the adjournment of such meeting. In the
absence of a quorum at any such adjourned meeting, such adjourned meeting may
be further adjourned for a period of not less than 10 days as determined by
the permanent chairman of the meeting prior to the adjournment of such
adjourned meeting. Notice of the reconvening of any adjourned meeting shall be
given as provided in Section 8.2, except that such notice need be given only

                                      45

once not less than 5 days prior to the date on which the meeting is scheduled
to be reconvened. Notice of the reconvening of an adjourned meeting shall
state expressly the percentage, as provided above, of the principal amount of
the Debentures then outstanding which shall constitute a quorum.

         Except as limited by the provisos in the first paragraph of Section
9.2, any resolution presented to a meeting or adjourned meeting duly
reconvened at which a quorum is present as aforesaid may be adopted by the
affirmative vote of the holders of a majority in principal amount of the
Debentures then outstanding; provided, however, that, except as limited by the
provisos in the first paragraph of Section 9.2, any resolution with respect to
any consent, waiver, request, demand, notice, authorization, direction or
other action which this Indenture expressly provides may be given by the
holders of not less than a specified percentage in principal amount of the
Debentures then outstanding may be adopted at a meeting or an adjourned
meeting duly reconvened and at which a quorum is present as aforesaid only by
the affirmative vote of the holders of a not less than such specified
percentage in principal amount of the Debentures then outstanding.

         Any resolution passed or decision taken at any meeting of holders of
Debentures duly held in accordance with this Section shall be binding on all
the Securityholders, whether or not present or represented at the meeting.

                                  ARTICLE IX.
                            SUPPLEMENTAL INDENTURES

         Section 9.1. Supplemental Indentures without Consent of
Securityholders. The Company, when authorized by a Board Resolution, and the
Trustee may from time to time and at any time enter into an indenture or
indentures supplemental hereto, without the consent of the Securityholders,
for one or more of the following purposes:

         (a) to evidence the succession of another Person to the Company, or
successive successions, and the assumption by the successor Person of the
covenants, agreements and obligations of the Company, pursuant to Article XI
hereof;

         (b) to add to the covenants of the Company such further covenants,
restrictions or conditions for the protection of the holders of Debentures as
the Board of Directors shall consider to be for the protection of the holders
of such Debentures, and to make the occurrence, or the occurrence and
continuance, of a default in any of such additional covenants, restrictions or
conditions a default or an Event of Default permitting the enforcement of all
or any of the remedies provided in this Indenture as herein set forth;
provided, however, that in respect of any such additional covenant restriction
or condition such supplemental indenture may provide for a particular period
of grace after default (which period may be shorter or longer than that
allowed in the case of other defaults) or may provide for an immediate
enforcement upon such default or may limit the remedies available to the
Trustee upon such default;

         (c) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions

                                      46

arising under this Indenture; provided that any such action shall not
materially adversely affect the interests of the holders of the Debentures;

         (d) to add to, delete from, or revise the terms of Debentures,
including, without limitation, any terms relating to the issuance, exchange,
registration or transfer of Debentures, including to provide for transfer
procedures and restrictions substantially similar to those applicable to the
Capital Securities as required by Section 2.5 (for purposes of assuring that
no registration of Debentures is required under the Securities Act); provided
however, that any such action shall not adversely affect the interests of the
holders of the Debentures then outstanding (it being understood, for purposes
of this proviso, that transfer restrictions on Debentures substantially
similar to those that were applicable to Capital Securities shall not be
deemed to materially adversely affect the holders of the Debentures);

         (e) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Debentures and to add to
or change any of the provisions of this Indenture as shall be necessary to
provide for or facilitate the administration of the trusts hereunder by more
than one Trustee;

         (f) to make any change (other than as elsewhere provided in this
paragraph) that does not adversely affect the rights of any Securityholder in
any material respect; or

         (g) to provide for the issuance of and establish the form and terms
and conditions of the Debentures, to establish the form of any certifications
required to be furnished pursuant to the terms of this Indenture or the
Debentures, or to add to the rights of the holders of Debentures.

         The Trustee is hereby authorized to join with the Company in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer and assignment of any property thereunder, but the
Trustee shall not be obligated to, but may in its discretion, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

         Any supplemental indenture authorized by the provisions of this
Section 9.1 may be executed by the Company and the Trustee without the consent
of the holders of any of the Debentures at the time outstanding,
notwithstanding any of the provisions of Section 9.2.

         Section 9.2. Supplemental Indentures with Consent of Securityholders.
With the consent (evidenced as provided in Section 7.1) of the holders of not
less than a majority in aggregate principal amount of the Debentures at the
time outstanding affected by such supplemental indenture (voting as a class),
the Company, when authorized by a Board Resolution, and the Trustee may from
time to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or of modifying in any manner the rights of the holders
of the Debentures; provided, however, that no such supplemental indenture
shall without the consent of the holders of each Debenture then outstanding
and affected thereby (i) change the fixed maturity of any Debenture, or reduce

                                      47

the principal amount thereof or any premium thereon, or reduce the rate or
extend the time of payment of interest thereon, or reduce any amount payable
on redemption thereof or make the principal thereof or any interest or premium
thereon payable in any coin or currency other than that provided in the
Debentures, or impair or affect the right of any Securityholder to institute
suit for payment thereof or impair the right of repayment, if any, at the
option of the holder, or (ii) reduce the aforesaid percentage of Debentures
the holders of which are required to consent to any such supplemental
indenture; provided further, however, that if the Debentures are held by a
trust or a trustee of such trust, such supplemental indenture shall not be
effective until the holders of a majority in Liquidation Amount of Trust
Securities shall have consented to such supplemental indenture; provided
further, however, that if the consent of the Securityholder of each
outstanding Debenture is required, such supplemental indenture shall not be
effective until each holder of the Trust Securities shall have consented to
such supplemental indenture.

         Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of Securityholders as
aforesaid, the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise,
in which case the Trustee may in its discretion, but shall not be obligated
to, enter into such supplemental indenture.

         Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall transmit by mail, first class postage prepaid, a notice, prepared by the
Company, setting forth in general terms the substance of such supplemental
indenture, to the Securityholders as their names and addresses appear upon the
Debenture Register. Any failure of the Trustee to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity
of any such supplemental indenture.

         It shall not be necessary for the consent of the Securityholders
under this Section 9.2 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall
approve the substance thereof.

