CHANGE IN CONTROL AGREEMENT

         THIS CHANGE IN CONTROL AGREEMENT (this "Agreement") is made as of the
______ day of  ________________________,  2000, (the "Effective  Date") by and
between  LAKELAND  FINANCIAL   CORPORATION,   an  Indiana  corporation,   (the
"Company") and __________________________ (the "Executive").

                                   RECITALS

         A. The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company and its Affiliates will have the continued  dedication of the
Executive,  notwithstanding the possibility,  threat or occurrence of a Change
in Control (as defined below) of the Company.

         B.       The Executive  is currently  serving as an  Executive of the
Company or one of its Affiliates.

         C.       The Company desires  to continue to employ the  Executive as
an  Executive of the  Company or one  of its Affiliates  and the Executive  is
willing to continue such employment.

         D. The Company  recognizes  that  circumstances  may arise in which a
change of control of the Company  through  acquisition  or otherwise may occur
thereby causing  uncertainty of employment without regard to the competence or
past contributions of the Executive,  which uncertainty may result in the loss
of valuable services of the Executive,  and the Company and the Executive wish
to  provide  reasonable  security  to the  Executive  against  changes  in the
employment relationship in the event of any such change in control.

         NOW, THEREFORE, in consideration of the premises and of the covenants
and  agreements  hereinafter  contained,  it is  covenanted  and agreed by and
between the parties hereto as follows:

        1.      Payment of Severance  Amount. If the Executive's employment by
the Company, or any Affiliate or successor of the  Company, is  terminated  by
either  the Company  or the  Executive  during the  time periods set forth  in
subparagraphs (a) and (b) below, then  the Company shall pay the  Executive an
amount equal to the Change in  Control  Severance  Amount,  payable in one (1)
lump  sum  within  fifteen (15) days  after  the  Executive's  termination  of
employment:

        (a)     termination  by the  Company, or any Affiliate or successor of
                the Company, without Cause,  within either  twelve (12) months
                prior to a Change in Control or twelve (12) months immediately
                following a Change in Control; or

        (b)     termination by the  Executive, for  any reason,  within twelve
                (12) months immediately following a Change in Control.

        2. Definitions.  As used throughout this  Agreement, all of  the terms
defined in this paragraph 2 shall have the meanings given below.

                A.       The "Act" shall  mean the Securities Exchange  Act of
        1934, as amended.

                B.       An "Affiliate"  shall mean  any entity which  owns or
        controls, is owned by  or is under common  ownership or control  with,
        the Company.

                C.       A "Change in Control" shall mean  a Change in Control
        of a nature  such that (1) it  would be required  to be reported  by a
        person or entity subject to the reporting requirements of Section 14(a)
        of the Act in response to Schedule 14A of Regulation 14A, or successor
        provisions thereto, as in effect on the date hereof, (2) a "person" or
        "group" (as those  terms are used in Sections  13(d) and 14(d) of  the
        Act), is or becomes  the "beneficial owner" (as defined  in Rule 13d-3
        issued under the Act), directly  or indirectly, of  securities of  the
        Company, representing in excess of thirty percent (30%)  of the voting
        securities of the Company  then outstanding, followed by  the election
        by said person or group of one or more  representatives to the  Board;
        (3) a  person  or group,  as hereinabove defined,  is  or becomes  the
        beneficial owner, directly or indirectly, of securities of the Company,
        representing in excess of fifty percent (50%) of the voting securities
        of  the Company  then  outstanding,  whether  or not  followed  by the
        election by said person or group of one or more representatives to the
        Board; or (4) any other event, including but not  limited to those set
        forth in paragraphs (1) through (3) above, which shall have the effect
        of  placing control  of the business  and affairs of the Company  in a
        person or group as hereinabove defined,  other than or  different from
        the present shareholders of the Company.

                Notwithstanding the foregoing, a  Change in  Control shall not
        be deemed to occur solely because  fifty-one percent (51%) or  more of
        the combined  voting  power of the then  outstanding securities of the
        Company are  acquired  by: (1) a trustee  or other  fiduciary  holding
        securities  under one or  more employee  benefit plans  maintained for
        employees of the  Company or its  Affiliates;  or (2) any  corporation
        which,  immediately prior to  such  acquisition,  is owned directly or
        indirectly  by the  stockholders  in  the  same  proportion  as  their
        ownership of stock immediately prior to such acquisition.

                D.       "Change in Control  Severance  Amount" shall mean the
        amount  equal  to two (2)  times the  sum of (i)  the  greater  of the
        Executive's  then current annual base salary or the Executive's annual
        base salary as of the date one (1) day prior to his or her Termination
        Date and  (ii) fifteen  percent (15%) [twenty  percent  (20%)] of  the
        amount determined under (i) above.

                E.       "Cause" shall mean only a termination  by the Company
        or an Affiliate as a result of the Executive's fraud, misappropriation
        of or intentional  material  damage to the property or business of the
        Company (including its Affiliates),  substantial and  material failure
        by the Executive to fulfill the duties and responsibilities  of his or
        her   regular  position  and/or  comply  with  the  Company's  or  its
        Affiliates'  policies,  rules  or  regulations,  or  the   Executive's
        conviction of a felony.

                                      2

                F.       "Termination Date" shall  mean the date of employment
        termination indicated in the written notice provided by the Company or
        the Executive to the other.

        3. Medical and  Dental  Benefits.  If the  Executive is  entitled to a
Change in  Control Severance  Amount  hereunder,  then to  the extent that the
Executive or any of the  Executive's dependents may be covered  nder the terms
of any medical  and  dental plans of the Company (or any Affiliate) for active
employees  immediately prior to the Termination Date, the Company will provide
the Executive and those dependents with equivalent  coverages for a period not
to exceed twenty-four (24) months from the Termination Date. The coverages may
be procured directly by the Company (or any Affiliate,  if appropriate)  apart
from,  and  outside of the terms of the plans  themselves;  provided  that the
Executive and the Executive's  dependents comply with all of the conditions of
the  medical  or  dental  plans.  In the  event  the  Executive  or any of the
Executive's  dependents  become  eligible for coverage  under the terms of any
other medical and/or dental plan of a subsequent  employer which plan benefits
are comparable to Company (or any Affiliate) plan benefits, coverage under the
Company's  (or any  Affiliate's)  plans  will cease for the  Executive  and/or
dependent.  The Executive and  Executive's  dependents must notify the Company
(or any  Affiliate)  of any  subsequent  employment  and  provide  information
regarding medical and/or dental coverage  available.  In the event the Company
(or any Affiliate)  discovers that the Executive  and/or  dependent has become
employed and not provided  the above  notification,  all payments and benefits
under this Agreement will cease.

        4. Golden  Parachute  Payment  Adjustment.  It is the intention of the
parties that the Change in Control Severance  Amount under this  Agreement and
the value of all other  amounts and benefits  provided pursuant to a Change in
Control, either under this Agreement or any other  plan or agreement to  which
the Executive is a  party, shall  not constitute "excess  parachute  payments"
within the meaning of Section 280G  of the Internal  Revenue Code of 1986,  as
amended  (the  "Code"),  and  any  regulations  thereunder.  However,  if  the
independent accountants acting as auditors  for the  Company  on the date of a
Change  in  Control (or  another  accounting  firm designated by  the parties)
determine,  in  consultation  with legal counsel  acceptable  to  the parties,
that any amount payable to the Executive by the Company  under this Agreement,
or any other plan or agreement under which the Executive  participates or is a
party,  would constitute  an excess  parachute  payment within the  meaning of
Section 280G of the Code and be subject to the "excise tax" imposed by Section
4999 of the Code,  then the Company  shall pay to the  Executive the amount of
such excise tax and all  federal  and state income or other taxes with respect
to the payment of the amount f such excise  tax, including all such taxes with
respect  to any such  additional  amount.  If at a later  date,  the  Internal
Revenue Service assesses a deficiency against the Executive for the excise tax
which is greater than that which was  determined at the time such amounts were
paid,  the Company  shall pay to the  Executive  the amount of such excise tax
plus any interest,  penalties and professional  fees or expenses,  incurred by
the  Executive as a result of such  assessment,  including all such taxes with
respect  to  any  such  additional  amount.  The  highest  marginal  tax  rate
applicable to  individuals at the time of payment of such amounts will be used
for purposes of determining  the federal and state income and other taxes with
respect  thereto.  The Company shall withhold from any amounts paid under this
Agreement the amount of any excise tax or other federal,  state or local taxes

                                      3

then required to be withheld.  Computations of the amount of any  supplemental
compensation  paid under this  subparagraph  shall be made by the  independent
public  accountants  then regularly  retained by the Company,  in consultation
with legal  counsel  acceptable  to the  parties.  The  Company  shall pay all
accountant and legal counsel fees and expenses.

        5.      A.  Restrictive  Covenant. The Company and the  Executive have
jointly reviewed  the customer  lists and  operations of the  Company and have
agreed that  the  primary  service  area of  the lending  and  deposit  taking
functions  of  the  Company  and  its  Affiliates  in which the  Executive has
actively  participated extends to an area encompassing  sixty (60) mile radius
from the center of Warsaw,  Indiana. Therefore, as an essential  ingredient of
and in  consideration  of this  Agreement and  the payment  of the  Change  in
Control  Severance  Amount, the  Executive  hereby  agrees  that,  except with
the express  prior written  consent of the  Company, for a  period  of two (2)
years after the termination of the  Executive's  employment  with the  Company
in  connection  with or upon a Change in  Control  and the Executive's receipt
of the Change in Control Severance  Amount (the "Restrictive Period"), he will
not  directly  or  indirectly  compete  with  the  business  of  the  Company,
including, but not by way of  limitation,  by  directly  or indirectly owning,
managing,   operating, controlling,  financing, or by  directly or  indirectly
serving as  an  executive, officer or  director  of or  consultant  to,  or by
soliciting  or inducing,   or attempting  to solicit or induce,  any  employee
or agent of  the Company or an  Affiliate to terminate  employment  and become
employed by any person, firm, partnership, corporation,  trust or other entity
which owns or  operates,  a bank, savings and  loan  association, credit union
or  similar  financial institution (a "Financial Institution")  within a fifty
(50) mile radius of the center of Warsaw, Indiana the "Restrictive Covenant").
If the  Executive violates  the  Restrictive  Covenant  and the Company brings
legal action for  injunctive  or other  relief,  the  Company  shall not, as a
result of the time  involved  in  obtaining  such  relief,  be deprived of the
benefit of  the full  period of  the Restrictive  Covenant.  Accordingly,  the
Restrictive  Covenant shall be deemed to have  the duration specified  in this
paragraph computed from the date the relief is granted but reduced by the time
between the period  when the Restrictive  Period began to  run and the date of
the first  violation  of  the  Restrictive  Covenant  by  the  Executive.  The
foregoing  Restrictive  Covenant shall not prohibit the Executive  from owning
directly or  indirectly  capital  stock or  similar  securities  which  do not
represent more than one percent (1%) of the outstanding  capital  stock of any
Financial  Institution  listed  on a  securities  exchange  or  quoted  on the
National  Association   of  Securities   Dealers Automated  Quotation  System.
Notwithstanding the above, the  Restrictive Covenant will  be unenforceable in
the event the Executive elects to forego and not receive the Change in Control
Severance Amount.

        B.   Remedies  for  Breach  of  Restrictive  Covenant.  The  Executive
acknowledges that the restrictions  contained in this paragraph are reasonable
and necessary for the protection of the legitimate  business  interests of the
Company and its  Affiliates,  that any violation of these  restrictions  would
cause substantial  injury to the Company and such interests,  that the Company
would  not  have  entered  into  this  Agreement  with the  Executive  without
receiving  the  additional  consideration  offered by the Executive in binding
himself  to these  restrictions  and that such  restrictions  were a  material
inducement  to the Company to enter into this  Agreement.  In the event of any
violation or  threatened  violation  of these  restrictions,  the Company,  in

                                      4

addition to and not in limitation  of, any other  rights,  remedies or damages
available  to the  Company  under this  Agreement  or  otherwise  at law or in
equity,  shall be entitled to preliminary and permanent  injunctive  relief to
prevent  or  restrain  any such  violation  by the  Executive  and any and all
persons directly or indirectly acting for or with him, as the case may be.

        6.      Notices.   Notices  and all  other communications  under  this
Agreement shall be in writing and shall be deemed given when  mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

                If to the Company to:

                  Lakeland Financial Corporation
                  Attention:  Chairman of the Board
                  202 East Center Street
                  P.O. Box 1387
                  Warsaw, Indiana  46580

                If to the Executive to:

                  _________________________________
                  _________________________________
                  _________________________________

or to such other  address as either party may furnish to the other in writing,
except that notices of changes of address shall be effective only upon receipt.

        7.       Applicable Law.  This  Agreement is  entered into  under, and
shall be governed for all purposes by, the laws of the state of Indiana.

        8.       Severability. If a court of competent jurisdiction determines
that any provision of  this Agreement is  invalid or  unenforceable,  then the
invalidity  or  unenforceability  of  that  provision  shall  not  affect  the
validity  or enforceability  of any  other  provision  of  this  Agreement and
all  other provisions shall remain in full force and effect.

        9.       Withholding of  Taxes.  The  Company  may  withhold from  any
benefits payable under this Agreement all federal, state, city  or other taxes
as may be required pursuant to any law, governmental regulation or ruling.

        10.      Not an  Employment Agreement. Nothing in this Agreement shall
give the  Executive  any  rights (or  impose  any  obligations)  to  continued
employment by the Company or any  Affiliate or  successor of the Company,  nor
shall it give the  Company  any  rights  (or  impose any  obligations) for the
continued  performance  of duties  by the  Executive  for  the Company  or any
Affiliate or successor of the Company.

                                      5

        11.      No  Assignment.  The  Executive's  rights to receive payments
or benefits under  this  Agreement  shall not be  assignable  or  transferable
whether by pledge, creation of a security interest or otherwise,  other than a
transfer  by will or by the laws of descent or  distribution.  In the event of
any attempted assignment or transfer  contrary to this paragraph,  the Company
shall have no  liability to pay  any  amount so  attempted  to be  assigned or
transferred.  This Agreement  shall inure to the benefit of and be enforceable
by   the   Executive's   personal   or   legal   representatives,   executors,
administrators,  successors, heirs, distributees, devisees and legatees.

        12.      Successors.  This Agreement shall  be binding upon  and inure
to the benefit of the Company, its successors and assigns  (including, without
limitation,  any  company  into  or  with  which  the  Company  may  merge  or
consolidate).  The Company agrees  that it will not effect  the sale or  other
disposition  of all or substantially all of its  assets  unless either (a) the
person or entity acquiring the assets, or a substantial portion of the assets,
shall expressly assume by an instrument in writing all duties and  obligations
of the Company under  this  Agreement,  or  (b)  the  Company  shall  provide,
through  the establishment  of a separate  reserve, for the payment in full of
all amounts which are or may  reasonably  be expected to become payable to the
Executive under this Agreement.

        13.      Legal Fees. All reasonable  legal fees  and related  expenses
(including the costs of experts,  evidence  and  counsel)  paid or incurred by
the  Executive pursuant to any dispute or question of interpretation  relating
this Agreement shall be paid or  reimbursed by the Company if the Executive is
successful  on  the  merits  pursuant  to a  legal  judgment,  arbitration  or
settlement.

        14.      Term.  The  term of  this  Agreement  shall  commence  on the
Effective  Date  and  shall  continue  for a  period  of two (2)  years.  This
Agreement  shall automatically  extend  for one (1) year  on each  anniversary
of the  Effective Date,  unless  terminated  by either party  effective  as of
the last day of the then current two (2)  year extension by  written notice to
that effect delivered to the other not less than ninety (90) days prior to the
anniversary  of the Effective Date;  provided  however, no termination of this
Agreement shall be effective if a Change in Control occurs within twelve  (12)
months of such termination. In  the event of  a Change  in Control  during the
term of this Agreement, this Agreement shall remain in effect  for the Covered
Period.

        15.      Amendment.   This Agreement  may not  be amended  or modified
except by written agreement signed by the Executive and the Company.

                 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      6

         IN WITNESS  WHEREOF,  the parties  have caused this  Agreement  to be
executed and delivered as of the day and year first written.

LAKELAND FINANCIAL CORPORATION

By:
   ----------------------------------       ----------------------------------
    R. Douglas Grant                         [Executive]
    Chairman of the Board

                                      7

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

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:
                                              LAKE CITY BANK [WARSAW, INDIANA]
                                               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 within
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
         survivorship and not as tenants                        Gifts to Minors
         in common                                              Act ...........
                                                                (Sigrn)

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

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.

                        CONSENT OF INDEPENDENT AUDITORS
                        -------------------------------

We hereby  consent to the  incorporation  by reference  and use of our report,
dated January 12, 2001, on the consolidated  financial  statements of Lakeland
Financial  Corporation,   which  is  incorporated  by  reference  in  Lakeland
Financial Corporation's  Registration Statements on Form S-3 (Registration No.
333-34626) and Form S-8 (Registration No. 333-48402).

                                                 Crowe, Chizek and Company LLP

South Bend, Indiana
March 27, 2001

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K

           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                  For the fiscal year ended December 31, 2000
                                      OR
         [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
     For the transition period from _____________ to ____________________

                          Commission File No. 0-11487

                        LAKELAND FINANCIAL CORPORATION
                        ------------------------------
            (exact name of Registrant as specified in its charter)

         INDIANA                                       35-1559596
         -------                                       ----------
(State or other jurisdiction of           (I.R.S. Employer Identification No.)
 incorporation or organization)

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

Registrant's telephone number, including area code 1-219-267-6144
                                                   --------------

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

Title of each class                  Name of each exchange on which registered
- -------------------                  -----------------------------------------
Common                               The Nasdaq Stock Market's National Market
Preferred Securities of Lakeland
 Capital Trust                       The Nasdaq Stock Market's National Market

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

                                     None

         Indicate  by check  mark  whether  the  Registrant  (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the  preceding 12 months (or for such 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 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.[ X ]

         Aggregate market value of the voting stock held by  non-affiliates of
the Registrant,  computed  solely for the purposes of this  requirement on the
basis of the Nasdaq  closing value at February 21, 2001,  and assuming  solely
for the purposes of this calculation that all directors and executive officers
of the Registrant are "affiliates": $83,220,656.

         Number of shares of common stock outstanding at February 21, 2001:
5,779,932

                            Cover page 1 of 2 pages

                      DOCUMENTS INCORPORATED BY REFERENCE
                      -----------------------------------

         Portions of the following  documents are incorporated by reference in
the Parts of the 10-K indicated:

            Part                                    Document
            ----                                    --------

         I, II & IV               Lakeland   Financial  Corporation's   Annual
                                  Report to  Shareholders for  the year  ended
                                  December  31, 2000,  portions of  which  are
                                  incorporated into Parts I, II and IV of this
                                  Form 10-K.

             III                  Proxy  statement  mailed to  shareholders on
                                  March 14, 2001, which  is incorporated  into
                                  Part III of this Form 10-K.

                            Cover page 2 of 2 pages

                                    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  subsidiaries,  Lake City Bank and Lakeland
Capital Trust, as well as LCB Investments  Limited, a wholly-owned  subsidiary
of Lake City Bank.

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"), and Lakeland Capital
Trust,  a statutory  business  trust  formed  under  Delaware  law  ("Lakeland
Trust").  The Bank has a wholly-owned  subsidiary,  LCB Investments Limited, a
Bermuda company,  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  to the extent  permissible by law. The Bank's main banking office
is located at 202 East Center  Street,  Warsaw,  Indiana.  As of December  31,
2000,  the Bank had 43 offices in fifteen  counties  throughout  north central
Indiana.