         Section 9.3. Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture pursuant to the provisions of this Article IX, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations,
duties and immunities under this Indenture of the Trustee, the Company and the
holders of Debentures shall thereafter be determined, exercised and enforced
hereunder subject in all respects to such modifications and amendments and all
the terms and conditions of any such supplemental indenture shall be and be
deemed to be part of the terms and conditions of this Indenture for any and
all purposes.

         Section 9.4. Notation on Debentures. Debentures authenticated and
delivered after the execution of any supplemental indenture pursuant to the
provisions of this Article IX may bear a notation as to any matter provided
for in such supplemental indenture. If the Company or the Trustee shall so
determine, new Debentures so modified as to conform, in the opinion of the
Board of Directors of the Company, to any modification of this Indenture
contained in any such supplemental indenture may be prepared and executed by

                                      48

the Company, authenticated by the Trustee or the Authenticating Agent and
delivered in exchange for the Debentures then outstanding.

         Section 9.5. Evidence of Compliance of Supplemental Indenture to be
Furnished to Trustee. The Trustee, subject to the provisions of Sections 6.1
and 6.2, shall, in addition to the documents required by Section 14.6, receive
an Officers' Certificate and an Opinion of Counsel as conclusive evidence that
any supplemental indenture executed pursuant hereto complies with the
requirements of this Article IX. The Trustee shall receive an Opinion of
Counsel as conclusive evidence that any supplemental indenture executed
pursuant to this Article IX is authorized or permitted by, and conforms to,
the terms of this Article IX and that it is proper for the Trustee under the
provisions of this Article IX to join in the execution thereof

                                  ARTICLE X.
                           REDEMPTION OF SECURITIES

         Section 10.1. Optional Redemption. The Company shall have the right
(subject to the receipt by the Company of prior approval (i) if the Company is
a bank holding company, from the Federal Reserve, if then required under
applicable capital guidelines or policies of the Federal Reserve or (ii) if
the Company is a savings and loan holding company, from the OTS if then
required under applicable capital guidelines or policies of the OTS), to
redeem the Debentures, in whole or in part, but in all cases in a principal
amount with integral multiples of $1,000.00, on any Interest Payment Date on
or after October 1, 2008, at the Redemption Price.

         Section 10.2. Special Event Redemption. If a Special Event shall
occur and be continuing, the Company shall have the right (subject to the
receipt by the Company of prior approval (i) if the Company is a bank holding
company, from the Federal Reserve if then required under applicable capital
guidelines or policies of the Federal Reserve or (ii) if the Company is a
savings and loan holding company, from the OTS if then required under
applicable capital guidelines or policies of the OTS) to redeem the Debentures
in whole, but not in part, at any Interest Payment Date, within 120 days
following the occurrence of such Special Event at the Redemption Price.

         Section 10.3. Notice of Redemption; Selection of Debentures. In case
the Company shall desire to exercise the right to redeem all, or, as the case
may be, any part of the Debentures, it shall cause to be mailed a notice of
such redemption at least 30 and not more than 60 days prior to the Redemption
Date to the holders of Debentures so to be redeemed as a whole or in part at
their last addresses as the same appear on the Debenture Register. Such
mailing shall be by first class mail. The notice if mailed in the manner
herein provided shall be conclusively presumed to have been duly given,
whether or not the holder receives such notice. In any case, failure to give
such notice by mail or any defect in the notice to the holder of any Debenture
designated for redemption as a whole or in part shall not affect the validity
of the proceedings for the redemption of any other Debenture.

         Each such notice of redemption shall specify the CUSIP number, if
any, of the Debentures to be redeemed, the Redemption Date, the Redemption
Price at which Debentures are to be redeemed, the place or places of payment,

                                      49

that payment will be made upon presentation and surrender of such Debentures,
that interest accrued to the date fixed for redemption will be paid as
specified in said notice, and that on and after said date interest thereon or
on the portions thereof to be redeemed will cease to accrue. In the event that
any date on which the Redemption Price is payable is not a Business Day, then
payment of the Redemption Price payable on such date shall be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), with the same force and effect as if
made on the date such payment was originally payable. If less than all the
Debentures are to be redeemed, the notice of redemption shall specify the
number of the Debentures to be redeemed. In case the Debentures are to be
redeemed in part only, the notice of redemption shall state the portion of the
principal amount thereof to be redeemed and shall state that on and after the
date fixed for redemption, upon surrender of such Debenture, a new Debenture
or Debentures in principal amount equal to the unredeemed portion thereof will
be issued.

         Prior to 10:00 a.m. New York City time on the Redemption Date, the
Company will deposit with the Trustee or with one or more paying agents an
amount of money sufficient to redeem on the Redemption Date all the Debentures
so called for redemption at the appropriate Redemption Price, together with
accrued interest to the Redemption Date.

         If all, or less than all, the Debentures are to be redeemed, the
Company will give the Trustee notice not less than 45 nor more than 60 days,
respectively, prior to the Redemption Date, as to the aggregate principal
amount of Debentures to be redeemed and the Trustee shall select, in such
manner as in its sole discretion it shall deem appropriate and fair, the
Debentures or portions thereof (in integral multiples of $1,000.00) to be
redeemed.

         Section 10.4. Payment of Debentures Called for Redemption. If notice
of redemption has been given as provided in Section 10.3, the Debentures or
portions of Debentures with respect to which such notice has been given shall
become due and payable on the Redemption Date and at the place or places
stated in such notice at the applicable Redemption Price, together with
interest accrued to the Redemption Date, and on and after said date (unless
the Company shall default in the payment of such Debentures at the Redemption
Price, together with interest accrued to said date) interest on the Debentures
or portions of Debentures so called for redemption shall cease to accrue. On
presentation and surrender of such Debentures at a place of payment specified
in said notice, such Debentures or the specified portions thereof shall be
paid and redeemed by the Company at the applicable Redemption Price, together
with interest accrued thereon to the Redemption Date.

         Upon presentation of any Debenture redeemed in part only, the Company
shall execute and the Trustee shall authenticate and make available for
delivery to the holder thereof, at the expense of the Company, a new Debenture
or Debentures of authorized denominations, in principal amount equal to the
unredeemed portion of the Debenture so presented.