         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 Trust, a statutory business trust, was formed under Delaware
law pursuant to a trust  agreement  dated July 24, 1997 and a  certificate  of
trust filed with the Delaware  Secretary  of State on July 24, 1997.  Lakeland
Trust exists for the  exclusive  purposes of (i) issuing the trust  securities
representing  undivided  beneficial interests in the assets of Lakeland 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 and
payments  thereunder are the only assets of Lakeland Trust, and payments under
the subordinated  debentures are the only revenue of Lakeland Trust.  Lakeland
Trust has a term of 55 years, but may be terminated earlier as provided in the
trust agreement.

Forward-looking Statements

      When used in this report and in future  filings by the Company  with the
Securities and Exchange  Commission,  in the Company's press releases or other
public or  shareholder  communications,  or in oral  statements  made with the
approval of an authorized  executive officer, the words or phrases "would be,"
"will  allow,"  "intends  to," "will likely  result," "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify  "forward-looking  statements"  within the meaning of the
Private Securities  Litigation Reform Act of 1995. Such statements are subject
to risks and  uncertainties,  including but not limited to changes in economic
conditions  in the  Company's  market area,  changes in policies by regulatory
agencies,  fluctuations in interest  rates,  demand for loans in the Company's
market area and  competition,  all or some of which could cause actual results
to differ materially from historical earnings and those presently  anticipated
or projected.

                                       1

      The Company wishes to caution  readers not to place undo reliance on any
such  forward-looking  statements,  which speak only as of the date made,  and
advise readers that various factors,  including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other  risks  of  lending  and  investment   activities  and  competitive  and
regulatory factors, could affect the Company's financial performance and could
cause the Company's  actual  results for future  periods to differ  materially
from those anticipated or projected.

      The  Company  does  not  undertake,   and  specifically   disclaims  any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.

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,  brokerage  services,  commercial  and  agricultural
lending,  direct and indirect consumer lending,  real estate mortgage lending,
safe deposit box services,  trust and investment 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 the range and quality of
services it provides including a focus on relationship  development,  interest
rates and loan fees. The Bank believes that its  convenience,  quality service
and hometown  relationship 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  service area is north central and north east 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.   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 of  approximately  $10 million pursuant to Indiana
law and internal  lending  guidelines.  This maximum  prohibits  the Bank from
providing  a full range of banking  services to those  businesses  or personal
accounts  whose  borrowing  requirements  may exceed this amount.  In order to
retain at least a portion of the banking  business  of these large  borrowers,
the  Bank  maintains   correspondent   relationships   with  other   financial
institutions.  The Bank also  participates  with local and 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.

         Under the  Gramm-Leach-Bliley  Act of 1999, effective March 11, 2000,
securities  firms and  insurance  companies  that  elect to  become  financial
holding  companies may acquire  banks and other  financial  institutions.  The
Gramm-Leach-Bliley Act may significantly change the competitive environment in
which the  Company  and the Bank  conduct  business.  The  financial  services
industry is also likely to become more  competitive  as further  technological
advances  enable  more  companies  to  provide   financial   services.   These
technological advances may diminish the importance of depository  institutions
and other financial intermediaries in the transfer of funds between parties.

                                      2

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 that
country.  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, 2000, the Company,  including its  subsidiaries,  had
435 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. 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.

Supervision and Regulation

         General

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

         Federal  and  state  laws and  regulations  generally  applicable  to
financial  institutions,  such as the Company and its subsidiaries,  regulate,
among other  things,  the scope of  business,  investments,  reserves  against
deposits,  capital  levels  relative to  operations,  the nature and amount of
collateral for loans, the establishment of branches,  mergers,  consolidations
and  dividends.  The system of supervision  and  regulation  applicable to the
Company and its subsidiaries  establishes a comprehensive  framework for their
respective  operations  and is intended  primarily  for the  protection of the
FDIC's  deposit   insurance  funds  and  the   depositors,   rather  than  the
shareholders, of financial institutions.

         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
to  the  Company  and  its  subsidiaries,  nor  does  it  restate  all  of the
requirements  of the statutes,  regulations  and regulatory  policies that are
described. As such, the following is qualified in its entirety by reference to
the applicable statutes,  regulations and regulatory  policies.  Any change in
applicable law,  regulations or regulatory policies may have a material effect
on the business of the Company and its subsidiaries.

         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,

                                      3

and is subject to  regulation  by, the Federal  Reserve under the Bank Holding
Company Act, 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 also 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.

         Investments  and  Activities.  Under the BHCA, a bank holding company
must obtain  Federal  Reserve  approval  before:  (i)  acquiring,  directly or
indirectly,  ownership or control of any voting shares of another bank or bank
holding company if, after the  acquisition,  it would own or control more than
5% of the shares of the other bank or bank holding  company (unless it already
owns  or  controls  the  majority  of  such  shares);  (ii)  acquiring  all or
substantially  all  of the  assets  of  another  bank;  or  (iii)  merging  or
consolidating with another bank holding company. Subject to certain conditions
(including certain 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  without  regard to whether the  acquisition is
prohibited  by the law of the state in which the target  bank is  located.  In
approving interstate acquisitions, however, 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 which  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 also generally  prohibits the Company from acquiring  direct
or indirect  ownership or control of more than 5% of the voting  shares of any
company which 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 that have
not received  approval to operate as financial 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."  Under current  regulations of the Federal  Reserve,  this
authority  would permit the Company to engage in a variety of  banking-related
businesses,  including the operation of a thrift,  sales and consumer finance,
equipment  leasing,  the  operation of a computer  service  bureau  (including
software  development),  and mortgage  banking and  brokerage.  Eligible  bank
holding  companies  that 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  activities  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.  The BHCA generally does not
place  territorial   restrictions  on  the  domestic  activities  of  non-bank
subsidiaries of bank or financial  holding  companies.  As of the date of this
filing,  the Company has not applied for nor received approval to operate as a
financial holding company.

         Federal  law also  prohibits  any  person or company  from  acquiring
"control"  of a bank or bank  holding  company  without  prior  notice  to the
appropriate  federal bank regulator.  "Control" is defined in certain cases as
the  acquisition  of 10% or more of the  outstanding  shares of a bank or bank
holding company.

                                      4

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

         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  risk-weighted
assets;  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%, at least one-half of which must
be Tier 1 capital.  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  mortgage  servicing  rights and
purchased credit card relationships). Total capital consists primarily of Tier
1 capital plus certain other debt and equity  instruments which 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, 2000, the Company had regulatory capital in excess
of the Federal Reserve's minimum requirements, with a risk-based capital ratio
of 10.24% and a leverage ratio of 7.20%.  As of December 31, 2000, the Company
was well-capitalized, as defined by Federal Reserve regulations.

         Dividends.  The Federal  Reserve has issued a policy  statement  with
regard to the payment of cash dividends by bank holding companies.  The policy
statement  provides that a bank holding  company should not pay cash dividends
which  exceed its net  income or which 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 a
BIF-insured,  Indiana-chartered  bank, the Bank is subject to the examination,
supervision,  reporting  and  enforcement  requirements  of  the  DFI,  as the
chartering  authority for Indiana banks, and the FDIC, as administrator of the
BIF.

                                      5

         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.

         During the year ended December 31, 2000, BIF assessments  ranged from
0% of deposits to 0.27% of deposits.  For the  semi-annual  assessment  period
beginning January 1, 2001, BIF assessment rates will continue to range from 0%
of deposits to 0.27% of deposits.

         The  FDIC  may  terminate  the  deposit   insurance  of  any  insured
depository  institution  if the FDIC  determines,  after a  hearing,  that the
institution:  (i) has engaged or is  engaging in unsafe or unsound  practices;
(ii) is in an unsafe or unsound condition to continue operations; or (iii) has
violated any applicable  law,  regulation,  order or any condition  imposed in
writing by, or written  agreement  with,  the FDIC.  The FDIC may also suspend
deposit  insurance  temporarily  during the  hearing  process  for a permanent
termination  of  insurance  if  the  institution  has  no  tangible   capital.
Management  of the Bank is not aware of any activity or  condition  that could
result in termination of the deposit insurance of the Bank.

         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.  These FICO  assessments  are in
addition  to  amounts  assessed  by the FDIC for  deposit  insurance.  Between
January 1, 2000, and the final maturity of the outstanding FICO obligations in
2019,  BIF members and SAIF members will share the cost of the interest on the
FICO bonds on a pro rata basis.  During the year ended  December 31, 2000, the
FICO  assessment  rate for BIF and SAIF  members  was  approximately  0.02% of
deposits.

         Supervisory  Assessments.  All  Indiana  bank  are  required  to  pay
supervisory  assessments to the DFI to fund the operations of the DFI.  During
the year ended December 31, 2000, the Bank paid supervisory assessments to the
DFI totaling $72,000.

         Capital Requirements.  The FDIC has established the following minimum
capital  standards for  state-chartered  insured  nonmember 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%, at least one-half of which must be Tier 1 capital.
For  purposes of these  capital  standards,  Tier 1 capital and total  capital
consist  of  substantially  the same  components  as Tier 1 capital  and total
capital  under the  Federal  Reserve's  capital  guidelines  for bank  holding
companies (see "--The Company--Capital Requirements").

         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,  the
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.

                                      6

         During the year ended December 31, 2000, the Bank was not required by
the FDIC to  increase  its  capital  to an amount  in  excess  of the  minimum
regulatory requirement. As of December 31, 2000, the Bank exceeded its minimum
regulatory  capital  requirements  with  a  leverage  ratio  of  7.06%  and  a
risk-based capital ratio of 10.06%.

         Federal law 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 "well  capitalized,"  "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,  2000,  the Bank was well
capitalized, as defined by FDIC regulations.

         Dividends. 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  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, 2000. As of December 31, 2000, approximately $17
million  was  available  to be paid as  dividends  to the Company 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  and its
subsidiaries,  on investments in the stock or other  securities of the Company
and its  subsidiaries  and the acceptance of the stock or other  securities of
the Company or its subsidiaries as collateral for loans.  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 and
its subsidiaries,  to principal  stockholders of the Company,  and to "related
interests"  of  such  directors,   officers  and  principal  stockholders.  In
addition,  federal  law and  regulations  may  affect the terms upon which any
person  becoming  a  director  or  officer  of  the  Company  or  one  of  its
subsidiaries or a principal  stockholder 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  which establish  operational and managerial  standards to
promote the safety and soundness of federally insured depository institutions.

                                      7

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 regulatory approvals.

         Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal  Act"), both state and national banks are allowed to
establish  interstate  branch  networks  through  acquisitions of other banks,
subject to certain conditions,  including certain limitations on the aggregate
amount  of  deposits  that  may be held by the  surviving  bank and all of its
insured depository institution affiliates. The establishment of new interstate
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
allowed by the Riegle-Neal  Act only if specifically  authorized by state law.
The legislation  allowed  individual states to "opt-out" of certain provisions
of the Riegle-Neal Act by enacting  appropriate  legislation  prior to June 1,
1997. Indiana law permits  interstate  mergers subject to certain  conditions,
including a prohibition  against  interstate  mergers  involving Indiana banks
that have been in  existence  and  continuous  operation  for fewer  than five
years.  Additionally,   Indiana  law  allows  out-of-state  banks  to  acquire
individual  branch offices in Indiana and to establish new branches in Indiana
subject to certain  conditions,  including a requirement  that the laws of the
state in which the  out-of-state  bank is  headquartered  grant  Indiana banks
authority to acquire and establish branches in such state.

         State Bank Activities.  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 or its  subsidiary,  respectively,  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.

         Eligible  state  banks  are  also   authorized  to  engage,   through
"financial  subsidiaries,"  in certain  activities  that are  permissible  for
financial holding  companies (as described above) and certain  activities that
the  Secretary of the  Treasury,  in  consultation  with the Federal  Reserve,

                                      8

determines  is  financial  in  nature  or  incidental  to any  such  financial
activity.  As of the date of this  filing,  the Bank has not  applied  for nor
received approval to establish any financial subsidiaries.

         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, Investor's Weekly
and  regular  checking  accounts),   as  follows:   for  transaction  accounts
aggregating  $42.8  million or less,  the reserve  requirement  is 3% of total
transaction  accounts;  and for transaction  accounts aggregating in excess of
$42.8  million,  the reserve  requirement  is $1.284  million  plus 10% of the
aggregate amount of total transaction accounts in excess of $42.8 million. The
first $5.5 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

         The  Company is engaged in a single  industry  and  performs a single
service -- commercial  banking.  On the pages that follow are tables which 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 the 2000
Annual  Report to  Shareholders  herein  incorporated  by reference  (attached
hereto as Exhibit 13).

                                      9

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

                                                                       2000                                   1999
                                                      -------------------------------------  -------------------------------------
                                                        Average      Interest                  Average      Interest
                                                        Balance       Income     Yield (1)     Balance       Income     Yield (1)
                                                      -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                     
 ASSETS
 Earning assets:
   Loans:
     Taxable (2)                                      $   676,807  $    61,554         9.09% $   602,250  $    51,602         8.57%
     Tax exempt (1)                                         2,391          215         8.99        2,920          275         9.42

   Investments: (1)
     Available for sale                                   279,569       18,850         6.74      291,005       18,597         6.39
     Held to maturity                                           0            0         0.00            0            0         0.00

   Short-term investments                                   5,778          367         6.35        5,230          259         4.95

   Interest bearing deposits                                  960           55         5.73          308           16         5.19
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 Total earning assets                                     965,505       81,041         8.39%     901,713       70,749         7.85%
                                                                   ===========                                         ===========

 Nonearning assets:
   Cash and due from banks                                 41,202            0                    37,767            0

   Premises and equipment                                  27,276            0                    27,248            0

   Other nonearning assets                                 30,191            0                    27,784            0

   Less:  allowance for loan losses                        (6,813)           0                    (5,958)           0
                                                      -----------  -----------               -----------  -----------
 Total assets                                         $ 1,057,361  $    81,041               $   988,554  $    70,749
                                                      ===========  ===========               ===========  ===========

(1) Tax exempt  income was  converted to a fully  taxable equivalent  basis at  a 34 percent tax  rate for 2000 and  1999. 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.  Nonaccrual loans are included in the above analysis as earning assets - loans.

(2) Loan fees, which are immaterial in relation to  total taxable loan interest  income for  the years ended December 31, 2000 and
    1999 are included as taxable loan interest income.

                                                                10

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

                                                                       1999                                   1998
                                                      -------------------------------------  -------------------------------------
                                                        Average      Interest                  Average      Interest
                                                        Balance       Income     Yield (1)     Balance       Income     Yield (1)
                                                      -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                     
 ASSETS
 Earning assets:
   Loans:
     Taxable (2)                                      $   602,250  $    51,602         8.57% $   486,437  $    44,225         9.09%
     Tax exempt (1)                                         2,920          275         9.42        2,899          295        10.18

   Investments: (1)
     Available for sale                                   291,005       18,597         6.39      142,499        9,062         6.36
     Held to maturity                                           0            0         0.00      160,173       10,858         6.78

   Short-term investments                                   5,230          259         4.95        9,545          510         5.34

   Interest bearing deposits                                  308           16         5.19          133            9         6.77
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 Total earning assets                                     901,713       70,749         7.85%     801,686       64,959         8.10%
                                                                                ===========                            ===========
 Nonearning assets:
   Cash and due from banks                                 37,767            0                    36,215            0

   Premises and equipment                                  27,248            0                    25,198            0

   Other nonearning assets                                 27,784            0                    24,324            0

   Less:  allowance for loan losses                        (5,958)           0                    (5,403)           0
                                                      -----------  -----------               -----------  -----------
 Total assets                                         $   988,554  $    70,749               $   882,020  $    64,959
                                                      ===========  ===========               ===========  ===========

(1) Tax exempt income  was converted  to a fully taxable  equivalent  basis at a  34 percent tax  rate for 1999 and  1998. 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.  Nonaccrual loans are included in the above analysis as earning assets - loans.

(2) Loan fees, which are  immaterial in relation to total taxable loan  interest  income for the years ended December 31, 1999 and
    1998 are included as taxable loan interest income.

                                                                11

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

                                                                       2000                                  1999
                                                      -------------------------------------  -------------------------------------
                                                        Average      Interest                  Average      Interest
                                                        Balance      Expense       Yield       Balance      Expense       Yield
                                                      -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                     
 LIABILITIES AND STOCKHOLDERS'
  EQUITY

 Interest bearing liabilities:
   Savings deposits                                   $    53,372  $       899         1.68% $    54,562  $       935         1.71%

   Interest bearing checking accounts                      71,124        1,856         2.61       56,304          861         1.53

   Time Deposits:
     In denominations under $100,000                      367,321       21,816         5.94      359,700       17,394         4.84
     In denominations over $100,000                       157,040        7,824         4.98      150,182        7,963         5.30

   Miscellaneous short-term borrowings                    176,562       10,083         5.71      146,680        7,139         4.87

   Long-term borrowings                                    32,342        2,523         7.80       37,312        2,801         7.51
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 Total interest bearing liabilities                       857,761       45,001         5.25%     804,740       37,093         4.61%

 Noninterest bearing liabilities
  and stockholders' equity:
   Demand deposits                                        134,270            0                   120,808            0

   Other liabilities                                        8,447            0                     7,834            0

   Stockholders' equity                                    56,883            0                    55,172            0
                                                      -----------  -----------               -----------  -----------
 Total liabilities and stockholders'
  equity                                              $ 1,057,361  $    45,001               $   988,554  $    37,093
                                                      ===========  ===========               ===========  ===========
 Net interest differential - yield on
   average daily earning assets                                    $    36,040         3.73%              $    33,656         3.73%
                                                                   ===========  ===========               ===========  ===========

                                                                12

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

                                                                       1999                                   1998
                                                      -------------------------------------  -------------------------------------
                                                        Average      Interest                  Average      Interest
                                                        Balance      Expense       Yield       Balance      Expense       Yield
                                                      -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                     
 LIABILITIES AND STOCKHOLDERS'
 EQUITY

 Interest bearing liabilities:
   Savings deposits                                   $    54,562  $       935         1.71% $    55,299  $     1,331         2.41%

   Interest bearing checking accounts                      56,304          861         1.53       65,895        1,322         2.01

   Time Deposits:
     In denominations under $100,000                      359,700       17,394         4.84      326,123       17,234         5.28
     In denominations over $100,000                       150,182        7,963         5.30      142,589        8,267         5.80

   Miscellaneous short-term borrowings                    146,680        7,139         4.87       90,752        4,724         5.21

   Long-term borrowings                                    37,312        2,801         7.51       44,349        3,213         7.24
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 Total interest bearing liabilities                       804,740       37,093         4.61%     725,007       36,091         4.98%
                                                                                ===========                            ===========
 Noninterest bearing liabilities
  and stockholders' equity:
   Demand deposits                                        120,808            0                    98,957            0

   Other liabilities                                        7,834            0                     7,386            0

   Stockholders' equity                                    55,172            0                    50,670            0

 Total liabilities and stockholders'                  -----------  -----------               -----------  -----------
  equity                                              $   988,554  $    37,093               $   882,020  $    36,091
                                                      ===========  ===========               ===========  ===========
 Net interest differential - yield on
   average daily earning assets                                    $    33,656         3.73%              $    28,868         3.60%
                                                                   ===========  ===========               ===========  ===========

                                                                13

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

                                                      YEAR ENDED DECEMBER 31,

                                                            2000 Over (Under) 1999 (1)             1999 Over (Under) 1998 (1)
                                                      -------------------------------------  -------------------------------------
                                                         Volume       Rate         Total        Volume       Rate         Total
                                                      -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                     
 INTEREST AND LOAN FEE INCOME (2)
   Loans:
     Taxable                                          $     6,651  $     3,301  $     9,952  $    10,041  $    (2,664) $     7,377
      Tax exempt                                              (48)         (12)         (60)           2         (115)        (113)
   Investments:
     Available for sale                                      (748)       1,001          253        8,881         (607)       8,274
     Held to maturity                                           0            0            0      (10,858)           0      (10,858)

   Short-term investments                                      29           79          108         (215)         (37)        (252)

   Interest bearing deposits                                   37            2           39           10           (3)           7
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 Total interest income                                      5,921        4,371       10,292        7,861       (3,426)       4,435
                                                      -----------  -----------  -----------  -----------  -----------  -----------

 INTEREST EXPENSE
   Savings deposits                                           (20)         (16)         (36)         (18)        (378)        (396)
   Interest bearing checking accounts                         270          725          995         (175)        (286)        (461)

   Time deposits
     In denominations under $100,000                          376        4,046        4,422        1,692       (1,532)         160
     In denominations over $100,000                           354         (493)        (139)         426         (730)        (304)

   Miscellaneous short-term borrowings                      1,591        1,353        2,944        2,740         (325)       2,415

   Long-term borrowings                                      (384)         106         (278)        (525)         113         (412)
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 Total interest expense                                     2,187        5,721        7,908        4,140       (3,138)       1,002
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 INCREASE (DECREASE) IN
   INTEREST DIFFERENTIALS                             $     3,734  $    (1,350) $     2,384  $     3,721  $      (288) $     3,433
                                                      -----------  -----------  -----------  -----------  -----------  -----------

(1) The earning  assets and  interest bearing liabilities  used to  calculate interest  differentials are  based on  average daily
    balances for 2000, 1999 and 1998. 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 34 percent tax rate for 2000, 1999 and 1998. The tax
    equivalent rate  for tax exempt  loans and tax  exempt securities  included the TEFRA  adjustment applicable  to nondeductible
    interest expense.

                                                                14

                                                      ANALYSIS OF SECURITIES
                                                     (in thousands of dollars)

 The amortized  cost and the fair value of securities as of December 31, 2000, 1999 and 1998 were as follows:

                                                                2000                      1999                      1998
                                                      ------------------------  ------------------------  ------------------------
                                                       Amortized      Fair       Amortized      Fair       Amortized      Fair
                                                         Cost         Value        Cost         Value        Cost         Value
                                                      -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                     
 Securities available for sale:
   U.S. Treasury securities                           $    38,037  $    38,066  $    35,133  $    34,614  $    38,938  $    39,521
   U.S. Government agencies                                 6,672        6,550        3,726        3,201          909        1,025
   Mortgage-backed securities                             207,499      207,594      196,245      192,569      225,741      225,914
   State and municipal securities                          35,416       35,430       35,432       32,714       56,924       59,112
   Other debt securities                                    6,327        5,968        8,829        8,323        2,086        2,086
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 Total debt securities available for sale             $   293,951  $   293,608  $   279,365  $   271,421  $   324,598  $   327,658
                                                      -----------  -----------  -----------  -----------  -----------  -----------

 Securities held to maturity:
   U.S. Treasury securities                           $         0  $         0  $         0  $         0  $    21,170  $    21,501
   U.S. Government agencies                                     0            0            0            0        2,176        2,246
   Mortgage-backed securities                                   0            0            0            0      116,788      117,185
   State and municipal securities                               0            0            0            0       22,418       24,044
   Other debt securities                                        0            0            0            0        1,007        1,103
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 Total debt securities held to maturity               $         0  $         0  $         0  $         0  $   163,559  $   166,079
                                                      -----------  -----------  -----------  -----------  -----------  -----------

                                                                15

                                                  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, 2000, 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:

 U.S. Treasury securities
   Book value                                                                   $    30,282  $     7,755  $         0  $         0
   Yield                                                                               6.35%        8.27%

 Government agencies
   Book value                                                                             0        6,671            0            0
   Yield                                                                                            5.51%

 Mortgage-backed securities
   Book value                                                                           120        5,879       86,573      114,742
   Yield                                                                               7.00%        6.52%        6.90%        6.97%

 State and municipal securities subdivisions
   Book value                                                                             0           99        2,155       33,348
   Yield                                                                                            6.85%        5.13%        5.02%

 Other debt securities
   Book value                                                                             0        3,077            0        3,250
   Yield                                                                                            6.88%                     8.84%
                                                                                -----------  -----------  -----------  -----------

 Total debt securities available for sale:
   Book value                                                                   $    30,402  $    23,481  $    88,728  $   151,340
   Yield                                                                               6.36%        6.86%        6.85%        6.58%
                                                                                ===========  ===========  ===========  ===========

(1) Tax exempt income was converted to a fully taxable  equivalent  basis at a 34% rate.
(2) The maturity distribution of mortgage-backed  securities was based upon nticipated  payments as computed by using the historic
    average payment speed from date of issue.

     There were no investments in securities of any one issuer that exceeded 10% of stockholders' equity at December 31, 2000.

                                                                16

                                                    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, 2000, 1999, 1998, 1997 and 1996 was as follows:

                                                                      2000         1999         1998         1997         1996
                                                                   -----------  -----------  -----------  -----------  -----------
                                                                                                        
 Commercial loans:
   Taxable                                                         $   487,125  $   419,034  $   343,858  $   269,887  $   226,190
   Tax exempt                                                            2,374        3,048        2,867        3,065        3,414

 Total commercial loans                                                489,499      422,082      346,725      272,952      229,604

 Real estate mortgage loans                                             52,731       46,872       60,555       65,368       60,949

 Installment loans                                                     129,729      146,711      100,196       89,107       71,398

 Line of credit and credit card loans                                   46,917       38,233       31,020       31,207       20,314
                                                                   -----------  -----------  -----------  -----------  -----------
   Total loans                                                         718,876      653,898      538,496      458,634      382,265

 Less allowance for loan losses                                          7,124        6,522        5,510        5,308        5,306
                                                                   -----------  -----------  -----------  -----------  -----------
   Net loans                                                       $   711,752  $   647,376  $   532,986  $   453,326  $   376,959
                                                                   ===========  ===========  ===========  ===========  ===========

     The real estate mortgage loan portfolio included construction loans totaling $3,627, $4,488, $2,975, $3,089  and $1,647 as of
December 31, 2000,  1999, 1998, 1997  and 1996. 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.

                                                                17

                                                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  scheduled  maturity  of each  principal  payment.  The following  table indicates  the rate
sensitivity of the loan portfolio as of December 31,  2000. The table  includes the real estate  loans held  for sale  and assumes
these loans will not be sold during the various time horizons.

                                                                                               Line of
                                                                                               Credit
                                                                                                 and
                                                                       Real                    Credit
                                                      Commerciall     Estate    Installment     Card         Total       Percent
                                                      -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                     
Immediately adjustable interest rates
   or original maturity of one day                    $   269,542  $         0  $         0  $    43,399  $   312,941         43.5%

 Other within one year                                     68,908        5,563       42,555        2,550      119,576         16.6

 After one year, within five years                        142,641        5,058       84,797          825      233,321         32.5

 Over five years                                            8,239       42,073        2,377          143       52,832          7.4

 Nonaccrual loans                                             169           37            0            0          206          0.0
                                                      -----------  -----------  -----------  -----------  -----------  -----------
   Total loans                                        $   489,499  $    52,731  $   129,729  $    46,917  $   718,876        100.0%
                                                      ===========  ===========  ===========  ===========  ===========  ===========

     A portion of the loans are 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, 2000 amounted to $240,702 and $45,453.

                                                                18

                                                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, 2000, 1999, 1998, 1997 and 1996.

                                                                      2000         1999         1998         1997         1996
                                                                   -----------  -----------  -----------  -----------  -----------
                                                                                                        
PART A - PAST DUE ACCRUING LOANS (90 DAYS OR MORE)

Real estate mortgage loans                                         $       398  $         0  $         0  $         0  $       126

Commercial and industrial loans                                          7,635           20          159          236           22

Loans to individuals for household, family and
  other personal expenditures                                              171          151           68           69           68

Loans to finance agriculture production and
  other loans to farmers                                                     0            0            0            0            0
                                                                   -----------  -----------  -----------  -----------  -----------
  Total past due loans                                                   8,204          171          227          305          216
                                                                   -----------  -----------  -----------  -----------  -----------
PART B - NONACCRUAL LOANS

Real estate mortgage loans                                                  37            0            0          338          155

Commercial and industrial loans                                            169          329            0          720          229

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 nonaccrual loans                                                   206          329            0        1,058          384
                                                                   -----------  -----------  -----------  -----------  -----------
PART C - TROUBLED DEBT RESTRUCTURED LOANS                                1,127        1,179        1,281        1,377        1,284
                                                                   -----------  -----------  -----------  -----------  -----------
Total nonperforming loans                                          $     9,537  $     1,679  $     1,508  $     2,740  $     1,884
                                                                   ===========  ===========  ===========  ===========  ===========

     Nonearning assets of the Company include nonaccrual loans (as indicated above), nonaccrual investments, other real estate and
repossessions, which amounted to $318 at December 31, 2000.

                                                                19

                      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 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.

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.

         Loans  past  due  over 90  days  and  still  accruing  interest  were
$6,791,000  (excluding impaired loans) at year-end 2000. The increase in loans
past due 90 days or more and still accruing resulted from the inclusion of two
commercial  loans  totaling $6.2  million,  or  approximately  90% of the $6.8
million in this category. Of this amount, $1.4 million was paid off subsequent
to the end of the fiscal year.  A second loan of $4.8  million  matured in the
fourth quarter of 2000 and has therefore  been included in this category.  The
borrower is current on all interest  under the matured  facility.  The Company
has reached an agreement  with a bank  participant  and the borrower to extend
the terms of the  financing.  This  extension was  completed  during the first
quarter of 2001.

         As of December 31, 2000,  there were  $206,000 of loans on nonaccrual
status and one loan of $1.4 million 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.

         Loans  renegotiated  as troubled  debt  restructurings  totaled  $1.1
million as of December 31, 2000. Interest income of $106,000 was recognized in
2000. Had these loans been  performing  under the original  contract terms, an
additional  $17,000 would have been reflected in interest  income during 2000.
The Company is not committed to lend  additional  funds to debtors whose loans
have been modified.

PART D - OTHER NONPERFORMING ASSETS

         Management   is  of  the  opinion  that  there  are  no   significant
foreseeable losses relating to substandard or nonperforming  assets, 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
trade area.

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:

- -    Management   reviews  the  larger  individual  loans  (primarily  in  the
     commercial  loan portfolio) for  unfavorable  collectability  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 in future periods by loan
     category  and  thereby  establish  appropriate  reserves  for  loans  not
     specifically reviewed.

                                      20

- -    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.

- -    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,  $1.2 million, $1.3 million
and $480,000  were charged to the  provision  for loan losses and added to the
allowance for loan losses in 2000, 1999 and 1998, respectively.

         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.

                                      21

                                                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, 2000, 1999, 1998,

                                                                      2000         1999         1998         1997         1996
                                                                   -----------  -----------  -----------  -----------  -----------
                                                                                                        
Amount of loans outstanding, December 31,                          $   718,876  $   653,898  $   538,496  $   458,634  $   382,265
                                                                   ===========  ===========  ===========  ===========  ===========
Average daily loans outstanding during the year
  ended December 31,                                               $   678,967  $   605,170  $   489,336  $   414,033  $   352,811
                                                                   ===========  ===========  ===========  ===========  ===========
Allowance for loan losses, January 1,                              $     6,522  $     5,510  $     5,308  $     5,306  $     5,472
                                                                   -----------  -----------  -----------  -----------  -----------
Loans charged-off
  Commercial                                                               200          147            9           99          171
  Real estate                                                               30            6            0           33            0
  Installment                                                              483          252          329          190          158
  Credit cards and personal credit lines                                    35           30           78           37           39
                                                                   -----------  -----------  -----------  -----------  -----------
Total loans charged-off                                                    748          435          416          359          368
                                                                   -----------  -----------  -----------  -----------  -----------
Recoveries of loans previously charged-off
  Commercial                                                                45           10           44           18           12
  Real estate                                                                0            0            0            0            0
  Installment                                                               93          114           86           66           54
  Credit cards and personal credit lines                                     6           13            8            8           16
                                                                   -----------  -----------  -----------  -----------  -----------
Total recoveries                                                           144          137          138           92           82
                                                                   -----------  -----------  -----------  -----------  -----------
Net loans charged-off                                                      604          298          278          267          286
Purchase loan adjustment                                                     0            0            0            0            0
Provision for loan loss charged to expense                               1,206        1,310          480          269          120
                                                                   -----------  -----------  -----------  -----------  -----------
  Balance, December 31,                                            $     7,124  $     6,522  $     5,510  $     5,308  $     5,306
                                                                   ===========  ===========  ===========  ===========  ===========
Ratio of net charge-offs during the period to
  average daily loans outstanding
  Commercial                                                              0.02%        0.02%       (0.01)%       0.02%        0.03%
  Real estate                                                             0.00         0.00         0.00         0.01         0.01
  Installment                                                             0.06         0.02         0.05         0.03         0.00
  Credit cards and personal credit lines                                  0.01         0.01         0.02         0.01         0.04
                                                                   -----------  -----------  -----------  -----------  -----------
Total                                                                     0.09%        0.05%        0.06%        0.07%        0.08%
                                                                   ===========  ===========  ===========  ===========  ===========
Ratio of allowance for loan losses to
  Nonperforming assets                                                   73.83%      368.06%      258.20%      176.99%      204.31%
                                                                   ===========  ===========  ===========  ===========  ===========

                                                                22

                                                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, 2000, 1999, 1998, 1997 and 1996.

                                                                2000                      1999                      1998
                                                      ------------------------  ------------------------  ------------------------
                                                       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                                         $     5,205        68.09% $     4,750        64.55% $     1,647        64.39%
   Real estate                                                132         7.34          120         7.17          130        11.24
   Installment                                                974        18.04        1,202        22.43          845        18.61
   Credit cards and personal credit lines                     352         6.53          185         5.85          130         5.76
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 Total allocated allowance for loan losses                  6,663       100.00%       6,257       100.00%       2,752       100.00%
                                                                   ===========               ===========               ===========
 Unallocated allowance for loan losses                        461                       265                     2,758
                                                      -----------               -----------               -----------
 Total allowance for loan losses                      $     7,124               $     6,522               $     5,510
                                                      ===========               ===========               ===========

                                                                1997                      1996
                                                      ------------------------  ------------------------
                                                       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                                         $     1,341        59.52% $     1,213        60.07%
   Real estate                                                131        14.25          123        15.94
   Installment                                                673        19.43          530        18.68
   Credit cards and personal credit lines                     103         6.80          151         5.31
                                                      -----------  -----------  -----------  -----------
 Total allocated allowance for loan losses                  2,248       100.00%       2,017       100.00%
                                                                   ===========               ===========
 Unallocated allowance for loan losses                      3,060                     3,289
                                                      -----------               -----------
 Total allowance for loan losses                      $     5,308               $     5,306
                                                      ===========               ===========

       In 1999, the Company reviewed and revised the allocation process for the Allowance for Loan Losses. These changes primarily
effected 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  conformity with  recent regulatory  guidance.  The Company  continues to  review the
allocation process and the documentation for the Allowance for Loan Losses, therefore future changes may occur.

                                                                23

                                                       ANALYSIS OF DEPOSITS
                                                     (in thousands of dollars)

      The average  daily deposits  for the  years ended  December 31, 2000, 1999  and 1998, and  the average  rates paid  on those
deposits are summarized in the following table:

                                                                2000                      1999                      1998
                                                      ------------------------  ------------------------  ------------------------
                                                         Average     Average      Average     Average       Average     Average
                                                          Daily        Rate        Daily        Rate         Daily        Rate
                                                         Balance       Paid       Balance       Paid        Balance       Paid
                                                      -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                     
 Demand deposits                                      $   134,270         0.00% $   120,808         0.00% $    98,957         0.00%

 Savings accounts:
   Regular savings                                         53,372         1.68       54,562         1.71       55,299         2.41
   Interest bearing checking                               71,124         2.61       56,304         1.53       65,895         2.01

 Time deposits:
   Deposits of $100,000 or more                           157,040         4.98      150,182         5.30      142,589         5.80
   Other time deposits                                    367,321         5.94      359,700         4.84      326,123         5.28
                                                      -----------  -----------  -----------  -----------  -----------  -----------
 Total deposits                                       $   783,127         4.14% $   741,556         3.66% $   688,863         4.09%
                                                      ===========  ===========  ===========  ===========  ===========  ===========

     As of December 31, 2000, time certificates of deposit in denominations of $100,000 or more will mature as follows:

 Within three months                                  $    79,481

 Over three months, within six months                      64,333

 Over six months, within twelve months                     28,996

 Over twelve months                                         7,489
                                                      -----------
 Total time certificates of deposit in
   denominations of $100,000 or more                  $   180,299
                                                      ===========

                                                                24

                      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 the 2000 Annual  Report to  Shareholders  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 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,  2000,  1999 and 1998 were as
follows:

                                            2000         1999         1998
                                         -----------  -----------  -----------

Percent of net income to:
  Average daily total assets                    0.88%        0.84%        0.89%

  Average daily stockholders' equity           16.39        15.08        15.57

Percentage of  ividends declared per
  common share to basic earnings per
  weighted average number of common
  shares outstanding (5,813,984 shares
  in 2000, 1999 and 1998)                      32.50        30.77        24.26

Percentage of average daily
  stockholders' equity to average
  daily total assets                            5.38         5.58         5.74

                                      25

                             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.

                                            2000         1999         1998
                                         -----------  -----------  -----------

Outstanding at year end                  $   138,154  $   121,374  $   110,163

Approximate average interest rate at
  year end                                      5.37%        4.75%        4.78%

Highest amount outstanding as of any
  month end during the year              $   143,677  $   143,353  $   110,163

Approximate average outstanding
  during the year                        $   121,267  $   120,950  $    84,157

Approximate average interest rate
  during the year                               5.35%        4.76%        5.19%

     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.

                                      26

ITEM 2. PROPERTIES
- ------------------

      The Company conducts its operations from the following locations:
Branches/Headquarters
Main/Headquarters      202 E. Center St.            Warsaw          IN
Warsaw Drive-up        East Center St.              Warsaw          IN
Akron                  102 East Rochester           Akron           IN
Argos                  100 North Michigan           Argos           IN
Bremen                 1600 Indiana State Road 331  Bremen          IN
Columbia City          601 Countryside Dr.          Columbia City   IN
Concord                4202 Elkhart Road            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 N. Nappanee St.         Elkhart         IN
Fort Wayne North       302 East DuPont Rd.          Fort Wayne      IN
Fort Wayne Southwest   10429 Illinois Rd.           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
Greentown              520 W. Main                  Greentown       IN
Huntington             1501 N. Jefferson St.        Huntington      IN
Kendallville East      631 Professional Way         Kendallville    IN
LaGrange               901 South Detroit            LaGrange        IN
Ligonier Downtown      222 S. Calvin St.            Ligonier        IN
Ligonier South         1470 U.S. Highway 33 South   Ligonier        IN
Logansport             3900 Highway 24 East         Logansport      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 N. Main St.             Mishawaka       IN
Nappanee               202 West Market St.          Nappanee        IN
North Webster          644 North Main St.           North Webster   IN
Peru                   2 N. Broadway                Peru            IN
Pierceton              202 South First St.          Pierceton       IN
Plymouth               862 E. Jefferson St.         Plymouth        IN
Roann                  110 Chippewa St.             Roann           IN
Rochester              507 East 9th St.             Rochester       IN
Shipshewana            895 North Van Buren St.      Shipshewana     IN
Silver Lake            102 Main St.                 Silver Lake     IN
Syracuse               502 South Huntington         Syracuse        IN
Wabash North           1004 North Cass St.          Wabash          IN
Warsaw East            3601 Commerce Dr.            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

                                      27

      The Company leases from third parties, the real estate and buildings for
its  offices in Akron and Milford  and the  building  for its Winona Lake East
office.  In addition,  the Company leases the real estate for its Wabash North
office and 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.