                                      50

                                  ARTICLE XI.
               CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

         Section 11.1. Company May Consolidate, etc., on Certain Terms. Nothing
contained in this Indenture or in the Debentures shall prevent any
consolidation or merger of the Company with or into any other Person (whether
or not affiliated with the Company) or successive consolidations or mergers in
which the Company or its successor or successors shall be a party or parties,
or shall prevent any sale, conveyance, transfer or other disposition of the
property or capital stock of the Company or its successor or successors as an
entirety, or substantially as an entirety, to any other Person (whether or not
affiliated with the Company, or its successor or successors) authorized to
acquire and operate the same; provided, however, that the Company hereby
covenants and agrees that, upon any such consolidation, merger (where the
Company is not the surviving corporation), sale, conveyance, transfer or other
disposition, the due and punctual payment of the principal of (and premium, if
any) and interest on all of the Debentures in accordance with their terms,
according to their tenor, and the due and punctual performance and observance
of all the covenants and conditions of this Indenture to be kept or performed
by the Company, shall be expressly assumed by supplemental indenture
satisfactory in form to the Trustee executed and delivered to the Trustee by
the entity formed by such consolidation, or into which the Company shall have
merged, or by the entity which shall have acquired such property.

         Section 11.2. Successor Entity to be Substituted. In case of any such
consolidation, merger, sale, conveyance, transfer or other disposition by the
successor entity, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, of the due and punctual
payment of the principal of and premium if any, and interest on all of the
Debentures and the due and punctual performance and observance of all of the
covenants and conditions of this Indenture to be performed or observed by the
Company, such successor entity shall succeed to and be substituted for the
Company, with the same effect as if it had been named herein as the Company,
and thereupon the predecessor entity shall be relieved of any further
liability or obligation hereunder or upon the Debentures. Such successor
entity thereupon may cause to be signed, and may issue in its own name, any or
all of the Debentures issuable hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee or the Authenticating
Agent; and, upon the order of such successor entity instead of the Company and
subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee or the Authenticating Agent shall authenticate and
deliver any Debentures which previously shall have been signed and delivered
by the officers of the Company, to the Trustee or the Authenticating Agent for
authentication, and any Debentures which such successor entity thereafter
shall cause to be signed and delivered to the Trustee or the Authenticating
Agent for that purpose. All the Debentures so issued shall in all respects
have the same legal rank and benefit under this Indenture as the Debentures
theretofore or thereafter issued in accordance with the terms of this
Indenture as though all of such Debentures had been issued at the date of the
execution hereof.

         Section 11.3. Opinion of Counsel to be Given to Trustee. The Trustee,
subject to the provisions of Sections 6.1 and 6.2, shall receive, in addition
to the Opinion of Counsel required by Section 9.5, an Opinion of Counsel as
conclusive evidence that any consolidation, merger, sale, conveyance, transfer
or other disposition, and any assumption, permitted or required by the terms
of this Article XI complies with the provisions of this Article XI.

                                      51

                                 ARTICLE XII.
                    SATISFACTION AND DISCHARGE OF INDENTURE

         Section 12.1. Discharge of Indenture. When

         (a) the Company shall deliver to the Trustee for cancellation all
Debentures theretofore authenticated (other than any Debentures which shall
have been destroyed, lost or stolen and which shall have been replaced or paid
as provided in Section 2.6) and not theretofore canceled, or

         (b) all the Debentures not theretofore canceled or delivered to the
Trustee for cancellation shall have become due and payable, or are by their
terms to become due and payable within 1 year or are to be called for
redemption within one (1) year under arrangements satisfactory to the Trustee
for the giving of notice of redemption, and the Company shall deposit with the
Trustee, in trust, funds, which shall be immediately due and payable,
sufficient to pay at maturity or upon redemption all of the Debentures (other
than any Debentures which shall have been destroyed, lost or stolen and which
shall have been replaced or paid as provided in Section 2.6) not theretofore
canceled or delivered to the Trustee for cancellation, including principal and
premium, if any, and interest due or to become due to such date of maturity or
redemption date, as the case may be, but excluding, however, the amount of any
moneys for the payment of principal of, and premium, if any, or interest on
the Debentures (1) theretofore repaid to the Company in accordance with the
provisions of Section 12.4, or (2) paid to any state or to the District of
Columbia pursuant to its unclaimed property or similar laws, and if in the
case of either clause (a) or clause (b) the Company shall also pay or cause to
be paid all other sums payable hereunder by the Company, then this Indenture
shall cease to be of further effect except for the provisions of Sections 2.5,
2.6, 2.8, 3.1, 3.2, 3.4, 6.6, 6.8, 6.9 and 12.4 hereof shall survive until
such Debentures shall mature and be paid. Thereafter, Sections 6.6 and 12.4
shall and the Trustee, on demand of the Company accompanied by an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with, and at the cost and expense of the
Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture. The Company agrees to reimburse the Trustee for
any costs or expenses thereafter reasonably and properly incurred by the
Trustee in connection with this Indenture or the Debentures.

         Section 12.2. Deposited Moneys to be Held in Trust by Trustee.
Subject to the provisions of Section 12.4, all moneys deposited with the
Trustee pursuant to Section 12.1 shall be held in trust in a non-interest
bearing account and applied by it to the payment, either directly or through
any paying agent (including the Company if acting as its own paying agent), to
the holders of the particular Debentures for the payment of which such moneys
have been deposited with the Trustee, of all sums due and to become due
thereon for principal, and premium, if any, and interest.

         Section 12.3. Paying Agent to Repay Moneys Held. Upon the
satisfaction and discharge of this Indenture all moneys then held by any
paying agent of the Debentures (other than the Trustee) shall, upon demand of
the Company, be repaid to it or paid to the Trustee, and thereupon such paying
agent shall be released from all further liability with respect to such
moneys.

                                      52

         Section 12.4. Return of Unclaimed Moneys. Any moneys deposited with
or paid to the Trustee or any paying agent for payment of the principal of,
and premium, if any, or interest on Debentures and not applied but remaining
unclaimed by the holders of Debentures for two (2) years after the date upon
which the principal of, and premium, if any, or interest on such Debentures,
as the case may be, shall have become due and payable, shall, subject to
applicable escheatment laws, be repaid to the Company by the Trustee or such
paying agent on written demand; and the holder of any of the Debentures shall
thereafter look only to the Company for any payment which such holder may be
entitled to collect, and all liability of the Trustee or such paying agent
with respect to such moneys shall thereupon cease.