      In  addition,  the  Company  owns  buildings,  which it uses for various
offices and computer  facilities,  for employee  training and undeveloped real
estate which it currently  intends to use for branch facilities in the future.
The Company also leases from third parties facilities for computer  facilities
and the storage of supplies.

      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 2000.

                                    PART II

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

         Information  relating to the  principal  market for and the prices of
the Company's  common  stock,  and  information  as to dividends are contained
under the caption "Stock and Dividend  Information"  in the 2000 Annual Report
to  Shareholders  and are  incorporated  herein by reference.  On December 31,
2000, the Company had approximately  1,900  shareholders of record,  including
those employees who participate in the Company's 401(K) plan.

         On January 15, 1997, the Company sold 20,000 shares of authorized but
previously unissued common stock for $15.50 per share (split adjusted).

         In August,  1997,  the common stock of the Company and the  preferred
stock of its  wholly-owned  subsidiary,  Lakeland Trust,  began trading on The
Nasdaq Stock Market under the symbols LKFN and LKFNP.

         At the  annual  meeting  of  shareholders  on  April  14,  1998,  the
shareholders  approved the Lakeland Financial Corporation 1997 Share Incentive
Plan. This plan reserves  600,000 shares of common stock (split  adjusted) for
which incentive share options and  non-qualified  share options may be granted
to directors and employees of the Company and its subsidiaries.

         On April 30, 1998, the common stock split two-for-one.

ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------

         A five-year consolidated  financial summary,  containing the required
selected financial data,  appears under the caption "Selected  Financial Data"
on page 7 in the 2000 Annual Report to Shareholders and is incorporated herein
by reference.

                                      28

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

         Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations appears under the caption  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations" on pages 28 - 31 in
the  2000  Annual  Report  to  Shareholders  and  is  incorporated  herein  by
reference.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------

         Quantitative  and  qualitative  disclosures  about market risk appear
under the caption "Management's Discussion and Analysis of Financial Condition
and  Results  of  Operations"  on pages 28 - 31 in the 2000  Annual  Report to
Shareholders and is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ---------------------------------------------------

         The following  consolidated  financial  statements appear in the 2000
Annual Report to Shareholders and are incorporated herein by reference.

Consolidated Balance Sheets at December 31, 2000 and 1999.
Consolidated  Statements of Income for the years ended December 31, 2000, 1999
and 1998.
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 2000,  1999 and 1998.  Consolidated  Statements of Cash Flows for
the years  ended  December  31,  2000,  1999 and 1998.  Notes to  Consolidated
Financial Statements.
Report of Independent Auditors.

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

         Not applicable.

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
         The  information  appearing in the definitive  Proxy  Statement dated
March 14, 2001, is incorporated herein by reference in response to this item.

Section  16(a) of the  Securities  Exchange Act of 1934 requires that
our  executive  officers,  directors  and persons who own more than 10% of our
common  stock file  reports of  ownership  and  change in  ownership  with the
Securities and Exchange Commission.  They are also required to furnish us with
copies of all Section 16(a) forms they file. Based solely on our review of the
copies of such forms, and, if appropriate,  representations  made to us by any
reporting  person  concerning  whether a Form 5 was  required  to be filed for
2000, we are not aware that any of our  directors,  executive  officers or 10%
shareholders  failed to comply with the filing  requirements  of Section 16(a)
during 2000.

ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------

         The  information  appearing in the definitive  Proxy  Statement dated
March 14, 2001, 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"  and  "Stock  Price  Performance"  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
March 14, 2001, is incorporated herein by reference in response to this item.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------

         The  information  appearing in the definitive  Proxy  Statement dated
March 14, 2001, is incorporated herein by reference in response to this item.

                                      29

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- ------------------------------------------------------------------------

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

         (1)      Financial Statements.
                  ---------------------
                  The following financial statements appear in the 2000 Annual
Report to Shareholders  and are  specifically  incorporated by reference under
Item 8 of this Form 10-K, or are a part of this Form 10-K, as indicated and at
the pages set forth below.

                                                          Reference
                                                          ---------
                                                                  2000 Annual
                                                    Form 10-K       Report
                                                    ---------   --------------

Consolidated Balance Sheets at December 31,
  2000 and 1999.                                                      9
Consolidated Statements of Income for the
  years ended December 31, 2000, 1999 and 1998.                       10
Consolidated Statements of Changes in
  Stockholders' Equity for the years ended
  December 31, 2000, 1999 and 1998.                                   11
Consolidated Statements of Cash Flows for the
  years ended December 31, 2000, 1999 and 1998.                       12
Notes to Consolidated Financial Statements.                           13-26
Report of Independent Auditors.                                       27

         (2)   Financial Statement Schedules.
               ------------------------------
               N/A

         (3)   Schedule of Exhibits.
               ---------------------
               The Exhibit Index, which immediately follows the signature pages
to this Form 10-K is incorporated by reference.

(b)   Reports on Form 8-K.
      --------------------
      The Company did notfile any Current Reports on Form 8-K during the fourth
quarter of 2000.

(c)   Exhibits.
      ---------
      The exhibits required to be filed with this Form 10-K are  included with
this Form 10-K and are located immediately following the Exhibit Index to this
Form 10-K.

                                      30

                                  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: March 13, 2001                        By /s/R. Douglas Grant
                                              (R. Douglas Grant) 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.

Date: March 13, 2001                        /s/Michael L. Kubacki
                                           (Michael L. Kubacki) Principal
                                            Executive Officer and Director

Date: March 13, 2001                        /s/David M. Findlay
                                           (David M. Findlay) Principal
                                            Financial Officer

Date: March 13,2001                         /s/Teresa A. Bartman
                                           (Teresa A. Bartman) Principal
                                            Accounting Officer

Date: March 13, 2001                        /s/R. Douglas Grant
                                           (R. Douglas Grant) Director

Date: March 13, 2001                        _____________________________
                                           (Eddie Creighton) Director

Date: March 13, 2001                        /s/Anna K. Duffin
                                           (Anna K. Duffin) Director

Date: March 13, 2001                        /s/L. Craig Fulmer
                                           (L. Craig Fulmer) Director

Date: March 13, 2001                        _____________________________
                                           (Jerry L. Helvey) Director

                                      31

Date: March 13, 2001                        /s/Allan J. Ludwig
                                           (Allan J. Ludwig) Director

Date: March 13, 2001                        /s/Charles E. Niemier
                                           (Charles E. Niemier) Director

Date: March 13, 2001                        /s/D. Jean Northenor
                                           (D. Jean Northenor) Director

Date: March 13, 2001                        /s/Richard L. Pletcher
                                           (Richard L. Pletcher) Director

Date: March 13, 2001                        /s/Steven D. Ross
                                           (Steven D. Ross) Director

Date: March 13, 2001                        /s/Terry L. Tucker
                                           (Terry L. Tucker) Director

Date: March 13, 2001                        /s/M. Scott Welch
                                           (M. Scott Welch) Director

Date: March 13, 2001                        /s/G.L. White
                                           (G.L. White) Director

                                      32

                        LAKELAND FINANCIAL CORPORATION
                                 EXHIBIT INDEX
                                      TO
                          ANNUAL REPORT ON FORM 10-K

                                                 Incorporated
                                                  Herein by            Filed
Exhibit No.          Description                 Reference to         Herewith
- ----------- ----------------------------- --------------------------- --------

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

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

     13     Annual Report to                                              X
            Shareholders

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

     21     Subsidiaries                                                  X

    4.1     Specimen Stock Certificate                                    X
            of Lakeland Financial
            Corporation

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

   10.3     Form of Change of Control                                     X
            Agreements entered into with
            Michael L. Kubacki, Charles
            D. Smith, Walter L. Weldy
            and Robert C. Condon

     23     Consent of Crowe, Chizek and                                  X
            Company LLP

     99     Proxy Statement (as           Incorporated by reference
            incorporated by reference     from Schedule 14A filed by
            into this Form 10-K)          the Company on March 12,
                                          2001

                                      33

                                  EXHIBIT 13

2000 Report to Shareholders with Report of Independent Auditors.

                                      34

                                  EXHIBIT 21

                                 Subsidiaries
                                 ------------

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

2. Lakeland Capital Trust, a  statutory business  trust formed  under Delaware
   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.

                                      35

Annual Meeting
- ------------------------------------------------------------------------------

      The annual meeting of the shareholders of Lakeland Financial Corporation
will be held at noon, April 10, 2001, at the Shrine Building, Kosciusko County
Fair  Grounds,   Warsaw,   Indiana.  As  of  December  31,  2000,  there  were
approximately 1,900 shareholders.

Special Notice: Form 10-K Available
- ------------------------------------------------------------------------------

      The Company will provide  without charge to each  shareholder its Annual
Report on Form 10-K, including any financial statements and schedules that are
required  to be filed with the  Securities  and  Exchange  Commission  for the
Company's most recent fiscal year.  Written request should be sent to Lakeland
Financial  Corporation,  Attn:  Treasurer,  P.O.  Box  1387,  Warsaw,  Indiana
46581-1387.  The Form 10-K and  related  exhibits  are also  available  on the
Internet at www.sec.gov.

Registrar and Transfer Agent
- ------------------------------------------------------------------------------

      Lake City Bank
      Trust Department
      P.O. Box 1387
      Warsaw, Indiana 46581-1387

Stock and Dividend Information
- ------------------------------------------------------------------------------

      The  following   companies  are  market  makers  in  Lakeland  Financial
Corporation stock:

    Stifel, Nicolaus & Company, Inc., 500 North Broadway, St. Louis, Missouri,
    63102
    Raymond James & Associates, Inc., P.O. Box 130, Elkhart, Indiana, 46515
    McDonald Investments, Inc., 214 South Main Street, Elkhart, Indiana, 46516
    First  Tennessee Capital  Markets,  500 West  Madison Street, Suite  2940,
    Chicago, Illinois, 60661

      As of August 25, 1997,  the  Company's  common  stock and the  preferred
stock of its wholly-owned subsidiary, Lakeland Capital Trust, began trading on
The Nasdaq Stock MarketSM (Nasdaq) under the symbols LKFN and LKFNP. Nasdaq is
a highly-regulated  electronic securities market comprised of competing market
makers whose trading is supported by a communications  network linking them to
quotation  dissemination,  trade reporting,  and order execution systems. This
market  also  provides   specialized   automation  services  for  screen-based
negotiations of transactions,  on-line comparison of transactions, and a range
of informational  services  tailored to the needs of the securities  industry,
investors and issuers.  Nasdaq is operated by The Nasdaq Stock Market, Inc., a
wholly-owned  subsidiary of the National  Association  of Securities  Dealers,
Inc.  The high and low  prices for 1999 and 2000,  which  appear in the report
were obtained from The Nasdaq Stock Market.

Forward-Looking Statements

     When used in this report and in future  filings by the  Company  with the
Securities and Exchange  Commission,  in the Company's press releases or other
public or  shareholder  communications,  or in oral  statements  made with the
approval of an authorized  executive officer, the words or phrases "would be,"
"will  allow,"  "intends  to," "will likely  result," "are expected to," "will
continue," "is anticipated," "estimate," "project," or similar expressions are
intended to identify  "forward-looking  statements"  within the meaning of the
Private Securities  Litigation Reform Act of 1995. Such statements are subject
to risks and  uncertainties,  including but not limited to changes in economic
conditions  in the  Company's  market area,  changes in policies by regulatory
agencies,  fluctuations in interest  rates,  demand for loans in the Company's
market area and  competition,  all or some of which could cause actual results
to differ materially from historical earnings and those presently  anticipated
or projected.

     The Company  wishes to caution  readers not to place undo reliance on any
such  forward-looking  statements,  which speak only as of the date made,  and
advise readers that various factors,  including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other  risks  of  lending  and  investment   activities  and  competitive  and
regulatory factors, could affect the Company's financial performance and could
cause the Company's  actual  results for future  periods to differ  materially
from those anticipated or projected.

     The  Company  does  not  undertake,   and   specifically   disclaims  any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.

President's Letter
- ------------------------------------------------------------------------------

      We are pleased to report on your Company's  progress in 2000. Net income
of  $9.3  million  is an  increase  of 12%  versus  1999  and  represents  our
thirteenth  consecutive year of record earnings.  We continued to successfully
grow  our   commercial   loan   portfolio  by  adding   quality  new  business
relationships and expanding existing relationships. On the deposit side of the
business, we made a special effort to grow core product areas such as checking
and Investor's Weekly.  Overall,  total deposits increased 13% in 2000 to $845
million.  Our trust and  brokerage  areas enjoyed a 23% increase in total fees
versus  1999  and  grew to  $2.1  million.  Finally,  through  leveraging  our
technology  platform and tightly  managing  direct  expenses,  we were able to
achieve these results while growing expenses by only 1%.

      The  Commercial  Banking  Division  had an  excellent  year of growth by
continuing  the  tradition of  specialized  service to our business  partners.
Commercial loan outstandings increased to $489 million at year-end compared to
$422 million in 1999. With over 400 combined years of experience,  our team of
25 banking officers provides the necessary expertise, personalized service and
understanding of the business trends in our market areas.

      The goal of the Commercial  Banking  Division's cash management group is
to  provide  services  to  customers  that are equal in  quality to our larger
competitors with the attention to detail and hands-on customer service that is
a hallmark of Lake City Bank. Our increased  capabilities  in the area of cash
management  have  contributed  to our  success  on the  commercial  front.  An
additional 48 customers were added to our Sweep to Investment product over the
year and lockbox  services  were sold to 4 new  clients.  By far,  our largest
increase in service provided was in the area of electronic transactions. These
transactions  include direct deposit of payroll and direct payment  collection
for our customers.  We offer many options in this area to accommodate business
clients of all sizes. Our flexibility has paid off as we have seen an increase
of 340,000 electronic transactions over last year, an increase of 35%.

                                      1

 President's Letter (continued)
- ------------------------------------------------------------------------------

      Higher  interest rates in 2000 reduced home sales and housing starts and
diminished  mortgage  refinancing.  Nevertheless,  the  gain  on the  sale  of
mortgage loans totaled over $504,000 in 2000. The Mortgage  Division  expanded
product  offerings during the year,  adding secondary  markets for jumbo fixed
rate loans and streamlining FHA/VA lending for affordable  housing.  The focus
of the Consumer Lending Division has shifted from indirect auto lending to the
home equity line of credit.  This product continues to be the area of consumer
lending experiencing the greatest growth, with outstanding balances increasing
24% in 2000.  The home  equity  line of credit is secured by a mortgage on the
borrower's residence, so the low interest rate and potential tax deductibility
makes this attractive to our customers. Historically low levels of delinquency
and loss,  as well as variable  rates and low  servicing  costs,  make this an
excellent product for your Company.

      As  noted  earlier,  the  Trust  and  Investment   Management  Division,
consisting of personal trust,  investment  management,  brokerage,  retirement
services and corporate trust  experienced  strong growth in 2000. Assets under
administration  were more than $800  million by the end of the year.  With our
clients'  interests in mind, we have formed an alliance with Wright Investors'
Service. We believe that they are one of the premier  professional  investment
management  organizations  in the country with extensive  databases,  research
capabilities  and economic  forecasting  expertise.  This  partnership  should
provide our managers with the complete and current information they need to be
certain that our clients are receiving  the best  investment  assistance.  Our
transition to new, more  powerful and efficient  personal  trust and corporate
trust  systems  should  provide our clients  with the latest in  technological
innovation, including on-line access to their account information.

      Banking via the  Internet is growing with  personal  and small  business
accounts  numbering  nearly  3,000.  Internet  customers  enjoy  the  ease and
convenience  of access to their  accounts  from  their  home or  office.  Bill
payment, offered in early 2001, has kept the emphasis on customer service with
advanced  technology.  We are  developing  a new  corporate  internet  banking
product called CommercialLink.  It provides multi-level security for customers
to view  comprehensive  account  summary  and  details,  deposit  transactions
history, funds transfer,  stop payments and wire transfer requests.  Telephone
banking customers  continue to increase with over 8,000 customers enjoying the
ease and  convenience  of  accessing  accounts  either  through the  automated
system, with nearly 500,000 calls received, or by speaking to customer service
representatives  who answered over 62,000 calls this year. With the variety of
options available to our customers, we continue to provide options and enhance
"Banking Like It Ought To Be".

                                      2

President's Letter (continued)
- ------------------------------------------------------------------------------

      Prospero,  Spanish for  prosperity,  was introduced to assist our Latino
neighbors as they integrate into the  community.  On-site  seminars at various
companies  are designed to assist  Latino  employees in  establishing  banking
accounts,  developing  good  credit  and  acquiring  knowledge  in  purchasing
property.  In addition,  the program is designed to help the Company stabilize
it's workforce.

      Young Adult  Checking was introduced and has been a good addition to the
LCB product mix. We opened over 1,000 new  accounts  and have the  opportunity
for  additional   banking   relationships  with  this  young  segment  of  the
population.  Money Market Checking was enhanced to include personal  overnight
investments.  The Direct Deposit  Checking Account is a cost effective way for
people to have banking services and is meeting the needs of a large segment of
our market area by providing the option for free checking with the  electronic
deposit of pension or payroll receipts.

      During the year 2000,  employees saw many positive benefit changes.  The
Lake City Bank 401(k) plan was changed from a balance  forward plan to a daily
valuation  plan,  offering  employees  access to their 401(k)  accounts  daily
through the Internet,  as well as through a telephone  voice response  system.
Employees are given eight different  investment  options,  with the ability to
trade daily. The vesting schedule also changed from a seven-year to a six-year
vesting schedule. Group Term Life and Accidental Death/Dismemberment Insurance
was  enhanced  to reflect  coverage  equal to two times an  employee's  annual
salary.  Also, the health insurance plan was updated to include a prescription
card plan, as well as to offer basic dental and vision plans.

      Lake  City  University  (LCU)  began in 2000.  LCU  exists  to unify all
training  activities  and  provide  a way  for  employees  to keep  their  job
knowledge  fresh and develop their banking  career.  Over 14,000 contact hours
were offered in all areas of banking including  customer  service,  commercial
and  consumer  lending,   business  development,   PC  and  technical  skills,
leadership   and   supervision,   compliance,   communication,   interpersonal
relationships, and train-the-trainer.  Monthly customer service representative
meetings and  quarterly  corporate  training for all  employees  kept everyone
informed  about new ventures in the world of banking.  LCU staff also assisted
employees  in  accessing  hundreds of hours of external  training in seminars,
conferences,  and specialized classes.  Conversational  Spanish for Bankers, a
ten-week course taught by a local Spanish-speaking instructor, allowed many of
our  employees to learn the basics of the  language  that would assist them as
they  opened  new  accounts  and  answered  banking  questions  for our Latino
customers.

                                      3

 President's Letter (continued)
- ------------------------------------------------------------------------------

      Executive Vice  President D. Jean Northenor  retired from active service
on February 9, 2001. She subsequently  joined the Bank's Board of Directors as
well as the  Board  of  Lakeland  Financial  Corporation.  In her 17  years of
service, she has been a very important part of our management team and we will
miss her day-to-day presence. At the same time, we will certainly benefit from
her counsel in her new role as a Director.

      David M. Findlay  joined your Company as Executive  Vice  President  and
Chief  Financial  Officer.  He has over 16 years  experience  in the financial
sector,  most  recently  serving as Chief  Financial  Officer and Treasurer of
Mishawaka, Indiana based Quality Dining. His prior experience included various
positions  with Chicago based Northern  Trust  Company.  Findlay,  a native of
Elkhart, Indiana is a graduate of DePauw University.

      Steven D. Ross, President of Bertsch Services,  was elected to the Board
of Directors of both Lake City Bank and Lakeland Financial  Corporation.  Ross
is a graduate of Ball State University.  An active community leader, he serves
as a board  member of the Indiana  Chamber of  Commerce,  is  President of the
Indiana Vending Council and serves on many local boards and commissions. He is
a valuable addition to your Board.

      Senior Management promotions since the beginning of 2000 include Charles
D. Smith and Kevin L.  Deardorff to Executive Vice President in the Commercial
and Retail Banking Divisions, respectively.  Promoted to Senior Vice President
were Jill A.  DeBatty - Human  Resources,  Thomas P. Frantz - Retail  Lending,
Michael E. Gavin and Harold A.  "Rocky"  Meyer - Commercial  Lending.  These 6
senior officers represent over 130 years of financial  experience and are some
of your Company's most valuable resources.

      The Fort Wayne  Southwest  office  opened in October.  We have been well
accepted in that market area. Other areas of current expansion include a third
Fort Wayne office located on the Northeast side of town and a third South Bend
office that will open in late  spring.  We will  continue to be  proactive  in
pursuing  expansion  opportunities  in  areas  where  we  believe  we can grow
profitably.

                                      4

President's Letter (continued)
- ------------------------------------------------------------------------------

      Connecting on a personal  level remains a constant with our offices.  We
hosted many events  including a  cooperative  effort with Bethel  College on a
series of  seminars.  The  popular Egg  Breakfast,  co-hosted  with  Creighton
Brothers  celebrated its 30th year.  Business and Agricultural  seminars and a
401(k)  informational  meeting  were of benefit to our  customers in providing
needed  information  to keep  current  in the  ever-changing  marketplace.  We
celebrate February birthdays and anniversaries at Grace Village in Winona Lake
and enjoy a Spring  Celebration  at  Hubbard  Hill in  Elkhart.  Our lives are
enriched  during  those times as the  residents  warmly  welcome us into their
homes.

      Overall,  we overcame  many  obstacles  during 2000,  including the slow
mortgage market,  narrowing interest margins and softening economic conditions
in  several  of our  markets.  Your  Company's  committed  team  rose to every
occasion  and  achieved  a very  solid  performance  in 2000.  We  enter  2001
confronted  with many of these same  issues.  As we begin the year,  there are
continuing  signs of economic  weakness  that could lead to asset  quality and
balance  sheet  growth  challenges.  While we intend to maintain  our focus on
commercial  loan  growth,   we  will  not  compromise  our  historical  credit
standards.  The competition  for customer's  deposits and recent interest rate
movements  have  placed  continued   pressure  on  our  net  interest  margin.
Nonetheless,  we  intend  to  provide  the  highest  quality  service  to  our
customers,  to  market  ourselves  aggressively,  and  to  grow  our  earnings
consistently over the long term.

      I would like to thank  shareholders,  customers  and  employees for your
support.  Lake City Bank is a very special institution,  and I look forward to
working with all of you to further extend its success.

                                             Michael L. Kubacki
                                             President & CEO

                                      5

Lakeland Financial Corporation and Lake City Bank Board of Directors
- ------------------------------------------------------------------------------

                                                                                                 
Eddie Creighton                     Anna K. Duffin                     L. Craig Fulmer                    R. Douglas Grant
  Former Partner and                  Civic Leader                       Chairman,                          Chairman,
  General Manager,                                                       Heritage Financial                 Lakeland Financial
  Creighton Brothers                                                     Group, Inc.                        Corporation and Lake
                                                                                                            City Bank

Jerry L. Helvey                     Michael L. Kubacki                 Allan J. Ludwig                    Charles E. Niemier
  President,                          President,                         Industrial Developer               Senior Vice President,
  Helvey & Associates, Inc.           Lakeland Financial                                                    Biomet, Inc.
                                      Corporation and Lake
                                      City Bank

D. Jean Northenor                   Richard L. Pletcher                Steven D. Ross                     Terry L. Tucker
  Former Executive Vice               President,                         President,                         President,
  President,                          Pletcher Enterprises, Inc.         Bertsch Services                   Maple Leaf Farms, Inc.
  Lake City Bank

M. Scott Welch                                                                                            G.L. White
  Chief Executive Officer,                                                                                  Former President,
  Welch Packaging Group                                                                                     United Telephone
                                                                                                            Company of Indiana

                    LAKELAND FINANCIAL CORPORATION OFFICERS
R. Douglas Grant          Chairman
Michael L. Kubacki        President and Chief Executive Officer
Robert C. Condon          Executive Vice President
Kevin L. Deardorff        Executive Vice President
David M. Findlay          Executive Vice President and Secretary
Charles D. Smith          Executive Vice President
Walter L. Weldy           Executive Vice President
Teresa A. Bartman         Vice President and Controller
James J. Nowak            Vice President and Treasurer

                                      6

Selected Financial Data (in thousands except share and per share data)
- ----------------------------------------------------------------------------------------------------------------------------------

                                                              2000           1999           1998           1997           1996
                                                         -------------  -------------  -------------  -------------  -------------

Interest income                                          $      80,050  $      69,395  $      63,667  $      52,699  $      45,941

Interest expense                                                45,001         37,093         36,091         28,060         23,737
                                                         -------------  -------------  -------------  -------------  -------------

Net interest income  . . . . . . . . . . . . . . . . . .        35,049         32,302         27,576         24,639         22,204

Provision for loan losses                                        1,206          1,310            480            269            120
                                                         -------------  -------------  -------------  -------------  -------------

Net interest income after provision
  for loan losses                                               33,843         30,992         27,096         24,370         22,084

Other noninterest income                                         9,866          9,311          8,486          6,978          5,396

Net gains on sale of real estate
  mortgages held for sale                                          504          1,302          1,467            545            412

Net securities gains (losses)                                        0          1,340          1,256            (19)            (9)

Noninterest expense                                            (30,775)       (30,541)       (26,491)       (20,414)       (17,935)
                                                         -------------  -------------  -------------  -------------  -------------

Income before income tax expense . . . . . . . . . . . .        13,438         12,404         11,814         11,460          9,948

Income tax expense                                               4,116          4,085          3,926          3,920          3,504
                                                         -------------  -------------  -------------  -------------  -------------

Net income . . . . . . . . . . . . . . . . . . . . . . . $       9,322  $       8,319  $       7,888  $       7,540  $       6,444
                                                         =============  =============  =============  =============  =============

Average shares outstanding*                                  5,813,984      5,813,984      5,813,984      5,813,162      5,792,825
                                                         =============  =============  =============  =============  =============

Basic earnings per common share*                         $        1.60  $        1.43  $        1.36  $        1.30  $        1.11
                                                         =============  =============  =============  =============  =============

Diluted earnings per common share*                       $        1.60  $        1.43  $        1.36  $        1.30  $        1.11
                                                         =============  =============  =============  =============  =============

Cash dividends declared*                                 $        0.52  $        0.44  $        0.33  $        0.30  $        0.23
                                                         =============  =============  =============  =============  =============

Balances at December 31:
- ------------------------
Total assets                                             $   1,149,157  $   1,039,843  $     978,909  $     796,478  $     656,551

Total deposits                                           $     845,329  $     748,243  $     739,347  $     612,992  $     496,553

Total short-term borrowings                              $     200,078  $     195,374  $     135,690  $      84,117  $      88,380

Long-term borrowings                                     $      11,433  $      16,473  $      21,386  $      25,367  $      23,531

Guaranteed preferred beneficial interests in
  Company's subordinated debentures                      $       19,291 $      19,264  $      19,238  $      19,211  $           0

Total stockholders' equity                               $      64,973  $      54,194  $      55,156  $      48,256  $      42,043

* Adjusted for 2-for-1 stock splits on April 30, 1996 and April 30, 1998.

                                       7

Stock and Dividend Information
- ----------------------------------------------------------------------------------------------------------------------------------

                                                                             4th            3rd            2nd            1st
                                                                           Quarter        Quarter        Quarter        Quarter
                                                                        =============  =============  =============  =============

2000
                                                                                                         
Trading range (per share)*

  Low                                                                   $       10.56  $       10.31  $       11.25  $       12.69

  High                                                                  $       13.13  $       14.00  $       14.38  $       17.88

Dividends declared (per share)                                          $        0.13  $        0.13  $        0.13  $        0.13

1999

Trading range (per share)*

  Low                                                                   $       13.75  $       16.00  $       17.06  $       17.75

  High                                                                  $       18.00  $       19.88  $       18.50  $       19.88

Dividends declared (per share)                                          $        0.11  $        0.11  $        0.11  $        0.11

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

                                       8

Consolidated Balance Sheets (in thousands except share data)
- ----------------------------------------------------------------------------------------------------------------------------------

December 31                                                                                                 2000          1999
                                                                                                        ------------  ------------
                                                                                                                
ASSETS
Cash and due from banks                                                                                 $     84,682  $     59,321
Short-term investments                                                                                         4,311         3,783
                                                                                                        ------------  ------------
   Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        88,993        63,104

Securities available for sale (carried at fair value)                                                        293,608       271,421
Real estate mortgages held for sale                                                                              183           862

Total loans                                                                                                  718,876       653,898
Less allowance for loan losses                                                                                 7,124         6,522
                                                                                                        ------------  ------------
  Net loans  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       711,752       647,376

Land, premises and equipment, net                                                                             27,297        27,808
Accrued income receivable                                                                                      6,744         5,420
Intangible assets                                                                                              9,624        10,522
Other assets                                                                                                  10,956        13,330
                                                                                                        ------------  ------------
   Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1,149,157  $  1,039,843
                                                                                                        ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Noninterest bearing deposits                                                                            $    164,606  $    136,595
Interest bearing deposits                                                                                    680,723       611,648
                                                                                                        ------------  ------------
  Total deposits  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      845,329       748,243

Short-term borrowings
  Federal funds purchased                                                                                      8,250        15,000
  Securities sold under agreements to repurchase                                                             138,154       121,374
  U.S. Treasury demand notes                                                                                   3,674         4,000
     Other short-term borrowings                                                                              50,000        55,000
                                                                                                        ------------  ------------
    Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      200,078       195,374

Accrued expenses payable                                                                                       6,684         4,760
Other liabilities                                                                                              1,369         1,535
Long-term borrowings                                                                                          11,433        16,473
Guaranteed preferred beneficial interests in
  Company's subordinated debentures                                                                           19,291        19,264
                                                                                                        ------------  ------------
    Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1,084,184       985,649

Commitments, off-balance sheet risks and contingencies

STOCKHOLDERS' EQUITY
Common stock: 90,000,000 shares authorized, no par value,
  5,813,984 shares issued, 5,784,105 outstanding as of December 31, 2000;
  5,813,984 shares issued, 5,792,182 outstanding as of December 31, 1999                                       1,453         1,453
Additional paid-in capital                                                                                     8,537         8,537
Retained earnings                                                                                             55,734        49,422
Accumulated other comprehensive income (loss)                                                                   (207)       (4,797)
Treasury stock, at cost (2000 - 29,879 shares, 1999 - 21,802 shares)                                            (544)         (421)
                                                                                                        ------------  ------------
  Total stockholders' equity  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       64,973        54,194
                                                                                                        ------------  ------------
    Total liabilities and stockholders' equity  . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  1,149,157  $  1,039,843
                                                                                                        ============  ============

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

                                       9

Consolidated Statements of Income (in thousands except share data)
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31                                                                        2000          1999          1998
                                                                                          ------------  ------------  ------------
                                                                                                             
NET INTEREST INCOME
Interest and fees on loans
  Taxable                                                                                 $     61,554  $     51,602  $     44,225
  Tax-exempt                                                                                       142           182           194
Interest and dividends on securities
  Taxable                                                                                       16,150        14,888        16,416
  Tax-exempt                                                                                     1,782         2,448         2,313
Interest on short-term investments                                                                 422           275           519
                                                                                          ------------  ------------  ------------
    Total interest income                                                                       80,050        69,395        63,667

Interest on deposits                                                                            32,395        27,153        28,154
Interest on borrowings
  Short-term                                                                                    10,083         7,139         4,724
  Long-term                                                                                      2,523         2,801         3,213
                                                                                          ------------  ------------  ------------
    Total interest expense                                                                      45,001        37,093        36,091
                                                                                          ------------  ------------  ------------

NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       35,049        32,302        27,576

Provision for loan losses                                                                        1,206         1,310           480
                                                                                          ------------  ------------  ------------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES . . . . . . . . . . . . . . . . . . .       33,843        30,992        27,096

NONINTEREST INCOME
Trust and brokerage income                                                                       2,133         1,732         1,629
Service charges on deposits                                                                      4,423         4,321         4,004
Other income                                                                                     3,310         3,258         2,853
Net gains on the sale of real estate mortgages held for sale                                       504         1,302         1,467
Net securities gains                                                                                 0         1,340         1,256
                                                                                          ------------  ------------  ------------
  Total noninterest income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       10,370        11,953        11,209

NONINTEREST EXPENSE
Salaries and employee benefits                                                                  15,927        15,911        14,076
Net occupancy expense                                                                            2,095         2,148         1,866
Equipment costs                                                                                  2,991         3,167         2,205
Other expense                                                                                    9,762         9,315         8,344
                                                                                          ------------  ------------  ------------
  Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       30,775        30,541        26,491
                                                                                          ------------  ------------  ------------

INCOME BEFORE INCOME TAX EXPENSE                                                                13,438        12,404        11,814

Income tax expense                                                                               4,116         4,085         3,926
                                                                                          ------------  ------------  ------------

NET INCOME  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $      9,322  $      8,319  $      7,888
                                                                                          ============  ============  ============

AVERAGE COMMON SHARES OUTSTANDING                                                            5,813,984     5,813,984     5,813,984
                                                                                          ============  ============  ============

BASIC EARNINGS PER COMMON SHARE                                                           $       1.60  $       1.43  $       1.36
                                                                                          ============  ============  ============

DILUTED EARNINGS PER COMMON SHARE                                                         $       1.60  $       1.43  $       1.36
                                                                                          ============  ============  ============

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

                                      10

Consolidated Statements of Changes in Stockholders' Equity (in thousands except share data)
- ----------------------------------------------------------------------------------------------------------------------------------

Year Ended December 31                                       2000                       1999                       1998
                                                  -------------------------- -------------------------- --------------------------
                                                                                                    
COMMON STOCK
  Balance at beginning of the period              $      1,453               $      1,453               $      1,453
                                                  ------------               ------------               ------------
  Balance at end of the period . . . . . . . . .         1,453                      1,453                      1,453

ADDITIONAL PAID-IN CAPITAL
  Balance at beginning of the period                     8,537                      8,537                      8,537
                                                  ------------               ------------               ------------
  Balance at end of the period . . . . . . . . .         8,537                      8,537                      8,537

RETAINED EARNINGS

  Balance at beginning of the period                    49,422                     43,652                     37,766
  Net income                                             9,322  $     9,322         8,319  $     8,319         7,888  $      7,888
  Cash dividends declared per share
    ($.52, $.44 and $.33)                               (3,010)                    (2,549)                    (2,002)
                                                  ------------               ------------               ------------
  Balance at end of the period . . . . . . . . .        55,734                     49,422                     43,652

ACCUMULATED OTHER
COMPREHENSIVE INCOME

  Balance at beginning of the period                    (4,797)                     1,848                        685
  Unrealized gain (loss) on available for sale
    securities arising during the period                 4,590                     (5,836)                      (573)
  Reclassification adjustments for accumulated
    (gains) losses included in net income                    0                       (809)                      (759)
  Cumulative effect of adopting SFAS No. 133                 0                          0                      2,495
                                                  ------------               ------------               ------------
  Other comprehensive income (loss)
    (net of taxes $3,011, $(4,359) and $762)             4,590         4,590       (6,645)       (6,645)       1,163         1,163
                                                  ------------  ------------ ------------  ------------ ------------  ------------
  Balance at end of the period . . . . . . . . .          (207)                    (4,797)                     1,848
  Total comprehensive income . . . . . . . . . .                $     13,912               $      1,674               $      9,051
                                                                ============               ============               ============
TREASURY STOCK
  Balance at beginning of the period                      (421)                       (334)                     (185)
  Acquisition of treasury stock                           (123)                        (87)                     (149)
                                                  ------------               -------------              ------------
  Balance at end of the period . . . . . . . . .          (544)                       (421)                     (334)
                                                  ------------               -------------              ------------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . .  $     64,973               $      54,194              $     55,156
                                                  ============               =============              ============

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

                                      11

Consolidated Statements of Cash Flows (in thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31                                                                      2000          1999          1998
                                                                                          ------------  ------------  ------------
                                                                                                             
Cash flows from operating activities:
Net income                                                                                $      9,322  $      8,319  $      7,888

Adjustments to reconcile net income to
  net cash from operating activities:

  Depreciation                                                                                   2,429         2,373         1,782
  Provision for loan losses                                                                      1,206         1,310           480
  Pension plan curtailment gain                                                                   (500)            0             0
  Amortization of intangible assets                                                                925           957           942
  Amortization of loan servicing rights                                                            233           265           171
  Loans originated for sale                                                                    (21,430)      (79,276)      (65,425)
  Net gain on sale of loans                                                                       (504)       (1,302)       (1,467)
  Proceeds from sale of loans                                                                   22,420        82,796        64,612
  Net (gain) loss on sale of premises and equipment                                                  0            26           (40)
  Net gain on sale of securities available for sale                                                  0        (1,340)       (1,257)
  Net loss on calls of securities held to maturity                                                   0             0             1
  Net securities amortization                                                                      970         1,935         1,379
  Increase (decrease) in taxes payable                                                            (491)        1,078        (1,207)
  (Increase) decrease in income receivable                                                      (1,324)          249          (754)
  Increase (decrease) in accrued expenses payable                                                2,275           (14)          862
  Increase in other assets                                                                        (153)       (1,789)       (1,940)
  Increase (decrease) in other liabilities                                                        (166)          (54)           62
                                                                                          ------------  ------------  ------------
      Total adjustments                                                                          5,890         7,214        (1,799)
                                                                                          ------------  ------------  ------------
        Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . . .        15,212        15,533         6,089

Cash flows from investing activities:

  Proceeds from sale of securities available for sale                                                0        44,428        65,404
  Proceeds from maturities, calls and principal paydowns of securities held to maturity              0             0        45,787
  Proceeds from maturities, calls and principal paydowns of securities available for sale       38,750        65,695        32,980
  Purchases of securities available for sale                                                   (54,306)      (65,485)      (89,948)
  Purchases of securities held to maturity                                                           0             0      (131,919)
  Net increase in total loans                                                                  (65,582)     (115,885)      (80,809)
  Proceeds from sales of land, premises and equipment                                              436            82           530
  Purchases of land, premises and equipment                                                     (2,354)       (3,919)       (3,950)
  Net proceeds (payments) from acquisitions                                                          0             0        30,020
                                                                                          ------------  ------------  ------------
      Net cash from investing activities . . . . . . . . . . . . . . . . . . . . . . . .       (83,056)      (75,084)     (131,905)

Cash flows from financing activities:

  Net increase in total deposits                                                                97,086         8,896        92,034
  Proceeds from short-term borrowings                                                       24,058,107    21,877,999     4,740,920
  Payments on short-term borrowings                                                        (24,053,403)  (21,818,315)   (4,689,347)
  Proceeds from long-term borrowings                                                                 0         5,124        20,050
  Payments on long-term borrowings                                                              (5,040)      (10,037)      (24,031)
  Dividends paid                                                                                (2,894)       (2,433)       (1,915)
  Purchase of treasury stock                                                                      (123)          (87)         (149)
                                                                                          ------------  ------------  ------------
     Net cash from financing activities  . . . . . . . . . . . . . . . . . . . . . . . .        93,733        61,147       137,562
                                                                                          ------------  ------------  ------------
Net increase in cash and cash equivalents                                                       25,889         1,596        11,746
Cash and cash equivalents at beginning of the year                                              63,104        61,508        49,762
                                                                                          ------------  ------------  ------------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . .  $     88,993  $     63,104  $     61,508
                                                                                          ============  ============  ============
Cash paid during the year for:
  Interest                                                                                $     43,351  $     37,459  $     35,228
  Income taxes                                                                            $      4,605  $      4,139  $      3,610
Securities transferred from held to maturity to available for sale                        $          0  $          0  $    249,087
Loans transferred to other real estate                                                    $          0  $        185  $        683

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

                                      12

Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
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  subsidiaries,  Lake City Bank and Lakeland
Capital Trust,  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. All  intercompany  transactions and balances are
eliminated in consolidation.
     The Company provides financial services through its subsidiary, Lake City
Bank (the Bank),  a  full-service  commercial  bank with 43 branch  offices in
fifteen  counties  in  northern  Indiana.  Its primary  deposit  products  are
checking,  savings,  and term  certificate  accounts,  and its primary lending
products   are   residential   commercial,   consumer   loans  and   mortgage.
Substantially all loans are secured by specific items of collateral  including
business  assets,  consumer  assets  and real  estate.  Commercial  loans  are
generally  expected to be repaid from cash flow from operations of businesses.
Real estate loans are secured by both  residential and commercial real estate.
Other financial  instruments,  which potentially  represent  concentrations of
credit risk, include deposit accounts in other financial institutions.