                                 ARTICLE XIII.
                   IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
                            OFFICERS AND DIRECTORS

         Section 13.1. Indenture and Debentures Solely Corporate Obligations.
No recourse for the payment of the principal of or premium, if any, or
interest on any Debenture, or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant or
agreement of the Company in this Indenture or in any supplemental indenture,
or in any such Debenture, or because of the creation of any indebtedness
represented thereby, shall be had against any incorporator, stockholder,
employee, officer or director, as such, past, present or future, of the
Company or of any successor Person of the Company, either directly or through
the Company or any successor Person of the Company, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment
or penalty or otherwise, it being expressly understood that all such liability
is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the
Debentures.

                                 ARTICLE XIV.
                           MISCELLANEOUS PROVISIONS

         Section 14.1. Successors. All the covenants, stipulations, promises
and  agreements of the Company in this Indenture shall bind its successors and
assigns whether so expressed or not.

         Section 14.2. Official Acts by Successor Entity. Any act or
proceeding by any provision of this Indenture authorized or required to be
done or performed by any board, committee or officer of the Company shall and
may be done and performed with like force and effect by the like board,
committee, officer or other authorized Person of any entity that shall at the
time be the lawful successor of the Company.

         Section 14.3. Surrender of Company Powers. The Company by instrument
in writing executed by authority of at least 2/3 (two-thirds) of its Board of
Directors and delivered to the Trustee may surrender any of the powers
reserved to the Company and thereupon such power so surrendered shall
terminate both as to the Company, and as to any permitted successor.

                                      53

         Section 14.4. Addresses for Notices, etc. Any notice, consent,
direction, request, authorization, waiver or demand which by any provision of
this Indenture is required or permitted to be given, made, furnished or served
by the Trustee or by the Securityholders on or to the Company may be given or
served in writing by being deposited postage prepaid by registered or
certified mail in a post office letter box addressed (until another address is
filed by the Company, with the Trustee for the purpose) to the Company, 202 E.
Center Street, Warsaw, Indiana 46580 Attention: David M. Findlay. Any notice,
consent, direction, request, authorization, waiver or demand by any
Securityholder or the Company to or upon the Trustee shall be deemed to have
been sufficiently given or made, for all purposes, if given or made in writing
at the office of the Trustee, addressed to the Trustee, 225 Asylum Street,
Goodwin Square, Hartford, Connecticut, 06103 Attention: Vice President,
Corporate Trust Department, with a copy to U.S. Bank National Association,
P.O. Box 778, Boston, Massachusetts 02102-0778, Attention: Earl W. Dennison,
Jr., Corporate Trust Department. Any notice, consent, direction, request,
authorization, waiver or demand on or to any Securityholder shall be deemed to
have been sufficiently given or made, for all purposes, if given or made in
writing at the address set forth in the Debenture Register.

         Section 14.5. Governing Law. This Indenture and each Debenture shall
be deemed to be a contract made under the law of the State of New York, and
for all purposes shall be governed by and construed in accordance with the law
of said State, without regard to conflict of laws principles thereof.

         Section 14.6. Evidence of Compliance with Conditions Precedent. Upon
any application or demand by the Company to the Trustee to take any action
under any of the provisions of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that in the opinion of the
signers all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.

         Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or
covenant provided for in this Indenture shall include (1) a statement that the
person making such certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; (3) a statement that, in the opinion of such
person, he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and (4) a statement as to whether or not
in the opinion of such person, such condition or covenant has been complied
with.

         Section 14.7. Non-Business Days. In any case where the date of
payment of interest on or principal of the Debentures will be a day that is
not a Business Day, the payment of such interest on or principal of the
Debentures need not be made on such date but may be made on the next
succeeding Business Day with the same force and effect as if made on the
original date of payment, and no interest shall accrue for the period from and
after such date.

                                      54

         Section 14.8. Table of Contents, Headings, etc. The table of contents
and the titles and headings of the articles and sections of this Indenture
have been inserted for convenience of reference only, are not to be considered
a part hereof, and shall in no way modify or restrict any of the terms or
provisions hereof.

         Section 14.9. Execution in Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall be an original,
but such counterparts shall together constitute but one and the same
instrument.

         Section 14.10. Separability. In case any one or more of the
provisions contained in this Indenture or in the Debentures shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provisions of this Indenture or of such Debentures, but this Indenture and
such Debentures shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or therein.

         Section 14.11. Assignment. The Company will have the right at all
times to assign any of its rights or obligations under this Indenture to a
direct or indirect wholly owned Subsidiary of the Company, provided that, in
the event of any such assignment, the Company will remain liable for all such
obligations. Subject to the foregoing, this Indenture is binding upon and
inures to the benefit of the parties hereto and their respective successors
and assigns. This Indenture may not otherwise be assigned by the parties
hereto.

         Section 14.12. Acknowledgment of Rights. The Company agrees that,
with respect to any Debentures held by the Trust or the Institutional Trustee
of the Trust, if the Institutional Trustee of the Trust fails to enforce its
rights under this Indenture as the holder of Debentures held as the assets of
such Trust after the holders of a majority in Liquidation Amount of the
Capital Securities of such Trust have so directed such Institutional Trustee,
a holder of record of such Capital Securities may, to the fullest extent
permitted by law, institute legal proceedings directly against the Company to
enforce such Institutional Trustee's rights under this Indenture without first
instituting any legal proceedings against such trustee or any other Person.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest (or premium, if any) or principal on the Debentures on the date such
interest (or premium, if any) or principal is otherwise payable (or in the
case of redemption, on the redemption date), the Company agrees that a holder
of record of Capital Securities of the Trust may directly institute a
proceeding against the Company for enforcement of payment to such holder
directly of the principal of (or premium, if any) or interest on the
Debentures having an aggregate principal amount equal to the aggregate
Liquidation Amount of the Capital Securities of such holder on or after the
respective due date specified in the Debentures.

                                  ARTICLE XV.
                          SUBORDINATION OF DEBENTURES

         Section 15.1. Agreement to Subordinate. The Company covenants and
agrees, and each holder of Debentures by such Securityholder's acceptance
thereof likewise covenants and agrees, that all Debentures shall be issued

                                      55

subject to the provisions of this Article XV; and each holder of a Debenture
whether upon original issue or upon transfer or assignment thereof, accepts
and agrees to be bound by such provisions.