Use of Estimates:
     To prepare  financial  statements in conformity  with generally  accepted
accounting  principles,  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 mortgage  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.
     The Company  adopted SFAS No. 133 as of October 1, 1998.  As permitted in
SFAS No. 133, on October 1, 1998, the Company  transferred  securities with an
amortized cost of $249,087,000 and a fair value of $253,218,000  from the held
to maturity  portfolio  to the  available  for sale  portfolio.  None of these
securities  were sold during the fourth  quarter of 1998. The Company does not
have  any  derivative  instruments  nor  does the  Company  have  any  hedging
activities.
     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.

Loans:
      Loans  that  management  has the  intent  and  ability  to hold  for the
foreseeable  future or until  maturity or payoff are reported at the principal
balance outstanding,  net of unearned interest,  deferred loan fees and costs,
and an  allowance  for loan  losses.  Loans held for sale are  reported at the
lower of cost or market, on an aggregate basis.
     Interest   income  is  reported  on  the  interest  method  and  includes
amortization of net deferred loan fees and costs over the loan term.  Interest
income is not  reported  when full loan  repayment is in doubt and the loan is
placed on  non-accrual.  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.

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

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.

 Land, Premises and Equipment:
     Land is carried at cost.  Premises and  equipment are stated at cost less
accumulated  depreciation.  Depreciation is computed on both straight-line and
accelerated methods over the useful lives of the assets.  Long-term assets are
reviewed for impairment  when events  indicate the carrying  amount may not be
recoverable from future  undiscounted cash flows. If impaired,  the assets are
recorded at discounted amounts.

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

                                      13

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.

Intangibles:
   Purchased intangible assets, primarily goodwill and core deposit value, are
recorded at cost and amortized over the estimated life. Goodwill  amortization
is straight-line  over 15 years, and core deposit  amortization is accelerated
over 12  years.  Goodwill  is  reported  net of  accumulated  amortization  of
$1,997,000  and  $1,330,000  at year  end 2000 and  1999,  respectively.  Core
deposits  are  reported  net  of  accumulated  amortization  of  $792,000  and
$561,000.

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.

Benefit Plans:
    A  noncontributory  defined benefit pension plan covers  substantially all
employees.  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. At
inception,  a participant can elect to receive interest based on the Company's
investment  in either  Company  stock or a  certificate  of deposit  for their
contribution.  For  participants  electing Company stock, the Company acquires
shares on the open market and records such shares as treasury stock.

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,  2000,  454,770  options had been  granted and
145,230 were  available for future  grants.  These are accounted for under APB
No. 25. Employee compensation expenses under stock option plans 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.

Income Taxes:
    An annual consolidated  federal income tax return is 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 bases
of assets and liabilities,  using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized.

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.

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 2000 and 1999 reflect the  acquisition
of 29,879 and 21,802 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,  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  $50,000 of cash on hand or on deposit
with  the  Federal  Reserve  Bank  to meet  regulatory  reserve  and  clearing
requirements  at both  year-ends  2000 and 1999.  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.

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

                                      14

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
factors,  especially  in the absence of broad  markets for  particular  items.
Changes in assumptions or in market conditions could significantly  affect the
estimates.

Derivatives:
     All  derivative  instruments  are  recorded  at  their  fair  values.  If
derivative  instruments  are  designated  as hedges of fair  values,  both the
change in the fair  value of the hedge and the  hedged  item are  included  in
current  earnings.  Fair value  adjustments  related  to cash flow  hedges are
recorded in other  comprehensive  income and reclassified to earnings when the
hedged  transaction is reflected in earnings.  Ineffective  portions of hedges
are reflected in income currently.  For all periods  presented,  there were no
derivative instruments.

Industry Segments:
      Internal financial information is primarily reported and aggregated as a
single segment known as banking.

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.

NOTE 2 - SECURITIES
      Information  related to the fair value of securities and the total gains
and  losses for  securities  with net gains and  losses in  accumulated  other
comprehensive income (loss) at December 31 is provided in the table below.

                                                                                                Fair
                                                                                                Value        Gains       Losses
                                                                                             -----------  -----------  -----------
                                                                                                         (in thousands)
                                                                                                              
Securities available for sale at December 31, 2000:
 U.S. Treasury securities                                                                    $    38,066 $        212  $      (183)
 U.S. Government agencies                                                                          6,550            0         (122)
 Mortgage-backed securities                                                                      207,594        1,809       (1,714)
 State and municipal securities                                                                   35,430          214         (200)
 Other debt securities                                                                             5,968            9         (368)
                                                                                             -----------  -----------  -----------
       Total securities available for sale at December 31, 2000 . . . . . . . . . . . . . .  $   293,608  $     2,244  $    (2,587)
                                                                                             ===========  ===========  ===========
Securities available for sale at December 31, 1999:
  U.S. Treasury securities                                                                   $    34,614  $        60  $      (579)
  U.S. Government agencies                                                                         6,313            0         (380)
  Mortgage-backed securities                                                                     192,569           51       (3,727)
  State and municipal securities                                                                  32,714           37       (2,755)
  Other debt securities                                                                            5,211            0         (651)

      Total securities available for sale at December 31, 1999  . . . . . . . . . . . . . .  $   271,421  $       148  $    (8,092)
                                                                                             ===========  ===========  ===========

        Information  regarding  the fair  value  of  available  for sale  debt
securities by maturity as of December 31, 2000, 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                                                                                                $    30,173
Due after one year through five years                                                                                       18,018
Due after five years through ten years                                                                                       2,091
Due after ten years                                                                                                         35,732
                                                                                                                       -----------
  Total contractual maturity securities                                                                                     86,014
Mortgage-backed securities                                                                                                 207,594
                                                                                                                       -----------
  Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $   293,608
                                                                                                                       ===========

      Security proceeds,  gross gains and gross losses for 2000, 1999 and 1998
were as follows:

                                                                                                 2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                        (in thousands)
                                                                                                              
Sales and calls of securities available for sale:
  Proceeds                                                                                   $       807  $    46,350  $    66,197
  Gross gains                                                                                          0        1,340        1,257
  Gross losses                                                                                         0            0            0
Calls of securities held to maturity:
  Proceeds                                                                                   $         0  $         0  $     1,532
  Gross gains                                                                                          0            0            0
  Gross losses                                                                                         0            0            1

                                      15

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
NOTE 2 - SECURITIES (continued)
      Securities with carrying values of $282,955,000  and  $264,847,000  were
pledged as of December 31, 2000 and 1999, 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.

NOTE 3 - LOANS
      Total loans outstanding as of year-end consisted of the following:

                                                                                                             2000         1999
                                                                                                          -----------  -----------
                                                                                                                (in thousands)
                                                                                                                 
Commercial and industrial loans                                                                           $   440,941  $   375,421
Agri-business and agricultural loans                                                                           48,558       46,661
Real estate mortgage loans                                                                                     49,104       42,384
Real estate construction loans                                                                                  3,627        4,488
Installment loans and credit cards                                                                            176,646      184,944
                                                                                                          -----------  -----------
  Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $   718,876  $   653,898
                                                                                                          ===========  ===========

NOTE 4 - ALLOWANCE FOR LOAN LOSSES
      The  following is an analysis of the allowance for loan losses for 2000,
1999 and 1998:

                                                                                                 2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                        (in thousands)
                                                                                                              
Balance, January 1                                                                           $     6,522  $     5,510  $     5,308
Provision for loan losses                                                                          1,206        1,310          480
Loans charged-off                                                                                    748          435          416
Recoveries                                                                                           144          137          138
  Net loans charged-off                                                                              604          298          278
                                                                                             -----------  -----------  -----------
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $     7,124  $     6,522  $     5,510
                                                                                             ===========  ===========  ===========

      Nonaccrual loans at December 31, 2000, 1999 and 1998,  totaled $206,000,
$329,000 and $0. Interest not recorded on nonaccrual  loans was  approximately
$24,000,  $26,000  and $42,000 for 2000,  1999 and 1998,  respectively.  Loans
renegotiated as troubled debt restructuring  totaled $1,127,000 and $1,179,000
as of December 31, 2000 and 1999,  respectively.  Interest income of $106,000,
$95,000 and $84,000 was recognized in 2000, 1999 and 1998,  respectively.  Had
these loans been performing  under the original  contract terms, an additional
$17,000 would have been reflected in interest  income during 2000,  $22,000 in
1999 and $47,000 in 1998.  The  Company is not  committed  to lend  additional
funds to debtors  whose loans have been  modified.  At  December  31, 2000 the
Company had one loan of $1.4 million  meeting the definition of impaired.  The
Company  therefore has allocated  $212,000 of the allowance for loan losses to
this loan.  In 1999,  the  Company  had one loan  meeting  the  definition  of
impaired  totaling  $246,000,  which was  included in the total of  nonaccrual
loans.  At December 31, 1998,  the Company had no loans meeting the definition
of impaired.  One loan was classified as impaired  during 1998, but was repaid
prior to  year-end.  Loans past due over 90 days and still  accruing  interest
were $6,791,000  (excluding  impaired loans) and $171,000 at year-end 2000 and
1999,  respectively.  The increase in loans past due 90 days or more and still
accruing  resulted  primarily  from  the  inclusion  of two  commercial  loans
totaling  $6.2  million,  or  approximately  90% of the $6.8  million  in this
category.  Of this amount,  $1.4 million was paid off subsequent to the end of
the fiscal year. A second loan of $4.8 million  matured in the fourth  quarter
of 2000 and has  therefore  been  included in this  category.  The borrower is
current on all interest under the matured facility. The Company has reached an
agreement with a bank  participant and the borrower to extend the terms of the
financing  and  anticipates  that the extension  will be completed  during the
first quarter of 2001.

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
$150,875,000 and $147,932,000 at December 31, 2000 and 1999, respectively. Net
loan  servicing  income was $147,000,  $57,000 and $11,000 for 2000,  1999 and
1998. Information on loan servicing rights follows:

                                                                                                              2000         1999
                                                                                                          -----------  -----------
                                                                                                                 (in thousands)
                                                                                                                 
Beginning of year                                                                                         $     1,459  $     1,008
Originations                                                                                                      193          716
Amortization                                                                                                     (233)        (265)
                                                                                                          -----------  -----------
  End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $     1,419  $     1,459
                                                                                                          ===========  ===========

     At year end 2000 and 1999, there was no valuation allowance required.

                                      16

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
NOTE 6 - LAND, PREMISES AND EQUIPMENT, NET
      Land, premises and equipment and related  accumulated  depreciation were
as follows at December 31:

                                                                                                              2000         1999
                                                                                                          -----------  -----------
                                                                                                                 (in thousands)
                                                                                                                 
Land                                                                                                      $     6,989  $     6,717
Premises                                                                                                       21,060       19,639
Equipment                                                                                                      13,902       14,551
                                                                                                          -----------  -----------
  Total cost  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        41,951       40,907
Less accumulated depreciation                                                                                  14,654       13,099
                                                                                                          -----------  -----------
  Land, premises and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $    27,297  $    27,808
                                                                                                          ===========  ===========

NOTE 7 - DEPOSITS
      The aggregate amount of time deposits,  each with a minimum denomination
of $100,000,  was approximately  $180,299,000 and $125,919,000 at December 31,
2000 and 1999, respectively.

      At December 31, 2000, the scheduled  maturities of time deposits were as
follows:

                                                                     Amount
                                                                   -----------
                                                                 (in thousands)
Maturing in 2001                                                   $   502,376
Maturing in 2002                                                        37,820
Maturing in 2003                                                        12,117
Maturing in 2004                                                         3,762
Maturing in 2005                                                         3,126
Thereafter                                                               1,048
                                                                   -----------
  Total time deposits . . . . . . . . . . . . . . . . . . . . . .  $   560,249
                                                                   ===========

NOTE 8 - 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  trade  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 2000 and 1999 is as follows:

                                                                                                              2000         1999
                                                                                                          -----------  -----------
                                                                                                                 (in thousands)
                                                                                                                 
Average balance during the year                                                                           $   121,267  $   120,950
Average interest rate during the year                                                                           5.35%        4.76%
Maximum month-end balance during the year                                                                 $   143,677  $   143,353
Securities underlying the agreements at year-end
  Amortized cost                                                                                          $   184,036  $   123,388
  Fair value                                                                                              $   183,492  $   121,494

                                                                                                 Collateral Value
                                                                                --------------------------------------------------
                                                                                      U.S. Treasury            Mortgage-backed
                                                                    Weighted           Securities                Securities
                                                                     Average    ------------------------  ------------------------
                                                      Repurchase    Interest     Amortized      Fair       Amortized      Fair
 Term                                                 Liability       Rate         Cost         Value        Cost         Value
- ----------------------------------------------------  -----------  -----------  -----------  -----------  -----------  -----------
                                                    (in thousands)                                (in thousands)
                                                                                                     
On demand                                             $   118,550        5.25%  $         0  $         0  $   135,791  $   135,361
1 to 30 days                                                2,350        5.92         5,323        5,330          377          372
31 to 90 days                                               5,821        5.90         4,905        4,907        5,210        5,176
Over 90 days                                               11,433        6.18        27,809       27,829        4,621        4,517
                                                      -----------  -----------  -----------  -----------  -----------  -----------
   Total . . . . . . . . . . . . . . . . . .          $   138,154        5.37%  $    38,037  $    38,066  $   145,999  $   145,426
                                                      ===========  ===========  ===========  ===========  ===========  ===========

      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, 2000,  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.

                                      17

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
NOTE 9 - BORROWINGS
       Long-term borrowings at December 31 consisted of:

                                                                                                              2000        1999
                                                                                                          -----------  -----------
                                                                                                                 (in thousands)
                                                                                                                 
Federal Home Loan Bank of Indianapolis Notes, Variable Rate, Due April 28, 2000                           $         0  $     5,000
Federal Home Loan Bank of Indianapolis Notes, 5.25%, Due December 28, 2001                                     10,000       10,000
Federal Home Loan Bank of Indianapolis Notes, 6.15%, Due June 24, 2003                                          1,300        1,300
Federal Home Loan Bank of Indianapolis Notes, 6.15%, Due January 15, 2018                                          49           49
Capital Leases                                                                                                     84          124
                                                                                                          -----------  -----------
  Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $    11,433  $    16,473
                                                                                                          ===========  ===========

      All  notes  require  monthly  interest  payments  and  were  secured  by
residential  real  estate  loans  and  securities  with a  carrying  value  of
$110,952,000  at December 31, 2000.  At December 31, 2000,  the Company  owned
$3,567,500 of Federal Home Loan Bank (FHLB) stock, which also secures debts to
the FHLB. The capital leases had original terms of  approximately  three years
and require monthly payments.
      In addition to the long-term borrowings,  the Company has $50 million in
variable rate notes with the FHLB at December 31, 2000.  These notes mature at
various  times  between  April 23,  2001 and June 26,  2001.  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.

NOTE 10 - GUARANTEED PREFERRED BENEFICIAL INTERESTS
      In September 1997,  Lakeland  Capital Trust (Lakeland Trust) completed a
public offering of 2 million shares of cumulative  trust preferred  securities
(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.  The
sole assets of Lakeland Trust are the  subordinated  debentures of the Company
and  payments  thereunder.   The  subordinated   debentures  and  the  back-up
obligations,  in the aggregate,  constitute a full and unconditional guarantee
by the  Company of the  obligations  of  Lakeland  Trust  under the  Preferred
Securities.  Distributions  on the  securities  are payable  quarterly  at the
annual rate of 9% of the  liquidation  preference and are included in interest
expense  in  the  consolidated  financial  statements.  These  securities  are
considered  as Tier I capital  (with  certain  limitations  applicable)  under
current  regulatory  guidelines.  As of December  31,  2000,  the  outstanding
principal  balance  of  the  subordinated  debentures  was  $20,619,000.   The
principal balance of the subordinated debentures less the unamortized issuance
costs  constitute  the  guaranteed   preferred  beneficial  interests  in  the
Company's subordinated debentures in the financial statements.
      The Preferred Securities are subject to mandatory  redemption,  in whole
or in part, upon repayment of the subordinated debentures at maturity or their
earlier  redemption  at the  liquidation  preference.  Subject to the  Company
having  received prior approval of the Federal  Reserve if then required,  the
subordinated debentures are redeemable prior to the maturity date of September
30, 2027 at the option of the Company on or after  September 30, 2002, or upon
occurrence of specific events defined within the trust indenture.  The Company
has the option to defer distributions on the subordinated debentures from time
to time for a period not to exceed 20 consecutive quarters.

NOTE 11 - EMPLOYEE BENEFIT PLANS
      Information  as to the  Company's  pension  plan  at  December  31 is as
follows:

                                                                                                              2000        1999
                                                                                                          -----------  -----------
                                                                                                                 (in thousands)
                                                                                                                 
Change in benefit obligation:
  Beginning benefit obligation                                                                            $     2,639  $    2,408
  Service cost                                                                                                    155         284
  Interest cost                                                                                                   186         171
  Curtailment                                                                                                    (598)          0
  Actuarial gain                                                                                                  (48)        (93)
  Benefits paid                                                                                                  (281)       (131)
                                                                                                          -----------  -----------
  Ending benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         2,053        2,639

Change in plan  assets  (primarily  money  market  funds
 and  equity and fixed income investments), at fair value:
   Beginning plan assets                                                                                        2,469        1,964
   Actual return                                                                                                  387          408
   Employer contribution                                                                                           59          228
   Benefits paid                                                                                                 (281         (131)
                                                                                                          -----------  -----------
   Ending plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         2,634        2,469

Funded status:                                                                                                    581         (170)
Unrecognized net actuarial gain (loss)                                                                            (66)         133
Unrecognized prior service cost                                                                                     0          (22)
                                                                                                          -----------  -----------
Prepaid (accrued) benefit cost  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $       515  $       (59)
                                                                                                          ===========  ===========

                                      18

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
NOTE 11 - EMPLOYEE BENEFIT PLANS (continued)
Net pension expense includes the following:

                                                                                                2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                        (in thousands)
                                                                                                              
Service cost                                                                                 $       155  $       284  $       190
Interest cost                                                                                        186          171          144
Expected return on plan assets                                                                      (256)        (192)        (133)
Recognized net actuarial (gain) loss                                                                  (1)          23            2
Curtailment (gain)loss                                                                              (598)           0            0
                                                                                             -----------  -----------  -----------
  Net pension expense/(benefit)  . . . . . . . . . . . . . . . . . . . . . . . . . . . .     $      (514) $       286  $       203
                                                                                             ===========  ===========  ===========

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

Weighted average discount rate                                                                      8.00%        7.50%        6.75%
Rate of increase in future compensation                                                             4.50%        4.50%        4.50%
Expected long-term rate of return                                                                  10.00%       10.00%        8.00%

      On April 1, 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 gain  was  included  in the
salaries and employee benefits line of the income statement.
      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 $499,000, $344,000 and $401,000 in 2000, 1999 and 1998,
respectively.

NOTE 12 - OTHER EXPENSE
      Other expense for the years ended December 31, was as follows:

                                                                                                 2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                        (in thousands)
                                                                                                              
Data processing fees and supplies                                                            $     2,078  $     2,036  $     1,605
Corporate and business development                                                                   761          861          750
Advertising                                                                                          577          436          422
Office supplies                                                                                      591          687          488
Telephone and postage                                                                              1,241        1,375        1,377
Regulatory fees and FDIC insurance                                                                   250          160          138
Amortization of intangible assets                                                                    924          957          942
Miscellaneous                                                                                      3,340        2,803        2,622
                                                                                             -----------  -----------  -----------
  Total other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      $     9,762  $     9,315  $     8,344
                                                                                             ===========  ===========  ===========

NOTE 13 - INCOME TAXES
      Income tax expense for the years ended  December  31,  consisted  of the
following:

                                                                                                 2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                        (in thousands)
                                                                                                              
Current federal                                                                              $     4,249  $     2,998  $     2,829
Deferred federal                                                                                    (300)         120           54
Current state                                                                                        252          933          982
Deferred state                                                                                       (85)          34           61
                                                                                             -----------  -----------  -----------
  Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $     4,116  $     4,085  $     3,926
                                                                                             ===========  ===========  ===========

      Income tax expense  included $0,  $531,000 and  $498,000  applicable  to
security  transactions  for  2000,  1999 and  1998.  The  differences  between
financial statement tax expense and amounts computed by applying the statutory
federal income tax rate of 34% to income before income taxes were as follows:

                                                                                                 2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                        (in thousands)
                                                                                                              
Income taxes at statutory federal rate                                                       $     4,569  $     4,217  $     4,017
Increase (decrease) in taxes resulting from:
  Tax exempt income                                                                                 (648)        (884)        (839)
  Nondeductible expense                                                                              167          198          192
  State income tax, net of federal tax effect                                                        110          638          688
  Net operating loss, Gateway                                                                        (29)         (29)         (29)
  Tax credits                                                                                        (48)         (48)         (33)
  Other                                                                                               (5)          (7)         (70)
                                                                                             -----------  -----------  -----------
    Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $     4,116  $     4,085  $     3,926
                                                                                             ===========  ===========  ===========

                                      19

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------

NOTE 13 - INCOME TAXES (continued)
      The net deferred tax asset recorded in the  consolidated  balance sheets
at December 31, consisted of the following:

                                                                                          2000                      1999
                                                                                ------------------------  ------------------------
                                                                                  Federal       State       Federal       State
                                                                                -----------  -----------  -----------  -----------
                                                                                                           
Deferred tax assets:                                                                              (in thousands)
  Bad debts                                                                     $     2,358  $       589  $     2,153  $       538
  Pension and deferred compensation liability                                           411          103          535          134
  Net operating loss carryforward                                                       288            0          288            0
  Other                                                                                 229           61          190           48
                                                                                -----------  -----------  -----------  -----------
                                                                                      3,286          753        3,166          720

Deferred tax liabilities:
  Accretion                                                                              33            8           24            6
  Depreciation                                                                          499          125          467          117
  Mortgage servicing rights                                                             482          121          496          124
  State taxes                                                                           125            0           96            0
  Leases                                                                                224           56          301           75
  Deferred loan fees                                                                    306           76          465          116
  Other                                                                                   0            0            0            0
                                                                                -----------  -----------  -----------  -----------
                                                                                      1,669          386        1,849          438
Valuation allowance                                                                     138            0          138            0
                                                                                -----------  -----------  -----------  -----------
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $     1,479  $       367  $     1,179  $       282
                                                                                ===========  ===========  ===========  ===========

      In addition to the net deferred tax assets included above,  the deferred
income tax asset allocated to the unrealized net loss on securities  available
for sale included in equity was $136,000 and $3,147,000 for 2000 and 1999.

NOTE 14 - ACQUISITIONS
      On  February  20,  1998,  the  Company  acquired  the Peru,  Indiana and
Greentown,  Indiana  offices of National City Bank.  These  acquisitions  were
accounted  for using the  purchase  method of  accounting.  The results of the
operations of the acquired offices are included in the income statement of the
Company beginning as of the purchase date.
      The branch  acquisitions  were not  considered to be  acquisitions  of a
business since,  among other things,  approximately  87% of the $34,335,000 in
assets  received were in the form of cash and only a relatively  small portion
of the assets were in the form of loans.  The future  earnings from the assets
acquired  will be primarily  dependent on the  effective  use of the cash and,
thus,  historical  operating  results of the  branches  acquired  would not be
indicative of future results.  Accordingly, only summary information regarding
the effect of the acquisition on the balance sheet is presented.

                                                                 (in thousands)
Assets:                                                            -----------
  Cash and due from banks                                          $    30,020
  Loans                                                                     14
  Land, premises and equipment                                           1,584
  Intangible assets                                                      2,717
Liabilities:
  Deposits                                                         $    34,321
  Other liabilities                                                         14

NOTE 15 - RELATED PARTY TRANSACTIONS
      Loans to principal  officers,  directors,  and their  affiliates in 2000
were as follows:

                                                                 (in thousands)
                                                                   -----------
Beginning balance                                                  $    24,718
New loans and advances                                                  70,737
Effect of changes in related parties                                      (235)
Repayments                                                             (69,484)
                                                                   -----------
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . $    25,736
                                                                   ===========

      Deposits from principal  officers,  directors,  and their  affiliates at
year-end 2000 and 1999 were $7,486,000 and $7,422,000.

                                      20

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
NOTE 16 - STOCK OPTIONS
      A stock option plan was approved by  shareholders  at the annual meeting
in April,  1998.  The 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 3 to 5 years. A summary of the activity
in the plan follows:

                                                                2000                      1999                     1998
                                                      ------------------------  ------------------------  ------------------------
                                                                    Weighted-                 Weighted-                 Weighted-
                                                                     Average                   Average                   Average
                                                                    Exercise                  Exercise                  Exercise
                                                        Shares        Price       Shares        Price       Shares        Price
                                                      -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                     
Outstanding at beginning of the year                      290,270  $     22.58      188,935  $     24.60            0  $      0.00
Granted                                                   217,150        14.27      113,910        19.33      195,145        24.60
Exercised                                                       0         0.00            0         0.00            0         0.00
Forfeited                                                  52,650        21.03       12,575        23.49        6,210        24.38
                                                      -----------  -----------  -----------  -----------  -----------  -----------
Outstanding at end of the year . . . . . . . . . . .      454,770  $     18.79      290,270  $     22.58      188,935  $     24.60
                                                      ===========  ===========  ===========  ===========  ===========  ===========

Options exercisable at end of the year                     22,700  $     23.29            0  $      0.00          925  $     28.00
Weighted-average fair value of options granted
   during the year                                                 $      7.07               $      7.46               $      9.80

Options outstanding at year-end 2000 were as follows:

                                                                                    Outstanding                  Exercisable
                                                                                ------------------------  ------------------------
                                                                                              Weighted-
                                                                                               Average                  Weighted-
                                                                                              Remaining                  Average
                                                                                             Contractual                Exercise
                                                                                  Number        Life        Number        Price
                                                                                -----------  -----------  -----------  -----------
                                                                                                           
Range of exercise prices
$11.20 - $14.00                                                                     103,800          9.4          600  $     13.50
$14.01 - $16.80                                                                     100,550          9.0        1,200  $     15.13
$16.81 - $19.60                                                                      97,410          7.7        5,200  $     19.44
$22.40 - $25.20                                                                     138,660          6.8        9,700  $     24.38
$25.21 - $28.00                                                                      14,350          4.3        6,000  $     27.50
                                                                                -----------  -----------  -----------  -----------
Outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . .     454,770          8.0       22,700  $     23.29
                                                                                ===========  ===========  ===========  ===========

     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.

                                                                                                 2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                              
Net income (in thousands) as reported                                                        $     9,322  $     8,319  $     7,888
Pro forma net income (in thousands)                                                          $     8,497  $     7,799  $     7,752

Basic earnings per common share as reported                                                  $      1.60  $      1.43  $      1.36
Pro forma basic earnings per common share                                                    $      1.46  $      1.34  $      1.33
Diluted earnings per common share as reported                                                $      1.60  $      1.43  $      1.36
Pro forma diluted earnings per common share                                                  $      1.46  $      1.34  $      1.33

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

                                                                                                 2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                              
Risk-free interest rate                                                                            5.81%        5.26%        5.53%
Expected option life                                                                          4.98 years   4.94 years   4.91 years
Expected price volatility                                                                         79.88%       44.00%       40.75%
Dividend yield                                                                                     2.46%        1.47%        1.44%

                                      21

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
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,  2000 and  1999,  that the  Company  and Bank  meet all  capital
adequacy requirements to which they are subject.
      As of December 31, 2000, 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.

                                                                                                           Minimum Required To Be
                                                                                   Minimum Required        Well Capitalized Under
                                                                                      For Capital            Prompt Corrective
                                                              Actual               Adequacy Purposes         Action Regulations
                                                      ------------------------  ------------------------  ------------------------
                                                        Amount        Ratio       Amount        Ratio       Amount        Ratio
                                                      -----------  -----------  -----------  -----------  -----------  -----------
                                                                                                     
As of December 31, 2000:                                                             (in thousands)
Total Capital (to Risk Weighted Assets)
  Consolidated                                        $    82,537       10.24%  $    64,496        8.00%  $    80,621       10.00%
  Bank                                                $    81,020       10.06%  $    64,434        8.00%  $    80,542       10.00%
Tier I Capital (to Risk Weighted Assets)
  Consolidated                                        $    75,414        9.35%  $    32,248        4.00%  $    48,372        6.00%
  Bank                                                $    73,896        9.17%  $    32,217        4.00%  $    48,325        6.00%
Tier I Capital (to Average Assets)
  Consolidated                                        $    75,414        7.20%  $    41,874        4.00%  $    52,343        5.00%
  Bank                                                $    73,896        7.06%  $    41,850        4.00%  $    52,313        5.00%

As of December 31, 1999:
Total Capital (to Risk Weighted Assets)
  Consolidated                                        $    74,844       10.26%  $    58,330        8.00%  $    72,913       10.00%
  Bank                                                $    73,980       10.01%  $    59,144        8.00%  $    73,298       10.00%
Tier I Capital (to Risk Weighted Assets)
  Consolidated                                        $    67,986        9.32%  $    29,165        4.00%  $    43,748        6.00%
  Bank                                                $    67,458        9.12%  $    29,572        4.00%  $    44,358        6.00%
Tier I Capital (to Average Assets)
  Consolidated                                        $    67,986        6.77%  $    40,167        4.00%  $    50,208        5.00%
  Bank                                                $    67,458        6.72%  $    40,183        4.00%  $    50,228        5.00%

      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 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.
      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, 2000. As of December 31, 2000, approximately $17
million  was  available  to be paid as  dividends  to the Company 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.

                                      22

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
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, 2000
and 1999. Items, which are not financial instruments, are not included.

                                                                                          2000                      1999
                                                                                ------------------------  ------------------------
                                                                                 Carrying    Estimated     Carrying    Estimated
                                                                                   Value     Fair Value      Value     Fair Value
                                                                                -----------  -----------  -----------  -----------
                                                                                                  (in thousands)
                                                                                                           
Financial assets:
  Cash and cash equivalents                                                     $    88,993  $    88,993  $    63,104  $    63,104
  Real estate mortgages held for sale                                                   183          183          862          862
  Securities available for sale                                                     293,608      293,608      271,421      271,421
  Loans, net                                                                        711,752      758,311      647,376      638,331
  Federal Home Loan Bank stock                                                        3,568        3,568        3,568        3,568
  Accrued interest income receivable                                                  6,727        6,727        5,402        5,402
  Loan servicing rights                                                               1,419        1,419        1,459        1,459
Financial liabilities:
  Certificates of deposit                                                          (560,249)    (562,396)    (498,520)    (498,654)
  All other deposits                                                               (285,080)    (285,080)    (249,723)    (249,723)
  Securities sold under agreements to repurchase                                   (138,154)    (138,243)    (121,374)    (122,189)
  Other short-term borrowings                                                       (61,924)     (61,924)     (74,000)     (74,000)
  Long-term debt                                                                    (11,433)     (11,457)     (16,473)     (16,213)
  Guaranteed preferred beneficial interests in Company's subordinated               (19,291)     (18,750)     (19,264)     (18,500)
    debentures
  Accrued interest expenses payable                                                  (5,041)      (5,041)      (3,391)      (3,391)

      For  purposes of the above  disclosures  of  estimated  fair value,  the
following  assumptions  were  used as of  December  31,  2000  and  1999.  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  FHLMC  price for normal  delivery of
mortgages with similar coupons and maturities at year-end.  The estimated fair
value for  securities  and guaranteed  preferred  beneficial  interests in the
Company's  subordinated  debentures  are  based on  quoted  market  rates  for
individual   securities  or  for  equivalent  quality,   coupon  and  maturity
securities.  The  estimated  fair value of loans is based on  estimates of the
rate the Company would charge for similar loans at December 31, 2000 and 1999,
applied for the time period until  estimated  repayment.  The  estimated  fair
value of mortgage servicing rights is based upon valuation methodology,  which
considers  current market  conditions and historical  performance of the loans
being  serviced.  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, 2000 and 1999,  applied for the
time period until  maturity.  The estimated fair value of 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.
      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, 2000 and 1999,  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, 2000 and 1999,  should not necessarily be considered to
apply at subsequent dates.
      In addition,  other assets and  liabilities  of the Company that are not
defined as financial  instruments  are not included in the above  disclosures,
such  as  land,  premises  and  equipment.   Also,  non-financial  instruments
typically not recognized in financial  statements  nevertheless may have value
but are not  included in the above  disclosures.  These  include,  among other
items,  the estimated  earnings power of core deposit  accounts,  the earnings
potential of the Company's trust department,  the trained work force, customer
goodwill and similar items.

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, 2000 and 1999, were as follows:

                                                                                          2000                      1999
                                                                                ------------------------  ------------------------
                                                                                   Fixed      Variable       Fixed      Variable
                                                                                   Rate         Rate         Rate         Rate
                                                                                -----------  -----------  -----------  -----------
                                                                                                  (in thousands)
                                                                                                           
Commercial loan lines of credit                                                 $    17,581  $   144,622  $    30,797  $   179,986
Commercial loan standby letters of credit                                                 0        7,845            0        6,783
Real estate mortgage loans                                                            1,470        1,289        2,424        1,030
Real estate construction mortgage loans                                                   0        1,478            0        1,762
Credit card open-ended revolving lines                                                7,356            0        6,584            0
Home equity mortgage open-ended revolving lines                                           0       37,460            0       31,521
Consumer loan open-ended revolving lines                                                  0        4,809            0        4,626
                                                                                -----------  -----------  -----------  -----------
   Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    26,407  $   197,503  $    39,805  $   225,708
                                                                                ===========  ===========  ===========  ===========

                                      23

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
NOTE 19 - COMMITMENTS, OFF-BALANCE SHEET RISKS AND CONTINGENCIES (continued)
      At  December  31,  2000 and  1999,  the  range  of  interest  rates  for
commercial loan commitments with a fixed rate was 4.92% to 14.50% and 4.92% to
12.50%.  The range of interest  rates for  commercial  loan  commitments  with
variable  rates was 6.63% to 13.50% and 6.93% to 12.50% at  December  31, 2000
and  1999.  The  index  on  variable  rate  commercial  loan   commitments  is
principally the Company's base rate.
      Commitments,  excluding open-ended revolving lines, generally have fixed
expiration dates of one year or less.  Credit card open-ended  revolving lines
of credit are normally reviewed bi-annually and other personal lines of credit
are normally reviewed  annually.  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.

NOTE 20 - PARENT COMPANY STATEMENTS
      The Company operates  primarily in the banking industry,  which accounts
for 100 percent of its revenues, operating income, and assets. Presented below
are parent only financial statements:

                                                     CONDENSED BALANCE SHEETS
                                                                                                                 December 31
                                                                                                          ------------------------
                                                                                                              2000         1999
                                                                                                          -----------  -----------
                                                                                                                (in thousands)
                                                                                                                 
ASSETS
Deposits with Lake City Bank                                                                              $     1,102  $       466
Investment in banking subsidiary                                                                               83,454       73,329
Investment in non-banking subsidiary                                                                              619          619
Other assets                                                                                                    1,909        1,705
                                                                                                          -----------  -----------
  Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    87,084  $    76,119
                                                                                                          ===========  ===========
LIABILITIES
Dividends payable and other liabilities                                                                   $     1,492  $     1,306
Subordinated debt                                                                                              20,619       20,619

STOCKHOLDERS' EQUITY                                                                                           64,973       54,194
                                                                                                          -----------  -----------
  Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $    87,084  $    76,119
                                                                                                          ===========  ===========

                                                  CONDENSED STATEMENTS OF INCOME
                                                                                                     Years Ended December 31
                                                                                             -------------------------------------
                                                                                                 2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                        (in thousands)
                                                                                                              
Dividends from Lake City Bank                                                                $     5,019  $     3,928  $     2,182
Interest on deposits and repurchase agreements, Lake City Bank                                         5            5            6
Equity in undistributed income of subsidiaries                                                     5,535        5,547        6,870
Interest expense on subordinated debt                                                              1,800        1,800        1,800
Miscellaneous expense                                                                                208          120          134
                                                                                             -----------  -----------  -----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       8,551        7,560        7,124
  Income tax benefit                                                                                 771          759          764
                                                                                             -----------  -----------  -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $     9,322  $     8,319  $     7,888
                                                                                             ============  =========== ===========

                                      24

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
NOTE 20 - PARENT COMPANY STATEMENTS (continued)

                                                CONDENSED STATEMENTS OF CASH FLOWS
                                                                                                     Years Ended December 31
                                                                                             -------------------------------------
                                                                                                 2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                        (in thousands)
                                                                                                              
Cash flows from operating activities:
  Net income                                                                                 $     9,322  $     8,319  $     7,888
  Adjustments to net cash from operating activities
     Equity in undistributed income of subsidiaries                                               (5,535)      (5,547)      (6,870)
     Other changes                                                                                   (17)         218         (175)
                                                                                             -----------  -----------  -----------
        Net cash from operating activities . . . . . . . . . . . . . . . . . . . . . . . . .       3,770        2,990          843
Cash flows from investing activities                                                                   0            0            0
Cash flows from financing activities                                                              (3,134)      (2,637)      (2,150)
                                                                                             -----------  -----------  -----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . .         636          353       (1,307)
Cash and cash equivalents at beginning of the year                                                   466          113        1,420
                                                                                             -----------  -----------  -----------
Cash and cash equivalents at end of the year . . . . . . . . . . . . . . . . . . . . . . . . $     1,102  $       466  $       113
                                                                                             ===========  ===========  ===========

NOTE 21 - EARNINGS PER SHARE
      Following are the factors used in the earnings per share computations:

                                                                                                 2000         1999         1998
                                                                                             -----------  -----------  -----------
                                                                                                              
Basic earnings per common share
   Net income                                                                                $ 9,322,000  $ 8,319,000  $ 7,888,000

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

   Basic earnings per common share                                                           $      1.60  $      1.43  $      1.36

Diluted earnings per common share
   Net income                                                                                $ 9,322,000  $ 8,319,000  $ 7,888,000

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

   Add: Dilutive effect of assumed exercises of stock options                                         15            8            0

   Average shares and dilutive potential common shares                                         5,813,999    5,813,992    5,813,984

   Diluted earnings per common share                                                         $      1.60  $      1.43  $      1.36

 Stock  options  for  454,270  and  290,262  shares of common  stock  were not
considered  in computing  diluted  earnings per common share for 2000 and 1999
because they were antidilutive. The stock option plan was adopted in 1998.