         The payment by the Company of the principal of, and premium, if any,
and interest on all Debentures shall, to the extent and in the manner
hereinafter set forth, be subordinated and junior in right of payment to the
prior payment in full of all Senior Indebtedness of the Company, whether
outstanding at the date of this Indenture or thereafter incurred.

         No provision of this Article XV shall prevent the occurrence of any
default or Event of Default hereunder.

         Section 15.2. Default on Senior Indebtedness. In the event and during
the continuation of any default by the Company in the payment of principal,
premium, interest or any other payment due on any Senior Indebtedness of the
Company following any grace period, or in the event that the maturity of any
Senior Indebtedness of the Company has been accelerated because of a default,
then, in either case, no payment shall be made by the Company with respect to
the principal (including redemption) of, or premium, if any, or interest on
the Debentures.

         In the event that, notwithstanding the foregoing, any payment shall
be received by the Trustee when such payment is prohibited by the preceding
paragraph of this Section 15.2, such payment shall, subject to Section 15.7,
be held in trust for the benefit of, and shall be paid over or delivered to,
the holders of Senior Indebtedness or their respective representatives, or to
the trustee or trustees under any indenture pursuant to which any of such
Senior Indebtedness may have been issued, as their respective interests may
appear, but only to the extent that the holders of the Senior Indebtedness (or
their representative or representatives or a trustee) notify the Trustee in
writing within 90 days of such payment of the amounts then due and owing on
the Senior Indebtedness and only the amounts specified in such notice to the
Trustee shall be paid to the holders of Senior Indebtedness.

         Section 15.3 Liquidation, Dissolution, Bankruptcy. Upon any payment
by the Company or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution, winding-up or liquidation or reorganization of the Company,
whether voluntary or involuntary or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due upon all Senior Indebtedness of the Company
shall first be paid in full, or payment thereof provided for in money in
accordance with its terms, before any payment is made by the Company, on
account of the principal (and premium, if any) or interest on the Debentures.
Upon any such dissolution or winding-up or liquidation or reorganization, any
payment by the Company, or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, which the
Securityholders or the Trustee would be entitled to receive from the Company,
except for the provisions of this Article XV, shall be paid by the Company, or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
Person making such payment or distribution, or by the Securityholders or by
the Trustee under this Indenture if received by them or it, directly to the
holders of Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders, as calculated
by the Company) or their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing
such Senior Indebtedness may have been issued, as their respective interests

                                      56

may appear, to the extent necessary to pay such Senior Indebtedness in full,
in money or money's worth, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness, before any
payment or distribution is made to the Securityholders or to the Trustee.

         In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, prohibited by the foregoing, shall be received
by the Trustee before all Senior Indebtedness is paid in full, or provision is
made for such payment in money in accordance with its terms, such payment or
distribution shall be held in trust for the benefit of and shall be paid over
or delivered to the holders of such Senior Indebtedness or their
representative or representatives, or the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior
Indebtedness may have been issued. as their respective interests may appear,
as calculated by the Company, for application to the payment of all Senior
Indebtedness, remaining unpaid to the extent necessary to pay such Senior
Indebtedness in full in money in accordance with its terms, after giving
effect to any concurrent payment or distribution to or for the benefit of the
holders of such Senior Indebtedness.

         For purposes of this Article XV, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated at least to the extent provided in this
Article XV with respect to the Debentures to the payment of all Senior
Indebtedness, that may at the time be outstanding, provided that (i) such
Senior Indebtedness is assumed by the new corporation, if any, resulting from
any such reorganization or readjustment, and (ii) the rights of the holders of
such Senior Indebtedness are not, without the consent of such holders, altered
by such reorganization or readjustment. The consolidation of the Company with,
or the merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its
property as an entirety, or substantially as an entirety, to another
corporation upon the terms and conditions provided for in Article XI of this
Indenture shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section if such other corporation
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions stated in Article XI of this Indenture. Nothing in Section
15.2 or in this Section shall apply to claims of, or payments to, the Trustee
under or pursuant to Section 6.6 of this Indenture.

         Section 15.4. Subrogation. Subject to the payment in full of all
Senior Indebtedness, the Securityholders shall be subrogated to the rights of
the holders of such Senior Indebtedness to receive payments or distributions
of cash, property or securities of the Company, applicable to such Senior
Indebtedness until the principal of (and premium, if any) and interest on the
Debentures shall be paid in full. For the purposes of such subrogation, no
payments or distributions to the holders of such Senior Indebtedness of any
cash, property or securities to which the Securityholders or the Trustee would
be entitled except for the provisions of this Article XV, and no payment over
pursuant to the provisions of this Article XV to or for the benefit of the
holders of such Senior Indebtedness by Securityholders or the Trustee, shall,
as between the Company, its creditors other than holders of Senior

                                      57

Indebtedness of the Company, and the holders of the Debentures be deemed to be
a payment or distribution by the Company to or on account of such Senior
Indebtedness. It is understood that the provisions of this Article XV are and
are intended solely for the purposes of defining the relative rights of the
holders of the Securities, on the one hand, and the holders of such Senior
Indebtedness, on the other hand.

         Nothing contained in this Article XV or elsewhere in this Indenture
or in the Debentures is intended to or shall impair, as between the Company,
its creditors other than the holders of Senior Indebtedness, and the holders
of the Debentures, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Debentures the principal of (and
premium, if any) and interest on the Debentures as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the holders of the Debentures and
creditors of the Company, other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or the holder of any
Debenture from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article XV of the holders of such Senior Indebtedness in respect of cash,
property or securities of the Company, received upon the exercise of any such
remedy.

         Upon any payment or distribution of assets of the Company referred to
in this Article XV, the Trustee, subject to the provisions of Article VI of
this Indenture, and the Securityholders shall be entitled to conclusively rely
upon any order, or decree made by any court of competent jurisdiction in which
such dissolution, winding-up, liquidation or reorganization proceedings are
pending, or a certificate of the receiver, trustee in bankruptcy, liquidation
trustee, agent or other Person making such payment or distribution, delivered
to the Trustee or to the Securityholders, for the purposes of ascertaining the
Persons entitled to participate in such distribution, the holders of Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article XV.

         Section 15.5. Trustee to Effectuate Subordination. Each
Securityholder by such Securityholder's acceptance thereof authorizes and
directs the Trustee on such Securityholder's behalf to take such action as may
be necessary or appropriate to effectuate the subordination provided in this
Article XV and appoints the Trustee such Securityholder's attorney-in-fact for
any and all such purposes.

         Section 15.6. Notice by the Company. The Company shall give prompt
written notice to a Responsible Officer of the Trustee at the Principal Office
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the Debentures
pursuant to the provisions of this Article XV. Notwithstanding the provisions
of this Article XV or any other provision of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts that would prohibit
the making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XV, unless and until a
Responsible Officer of the Trustee at the Principal Office of the Trustee shall
have received written notice thereof from the Company or a holder or holders of
Senior Indebtedness or from any trustee therefor; and before the receipt of any
such written notice, the Trustee, subject to the provisions of Article VI of

                                      58

this Indenture, shall be entitled in all respects to assume that no such facts
exist; provided, however, that if the Trustee shall not have received the
notice provided for in this Section at least two (2) Business Days prior to the
date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of the principal of (or
premium, if any) or interest on any Debenture), then, anything herein contained
to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the purposes for which
they were received, and shall not be affected by any notice to the contrary
that may be received by it within two (2) Business Days prior to such date.

         The Trustee, subject to the provisions of Article VI of this
Indenture, shall be entitled to conclusively rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior
Indebtedness (or a trustee or representative on behalf of such holder), to
establish that such notice has been given by a holder of such Senior
Indebtedness or a trustee or representative on behalf of any such holder or
holders. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as a holder of
such Senior Indebtedness to participate in any payment or distribution
pursuant to this Article XV, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
such Senior Indebtedness held by such Person, the extent to which such Person
is entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article XV, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.

         Section 15.7. Rights of the Trustee; Holders of Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all the rights set
forth in this Article XV in respect of any Senior Indebtedness at any time
held by it, to the same extent as any other holder of Senior Indebtedness, and
nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.

        With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article XV, and no implied covenants or
obligations with respect to the holders of such Senior Indebtedness shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed
to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Article VI of this Indenture, the Trustee shall
not be liable to any holder of such Senior Indebtedness if it shall pay over
or deliver to Securityholders, the Company or any other Person money or assets
to which any holder of such Senior Indebtedness shall be entitled by virtue of
this Article XV or otherwise.

        Nothing in this Article XV shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 6.6.

        Section 15.8. Subordination May Not Be Impaired. No right of any
present or future holder of any Senior Indebtedness to enforce subordination
as herein provided shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of the Company, or by any act or failure

                                      59

to act, in good faith, by any such holder, or by any noncompliance by the
Company, with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof that any such holder may have or otherwise
be charged with.

        Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the Securityholders,
without incurring responsibility to the Securityholders and without impairing
or releasing the subordination provided in this Article XV or the obligations
hereunder of the holders of the Debentures to the holders of such Senior
Indebtedness, do any one or more of the following: (i) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
such Senior Indebtedness, or otherwise amend or supplement in any manner such
Senior Indebtedness or any instrument evidencing the same or any agreement
under which such Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing such Senior Indebtedness; (iii) release any Person liable in any
manner for the collection of such Senior Indebtedness; and (iv) exercise or
refrain from exercising any rights against the Company, and any other Person.

                    Signatures appear on the following page

                                      60

        IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed by their respective officers thereunto duly authorized, as of
the day and year first above written.

                                             LAKELAND FINANCIAL CORPORATION

                                             By: /s/ David M. Findlay

                                             Name: David M. Findlay

                                             Title: EVP /CFO

                                             U.S. BANK NATIONAL ASSOCIATION,
                                             as Trustee

                                             By: /s/ Earl W. Dennison, Jr.

                                             Name:  Earl W. Dennison, Jr.

                                             Title: Vice President

                                      61

                                   EXHIBIT A

                     FORM OF JUNIOR SUBORDINATED DEBENTURE

         THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), ANY STATE SECURITIES LAWS OR ANY
OTHER APPLICABLE SECURITIES LAW. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN
ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION
IN ACCORDANCE WITH RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER
THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT IS
ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT
IN ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE
COMPANY.

         THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES,
REPRESENTS AND WARRANTS THAT IT IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL
RETIREMENT ACCOUNT OR OTHER PLAN OR ARRANGEMENT SUBJECT TO TITLE I OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR
SECTION 4975 OF THE INTERNAL REVENUE- CODE OF 1986, AS AMENDED (THE "CODE")
(EACH A "PLAN"), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" BY
REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING "PLAN
ASSETS" OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST
THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF
AVAILABLE UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION

96-23, 95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS
PURCHASE AND HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA
OR SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING. ANY
PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO
HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT EITHER (i) IT IS NOT
AN EMPLOYEE BENEFIT PLAN WITHIN THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN
TO WHICH SECTION 4975 OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON
ACTING ON BEHALF OF AN EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR
ENTITY USING THE ASSETS OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH
PURCHASE, OR (ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION
UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS NO
APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

         THIS SECURITY WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS
HAVING AN AGGREGATE PRINCIPAL AMOUNT OF NOT LESS THAN $500,000.00 AND
MULTIPLES OF $1,000.00 IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER OF THIS
SECURITY IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN
$500,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

        THE HOLDER OF THIS SECURITY AGREES THAT IT WILL COMPLY WITH THE
FOREGOING RESTRICTIONS.

        IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS MAY BE
REQUIRED BY THE INDENTURE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE
FOREGOING RESTRICTIONS.

        Floating Rate Junior Subordinated Deferrable Interest Debenture
                                      of
                        LAKELAND FINANCIAL CORPORATION
         October 1, 2003

         Lakeland Financial Corporation, an Indiana corporation (the "Company"
which term includes any successor Person under the Indenture hereinafter
referred to), for value received promises to pay to U.S. Bank National
Association, not in its individual capacity but solely as Institutional
Trustee for Lakeland Statutory Trust II (the "Holder") or registered assigns,
the principal sum of THIRTY MILLION NINE HUNDRED TWENTY-EIGHT THOUSAND DOLLARS
($30,928,000) on October 1, 2033, and to pay interest on said principal sum
from the date of original issuance, or from the most recent interest payment
date (each such date, an "Interest Payment Date") to which interest has been
paid or duly provided for, quarterly (subject to deferral as set forth herein)
in arrears on March 31, June 30, September 30 and December 31 of each year
commencing December 31, 2003, at an annual rate equal to 4.21% beginning on

(and including) the date of original issuance and ending on (but excluding)
December 31, 2003 and at an annual rate for each successive period beginning
on (and including) December 31, 2003, and each succeeding Interest Payment
Date, and ending on (but excluding) the next succeeding Interest Payment Date
(each a "Distribution Period"), equal to 3-Month LIBOR, determined as
described below, plus 3.05% (the "Coupon Rate"), applied to the principal
amount hereof, until the principal hereof is paid or duly provided for or made
available for payment, and on any overdue principal and (without duplication)
on any overdue installment of interest at the same rate per annum, compounded
quarterly, from the dates such amounts are due until they are paid or made
available for payment. The amount of interest payable for any period will be
computed on the basis of the actual number of days in the Distribution Period
concerned divided by 360. In the event that any date on which interest is
payable on this Debenture is not a Business Day, then a payment of the
interest payable on such date will be made on the next succeeding day which is
a Business Day (and without any interest or other payment in respect of any
such delay), with the same force and effect as if made on the date the payment
was originally payable. The interest installment so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
the Indenture, be paid to the Person in whose name this Debenture (or one or
more Predecessor Securities) is registered at the close of business on the
regular record date for such interest installment, which shall be fifteen days
prior to the day on which the relevant Interest Payment Date occurs. Any such
interest installment not so punctually paid or duly provided for shall
forthwith cease to be payable to the Holder on such regular record date and
may be paid to the Person in whose name this Debenture (or one or more
Predecessor Securities) is registered at the close of business on a special
record date.

        "3-Month LIBOR" as used herein, means the London interbank offered
rate for three-month U.S. dollar deposits determined by the Trustee in the
following order of priority: (i) the rate (expressed as a percentage per
annum) for U.S. dollar deposits of an amount equal or comparable to the
aggregate liquidation amount of the Debentures having a three-month maturity
that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the
particular Determination Date ("Telerate Page 3750" means the display
designated as "Page 3750" on the Dow Jones Telerate Service or such other page
as may replace Page 3750 on that service or such other service or services as
may be nominated by the British Bankers' Association as the information vendor
for the purpose of displaying London interbank offered rates for U.S. dollars
deposits); (ii) if such rate does not appear on Telerate Page 3750 as of 11:00
a.m. (London time) on the Determination Date, 3-Month LIBOR will be the
arithmetic mean of the rates (expressed as percentages per annum) for U.S.
dollar deposits of an amount equal or comparable to the aggregate liquidation
amount of the Debentures having a three-month maturity that appear on Reuters
Monitor Money Rates Page LIBOR ("Reuters Page LIBO") as of 11:00 a.m. (London
time) on such Determination Date; (iii) if such rate does not appear on
Reuters Page LIBO as of 11:00 a.m. (London time) on the related Determination
Date, the Trustee will request the principal London offices of four leading
banks in the London interbank market to provide such banks' offered quotations
(expressed as percentages per annum) to prime banks in the London interbank
market for U.S. dollar deposits of an amount equal or comparable to the
aggregate liquidation amount of the Debentures having a three-month maturity
as of 11:00 a.m. (London time) on such Determination Date, and if at least two
quotations are provided, 3-Month LIBOR will be the arithmetic mean of such
quotations; and (iv) if fewer than two such quotations are provided as
requested in clause (iii) above, the Trustee will request four major New York

City banks to provide such banks' offered quotations (expressed as percentages
per annum) to leading European banks for loans in U.S. dollars of an amount
equal or comparable to the aggregate liquidation amount of the Debentures as
of 11:00 a.m. (London time) on such Determination Date, and if at least two
such quotations are provided, 3-Month LIBOR will be the arithmetic mean of
such quotations. If the rate for U.S. dollar deposits of an amount equal or
comparable to the aggregate liquidation amount of the Debentures having a
three-month maturity that initially appears on Telerate Page 3750 or Reuters
Page LIBO, as the case may be, as of 11:00 a.m. (London time) on the related
Determination Date is superseded on the Telerate Page 3750 or Reuters Page
LIBO, as the case may be, by a corrected rate by 12:00 noon (London time) on
such Determination Date, then the corrected rate as so substituted on the
applicable page will be the applicable 3-Month LIBOR for such Determination
Date. As used herein, "Determination Date" means the date that is two London
Banking Days (i.e., a day in which dealings in deposits in U.S. dollars are
transacted in the London interbank market) preceding the commencement of the
relevant Distribution Period.

         In the event that the 3-Month LIBOR is indeterminable by the methods
described above, the Coupon Rate shall equal the 3-Month LIBOR in effect on
the most recent Determination Date (whether or not 3-Month LIBOR for such
period was in fact determined on such Determination Date) plus 3.05%.

        The Coupon Rate for any Distribution Period will at no time be higher
than the maximum rate then permitted by New York law as the same may be
modified by United States law.

        All percentages resulting from any calculations on the Debentures will
be rounded, if necessary, to the nearest one hundred-thousandth of a
percentage point, with five one-millionths of a percentage point rounded
upward (e.g., 9.876545% or .09876545 being rounded to 9.87655% or .0987655),
and all dollar amounts used in or resulting from such calculation will be
rounded to the nearest cent (with one-half cent being rounded upward).

        The principal of and interest on this Debenture shall be payable at
the office or agency of the Trustee (or other paying agent appointed by the
Company) maintained for that purpose in any coin or currency of the United
States of America that at the time of payment is legal tender for payment of
public and private debts; provided, however, that payment of interest may be
made by check mailed to the registered holder at such address as shall appear
in the Debenture Register if a request for a wire transfer by such holder has
not been received by the Company or by wire transfer to an account
appropriately designated by the holder hereof. Notwithstanding the foregoing,
so long as the holder of this Debenture is the Institutional Trustee, the
payment of the principal of and interest on this Debenture will be made in
immediately available funds at such place and to such account as may be
designated by the Trustee.

         So long as no Event of Default has occurred and is continuing, the
Company shall have the right, from time to time, and without causing an Event
of Default, to defer payments of interest on the Debentures by extending the
interest payment period on the Debentures at any time and from time to time
during the term of the Debentures, for up to 20 consecutive quarterly periods
(each such extended interest payment period, an "Extension Period"), during
which Extension Period no interest (including Additional Interest) shall be

due and payable. No Extension Period may end on a date other than an Interest
Payment Date. At the end of any such Extension Period the Company shall pay
all interest then accrued and unpaid on the Debentures (together with
Additional Interest thereon); provided, however, that no Extension Period may
extend beyond the Maturity Date; provided further, however, that during any
such Extension Period, the Company shall not and shall not permit any
Affiliate to (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of the
Company's or such Affiliate's capital stock (other than payments of dividends
or distributions to the Company) or make any guarantee payments with respect
to the foregoing or (ii) make any payment of principal of or interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company or any Affiliate that rank pari passu in all respects with or junior
in interest to the Debentures (other than, with respect to clauses (i) and
(ii) above, (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract,
benefit plan or other similar arrangement with or for the benefit of one or
more employees, officers, directors or consultants, in connection with a
dividend reinvestment or stockholder stock purchase plan or in connection with
the issuance of capital stock of the Company (or securities convertible into
or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, (b) as a
result of any exchange or conversion of any class or series of the Company's
capital stock (or any capital stock of a subsidiary of the Company) for any
class or series of the Company's capital stock or of any class or series of
the Company's indebtedness for any class or series of the Company's capital
stock, (c) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholders' rights plan, or
the issuance of rights, stock or other property under any stockholders' rights
plan, or the redemption or repurchase of rights pursuant thereto, (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options
or other rights is the same stock as that on which the dividend is being paid
or ranks pari passu with or junior to such stock and any cash payments in lieu
of fractional shares issued in connection therewith, or (f) payments under the
Capital Securities Guarantee). Prior to the termination of any Extension
Period, the Company may further extend such period, provided that such period
together with all such previous and further consecutive extensions thereof
shall not exceed 20 consecutive quarterly periods, or extend beyond the
Maturity Date. Upon the termination of any Extension Period and upon the
payment of all accrued and unpaid interest and Additional Interest, the
Company may commence a new Extension Period, subject to the foregoing
requirements. No interest or Additional Interest shall be due and payable
during an Extension Period, except at the end thereof, but each installment of
interest that would otherwise have been due and payable during such Extension
Period shall bear Additional Interest. The Company must give the Trustee
notice of its election to begin or extend such Extension Period at least five
(5) Business Days prior to the regular record date (as such term is used in
Section 2.8 of the Indenture) immediately preceding the Interest Payment Date
with respect to which interest on the Debentures would have been payable
except for the election to begin or extend such Extension Period.

         Subject to the Company having received prior approval of the Federal
Reserve if then required under applicable capital guidelines or policies of

the Federal Reserve, the Company may redeem this Debenture prior to the
Maturity Date in the manner and at the times set forth in the Indenture.

        The indebtedness evidenced by this Debenture is, to the extent
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. Each holder
of this Debenture, by accepting the same, (a) agrees to and shall be bound by
such provisions, (b) authorizes and directs the Trustee on his or her behalf
to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination so provided and (c) appoints the Trustee his or
her attorney-in-fact for any and all such purposes. Each holder hereof, by his
or her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder
of Senior Indebtedness, whether now outstanding or hereafter incurred, and
waives reliance by each such holder upon said provisions.

        This Debenture shall be deemed to be a contract made under the law of
the State of New York, and for all purposes shall be governed by and construed
with the law of said State, without regard to conflict of laws principles
thereof.

        This Debenture shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been signed
by or on behalf of the Trustee.

        Capitalized terms used and not defined in this Debenture shall have
the meanings assigned in the Indenture duly executed and dated as of the date
of original issuance of this Debenture between the Trustee and the Company.
The Indenture contains a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Debentures and of the terms upon which the Debentures are,
and are to be, authenticated and delivered.

                                  (continued)

         IN WITNESS WHEREOF, the Company has duly executed this certificate.

                                            LAKELAND FINANCIAL CORPORATION

                                            By: /s/ David M. Findlay

                                            Name: David M. Findlay

                                            Title: EVP/CFO

                         CERTIFICATE OF AUTHENTICATION

         This is one of the Debentures referred to in the within-mentioned
Indenture.

                                            U.S. Bank National Association,
                                            as Trustee

                                            By: /s/ Earl W. Dennison, Jr.
                                                    Authorized Officer

                                                                  Exhibit 31.1
                                                                  ------------
                                Certifications

         I, Michael L. Kubacki, Chief Executive Officer of the Company, certify
         that:

        1.        I have reviewed this annual report on Form 10-K of Lakeland
                  Financial Corporation;

        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 the 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 we 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 quarterly
                        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 quarterly 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 function):

                (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 weaknesses 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 or not there were
                  significant changes in internal controls or in other factors
                  that could significantly affect internal controls subsequent
                  to date of their evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.

Date: February 25, 2004      /s/ Michael L. Kubacki
                             Michael L. Kubacki - Chief Executive Officer

                                                                  Exhibit 31.2
                                                                  ------------
                                Certifications

         I, David M. Findlay, Chief Financial Officer of the Company, certify
         that:

        1.        I have reviewed this annual report on Form 10-K of Lakeland
                  Financial Corporation;

        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 the 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 we 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 function):

                (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 weaknesses 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 or not there were
                  significant changes in internal controls or in other factors
                  that could significantly affect internal controls subsequent
                  to date of their evaluation, including any corrective
                  actions with regard to significant deficiencies and material
                  weaknesses.

Date: February 25, 2004      /s/ David M. Findlay
                             David M. Findlay - Chief Financial Officer

                                                                  Exhibit 32.1
                                                                  ------------
                           CERTIFICATION PURSUANT TO
                            18 U.S.C. SECTION 1350,
                            AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Lakeland Financial Corporation (the
"Company") on Form 10-K for the period ending December 31, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report), I,
Michael L. Kubacki, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley
Act of 2002, that:

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

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

/s/ Michael L. Kubacki

Michael L. Kubacki
Chief Executive Officer
February 25, 2004

                                                                  Exhibit 32.2
                                                                  ------------
                           CERTIFICATION PURSUANT TO
                            18 U.S.C. SECTION 1350,
                            AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Lakeland Financial Corporation (the
"Company") on Form 10-K for the period ending December 31, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report), I,
David M. Findlay, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act
of 2002, that:

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

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

/s/ David Findlay

David M. Findlay
Chief Financial Officer
February 25, 2004