                                      25

Notes to Consolidated Financial Statements (continued)
- ------------------------------------------------------------------------------
NOTE 22 - SELECTED QUARTERLY DATA (UNAUDITED)

                                                                                    4th          3rd          2nd          1st
2000                                                                              Quarter      Quarter      Quarter      Quarter
                                                                                -----------  -----------  -----------  -----------
                                                                                                           
Interest income                                                                 $    21,074  $    20,398  $    19,743  $    18,835
Interest expense                                                                     12,137       11,650       10,818       10,396
                                                                                -----------  -----------  -----------  -----------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       8,937        8,748        8,925        8,439

Provision for loan losses                                                               499           92          400          215

Noninterest income                                                                    2,636        2,638        2,534        2,562
Noninterest expense                                                                   7,756        8,005        7,393        7,621
Income tax expense                                                                    1,014          974        1,165          963
                                                                                -----------  -----------  -----------  -----------
Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $     2,304  $     2,315  $     2,501  $     2,202
                                                                                ===========  ===========  ===========  ===========

Basic earnings per common share                                                 $      0.39  $      0.40  $      0.43  $      0.38
                                                                                ===========  ===========  ===========  ===========
Diluted earnings per common share                                               $      0.39  $      0.40  $      0.43  $      0.38
                                                                                ===========  ===========  ===========  ===========

                                                                                    4th          3rd          2nd          1st
1999                                                                              Quarter      Quarter      Quarter      Quarter
                                                                                -----------  -----------  -----------  -----------
Interest income                                                                 $    18,215  $    17,689  $    17,075  $    16,416
Interest expense                                                                      9,737        9,260        9,126        8,970
                                                                                -----------  -----------  -----------  -----------
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       8,478        8,429        7,949        7,446

Provision for loan losses                                                               260          550          275          225

Noninterest income                                                                    2,495        3,288        3,146        3,024
Noninterest expense                                                                   7,882        7,947        7,571        7,141
Income tax expense                                                                      833        1,128        1,090        1,034
                                                                                -----------  -----------  -----------  -----------
Net income  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $     1,998  $     2,092  $     2,159  $     2,070
                                                                                ===========  ===========  ===========  ===========

Basic earnings per common share                                                 $      0.34  $      0.36  $      0.37  $      0.36
                                                                                ===========  ===========  ===========  ===========
Diluted earnings per common share                                               $      0.34  $      0.36  $      0.37  $      0.36
                                                                                ===========  ===========  ===========  ===========

                                      26

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 and  subsidiaries as of December 31, 2000 and 1999, 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,
2000.  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 generally  accepted  auditing
standards.  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, 2000 and 1999, and
the  results  of their  operations  and their cash flows for each of the three
years in the period  ended  December  31, 2000 in  conformity  with  generally
accepted accounting principles.

      As disclosed in Note 1, during 1998 the Company  adopted new  accounting
guidance on derivatives.

                                                Crowe, Chizek and Company  LLP
South Bend, Indiana
January 12, 2001

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

      Management  is  responsible   for  the   preparation  of  the  Company's
consolidated  financial  statements and related information  appearing in this
annual report.  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 generally accepted  accounting
principles.   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 generally accepted auditing standards
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  five  non-management
Directors. The Committee meets periodically with the internal auditors and the
independent auditors.

                                      27

Management's Discussion and Analysis of Financial Condition and Results of
Operations
- ------------------------------------------------------------------------------
FINANCIAL CONDITION

Growth and Expansion

     The  Company's  growth  continued in 2000 through the addition of one new
office and the ongoing growth in existing offices. Since 1995, the Company has
added  twenty new offices  through  acquisition  and  internal  growth.  As of
December  31,  2000,  the Company had 43 offices  serving 15 counties in north
central  Indiana.  This  growth was  evidenced  by a 10.5%  increase  in total
assets, which were $1.1 billion as of December 31, 2000 versus $1.0 billion in
1999. In October,  the Company  opened a second  office in Allen  County,  the
second largest trading area in the state.  The Company intends to open a third
office in both Allen and St.  Joseph  Counties in 2001 and also  continues  to
evaluate   expansion   opportunities.   The  Company  will   consider   future
opportunities  with an emphasis on markets that it believes would be receptive
to its business philosophy of local, independent banking.
     The Company  experienced a $109.3 million, or 10.5% growth in assets from
$1.0 billion in 1999 to $1.1 billion in 2000. The primary increase occurred in
total loans,  which increased  9.9%, or $65.0 million,  from $653.9 million in
1999 to $718.9  million in 2000.  Commercial  loans  grew  16.0%  from  $422.1
million to $ 489.5 million, an increase of $67.4 million versus 1999. Consumer
loans decreased $8.3 million,  or 4.5%,  versus 1999. During 2000, the Company
strategically  focused on loan growth in the  commercial  loan  portfolio that
historically  produces  higher  returns  than  the  consumer  loan  portfolio.
Mortgage loans increased 12.5%, or $5.9 million, versus 1999 to $52.7 million,
reflecting the Company's  decision to retain a higher volume of mortgage loans
versus  selling  the  loans in the  secondary  market.  Core  deposits,  total
deposits  and  securities  sold under  agreements  to  repurchase  (repurchase
agreements)  increased $113.9 million, or 13.1% from $869.6 million in 1999 to
$983.5 million in 2000. Large time deposits,  which are primarily  short-term,
increased  $54.4  million,  or 43.2%  from  $125.9  million  in 1999 to $180.3
million in 2000. The Company utilized these deposit increases to fund the loan
and other asset growth that occurred during 2000.
     The Company  reached a milestone in 1999,  as total assets  exceeded $1.0
billion as of  December  31,  1999.  This  represented  an  increase  of $60.9
million,  or 6.2%,  over  December 31, 1998.  Total loans  increased  21.4% to
$653.9 million as of December 31, 1999.  Total  securities  decreased 17.2% to
271.4  million as of December 31, 1999.  This change in the asset mix resulted
from  management's  decision  to employ the funding  received  from the branch
acquisitions  late in 1997 and  early in 1998 to fund  loan  growth.  Prior to
1999, this funding was invested in the securities portfolio until such time as
it was  required  to fund loan  growth.  The  Company  also  believes  that it
employed a more aggressive  funding  strategy in 1999.  Emphasis was placed on
growth  in  relationship  type  accounts.   Therefore,  while  total  deposits
increased 1.0%, growth in checking accounts and the Investor's Weekly products
were 15.4% and 25.4%,  respectively.  The Company also  emphasized the sale of
cash management  accounts during the year that resulted in a 40.2% increase in
overnight repurchase agreements.  This growth,  combined with a greater use of
short-term FHLB borrowings,  resulted in an increase in short-term  borrowings
of 44.0%, to $195.4 million as of December 31, 1999.

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 $66.0
million of funding in 2001.
     In addition to these  primary  sources of funds,  management  has several
secondary  sources  available to meet potential  funding  requirements.  As of
December  31, 2000,  the Company had $78.5  million in Federal fund lines with
correspondent banks and may borrow up to $100 million at the Federal Home Loan
Bank of  Indianapolis.  On  October  1,  1998,  the  Company  transferred  all
securities  in its held to maturity  portfolio to its available for sale (AFS)
portfolio as permitted by the early  adoption of SFAS No. 133. This  increased
the  possible  sources  the  Company  may  access  due to the fact that  these
securities may be sold to meet any funding demands.  Management  believes that
the securities in the AFS portfolio are of high quality and would therefore be
marketable.  Approximately  85.8%  of  this  portfolio  is  comprised  of U.S.
Treasury securities,  Federal agency securities or mortgage-backed  securities
directly  or  indirectly  backed by the  Federal  government.  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 2000, cash and cash equivalents increased $25.9 million from $63.1
million to $89.0 million as of December 31, 2000. A $97.1 million  increase in
deposit  balances was the primary driver behind this change.  Other sources of
funds included proceeds from calls and maturities of securities totaling $38.8
million and proceeds from the sales of loans of $22.5  million.  A rising rate
environment  contributed  to a slowing  demand  for  residential  real  estate
mortgage  loans  and  resulted  in a  decrease  in  proceeds  from the sale of
mortgage loans. In addition, the Company did not generate any securities gains
in 2000 versus  securities  gains of $1.3  million in 1999.  The major uses of
funds  included an increase in loans,  purchases of securities and fixed asset
additions.  Loans  increased  approximately  $65.6  million,  which was net of
approximately  $21.4  million  of  loans  originated  and  sold  during  2000.
Purchases of securities totaled $54.3 million and purchases of land,  premises
and equipment were $2.4 million.
     During 1999,  cash and cash  equivalents  increased $1.6 million to $63.1
million as of December  31,  1999.  Lower  interest  rates  prevailed  in 1999
thereby maintaining a demand for residential real estate loans.  Proceeds from
the sale of loans were $82.8 million in 1999.  Other sources of funds included
proceeds  from sales,  calls and  maturities  of  securities  totaling  $110.1
million.  The sale of loans and securities  also  contributed  $2.6 million to
pre-tax  income.  The  major  uses of funds  included  an  increase  in loans,
purchases  of  securities  and fixed  asset  additions.  Net  loans  increased
approximately  $115.9 million in 1999,  which was net of  approximately  $79.3
million of loans originated and sold during 1999. Purchases of securities were
$65.5 million and fixed asset additions were $3.9 million.
     During 1998, cash and cash equivalents increased $11.7 million from $49.8
million  to  $61.5  million  as of  December  31,  1998.  The  cash  and  cash
equivalents  increased  in 1998  partially  as a  result  of a  $92.0  million
increase  in deposit  accounts,  which did not  include  deposits  acquired in
conjunction  with  office  acquisitions,   a  slight  increase  in  short-term
borrowings  and cash flows from loan and security  payments.  The net proceeds
from the acquisition of offices from another financial institution in February
1998 added  approximately  $30.0  million.  Historically  low  interest  rates
generated a  significant  increase in  residential  real estate  mortgage loan
demand.  This  increase  resulted in proceeds  from the sale of loans of $64.6
million in 1998 versus $27.4 million in 1997.  The low rate  environment  also
provided  the Company  with an  opportunity  to sell  securities  from the AFS
portfolio at significant  gains.  Proceeds from the sales of securities during
1998 were $65.4 million.  The sales of loans and securities  provided a source
of funds to meet  increased  funding  demands  and  added  approximately  $2.7
million to pre-tax income. Primary uses included the funding of increased loan
volume, the purchase of securities and fixed asset additions.  Loans increased
approximately $80.8 million during 1998, net of approximately $63.0 million of
loans  originated  and sold during the year.  During 1998,  $223.0  million of
securities were purchased and  approximately  $4.0 million was directed to the
fixed  asset  additions,  exclusive  of  fixed  assets  added  through  office
acquisitions.

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  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, 2000,  the net interest  margin could be expected to decline in a
falling interest rate environment and conversely, to increase in a rising rate
environment.  During January,  2001 the Federal Reserve lowered the target for
the Federal Funds rate on two occasions by a total of 100 basis points.  These
actions  caused a  corresponding  decrease in Lake City Bank's Prime rate from
9.50% to 8.50%.  As a result,  these rate decreases have had an adverse impact
on the Company's net

                                      28

Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- ------------------------------------------------------------------------------
interest  margin  subsequent  to the  conclusion  of fiscal 2000.  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 ratios in this planning,
the  information  can be used in a  general  fashion  to  look  at  asset  and
liability  mismatches.  The Company's  cumulative GAP ratio as of December 31,
2000, for the next 12 months is a negative 24.8% 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.  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.

                                                                                  2000
                                                                 Principal/Notional Amount Maturing in:
                                         -----------------------------------------------------------------------------------------
                                                                         (Dollars in thousands)
                                         -----------------------------------------------------------------------------------------

                                                                                                                          Fair
                                                                                                                          Value
                                          Year 1     Year 2     Year 3     Year 4     Year 5    Thereafter    Total      12/31/00
                                         ---------  ---------  ---------  ---------  ---------  ----------  ----------  ----------
                                                                                                
Rate sensitive assets:
  Fixed interest rate loans              $ 114,061  $  73,736  $  74,395  $  58,977  $  21,153  $   12,893  $  355,215  $  364,107
  Average interest rate                      8.86%      8.77%      8.61%      8.33%      8.70%       8.21%       8.66%
  Variable interest rate loans           $ 318,843  $   1,335  $   1,263  $   1,227  $   1,235  $   39,941  $  363,844  $  362,942
  Average interest rate                      9.75%     14.57%     14.67%     14.81%     14.85%      14.12%      10.29%
  Fixed interest rate securities         $  46,587  $  21,808  $  29,764  $  21,118  $  19,565  $  151,920  $  290,762  $  290,452
  Average interest rate                      5.75%      6.53%      6.22%      6.51%      6.65%       6.46%       6.34%
  Variable interest rate securities      $     314  $     321  $     328  $     337  $     345  $    1,544  $    3,189  $    3,156
  Average interest rate                      6.19%      6.62%      6.59%      6.56%      6.53%       6.58%       6.54%
  Other interest-bearing assets          $   4,311          -          -          -          -           -  $    4,311  $    4,311
  Average interest rate                      6.50%          -          -          -          -           -       6.50%
Rate sensitive liabilities:
  Noninterest bearing checking           $   8,559  $   7,638  $   1,383  $   1,317  $   1,926  $  143,783  $  164,606  $  164,606
  Average interest rate                          -          -          -          -          -           -           -
  Savings & interest bearing checking    $   5,257  $   4,746  $   4,215  $   3,829  $   3,070  $   99,357  $  120,474  $  120,474
  Average interest rate                      1.82%      1.82%      1.82%      1.82%      1.82%       1.75%       1.76%
  Time deposits                          $ 502,545  $  37,820  $  12,117  $   3,762  $   3,126  $      879  $  560,249  $  561,951
  Average interest rate                      5.96%      6.15%      5.89%      5.60%      6.01%       5.54%       5.97%
  Fixed interest rate borrowings         $ 147,978  $  12,100  $   1,433          -          -  $   19,291  $  180,802  $  180,904
  Average interest rate                      5.50%      5.48%      6.15%          -          -       9.00%       5.87%
  Variable interest rate borrowings      $  50,000          -          -          -          -           -  $   50,000  $   50,000
  Average interest rate                      6.60%          -          -          -          -           -       6.60%

                                                                                  1999
                                                                 Principal/Notional Amount Maturing in:
                                         -----------------------------------------------------------------------------------------
                                                                         (Dollars in thousands)
                                         -----------------------------------------------------------------------------------------
                                                                                                                          Fair
                                                                                                                          Value
                                          Year 1      ear 2     Year 3     Year 4     Year 5    Thereafter    Total      12/31/99
                                         ---------  ---------  ---------  ---------  ---------  ----------  ----------  ----------
                                                                                                
Rate sensitive assets:
  Fixed interest rate loans              $  78,484  $  56,049  $  49,134  $  58,882  $  80,464  $   29,188  $  352,201  $  343,652
  Average interest rate                      8.65%      8.69%      8.66%      8.29%      7.97%       7.98%       8.39%
  Variable interest rate loans           $ 264,375  $   1,657  $   1,442  $   1,300  $   1,142  $   32,643  $  302,559  $  302,062
  Average interest rate                      8.93%     10.25%     10.18%     10.26%     10.80%       8.98%       8.96%
  Fixed interest rate securities         $  18,233  $  47,209  $  22,150  $  26,985  $  21,305  $  139,405  $  275,287  $  267,414
  Average interest rate                      6.54%      5.65%      6.42%      6.10%      6.38%       6.11%       6.10%
  Variable interest rate securities      $     209  $     206  $     218  $     231  $     245  $    2,968  $    4,077  $    4,007
  Average interest rate                      6.36%      6.69%      6.69%      6.69%      6.69%       6.98%       6.88%
  Other interest-bearing assets          $   3,783          -          -          -          -           -  $    3,783  $    3,783
  Average interest rate                      5.50%          -          -          -          -           -       5.50%
Rate sensitive liabilities:
  Noninterest bearing checking           $   7,103  $   6,338  $   1,147  $   1,093  $   1,598  $  119,316  $  136,595  $  136,595
  Average interest rate                          -          -          -          -          -           -           -
  Savings & interest bearing checking    $   4,669  $   4,216  $   3,744  $   3,401  $   2,727  $   94,371  $  113,128  $  113,128
  Average interest rate                      1.82%      1.82%      1.82%      1.82%      1.82%       1.75%       1.76%
  Time deposits                          $ 414,773  $  61,477  $  11,922  $   5,623  $   3,069  $    1,656  $  498,520  $  498,654
  Average interest rate                      5.13%      5.71%      5.75%      5.38%      5.46%       5.55%       5.22%
  Fixed interest rate borrowings         $ 129,574  $  20,800          -  $   1,473          -  $   19,264  $  171,111  $  170,902
  Average interest rate                      4.60%      5.58%          -      6.15%          -       9.00%       5.23%
  Variable interest rate borrowings      $  60,000          -          -          -          -           -  $   60,000  $   60,000
  Average interest rate                      5.42%          -          -          -          -           -       5.42%

                                      29

Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- ------------------------------------------------------------------------------
     These tables  illustrate the Company's  growth during 2000.  Increases in
variable  rate loans,  fixed rate loans,  fixed rate  securities,  noninterest
bearing checking  deposits and time deposits  primarily  reflect the growth of
the Company's  existing offices.  The increase in loans during 2000 was driven
primarily by strong growth in the Company's  commercial  loan  portfolio.  The
increase in demand deposits, which are noninterest bearing, and time deposits,
which are primarily short-term, were utilized to fund the increase in the loan
and securities portfolios.
     During 1999,  LCB  Investments  Limited was formed to manage a portion of
the Company's investment  portfolio.  LCB Investments Limited, a Bermuda-based
partnership,  is a  subsidiary  of  Lake  City  Bank  and is  included  in the
consolidation of the Company's financial statements.
     The Company's investment portfolio consists of U.S. Treasuries, agencies,
mortgage-backed securities,  municipal bonds and corporate bonds. During 2000,
purchases in the securities  portfolio  consisted primarily of mortgage-backed
securities.   As  of  December  31,  2000,   the   Company's   investment   in
mortgage-backed securities represented approximately 70.7% 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, 2000, the securities in
the AFS portfolio had a three year average life with  approximately 9.9% price
depreciation in the event of a 300 basis points upward movement. The portfolio
had  approximately  5.6% price  appreciation in the event of a 300 basis point
downward  movement in rates. As of December 31, 2000, all mortgage  securities
were   performing  in  a  manner   consistent   with   management's   original
expectations.

Capital Management

     The Company believes that a strong, aggressively 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 Tier I  leverage  capital,  Tier I risk  based
capital  and  Tier II risk  based  capital  ratios  of 7.2%,  9.4% and  10.2%,
respectively  as of December 31,  2000.  These ratios met or exceeded the FDIC
"well-capitalized" minimums of 5.0%, 6.0% and 10.0%, 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 19.9%,  to $65.0  million as of December  31, 2000,  from
$54.2 million as of December 31, 1999.  The increase in 2000 resulted from net
income of $9.3 million less the following factors:  (1) cash dividends of $3.0
million,  (2) a favorable  change in the AFS adjustment of $4.6 million net of
tax,  and (3)  $123,000  for the  purchase  of treasury  stock.  This 2000 AFS
adjustment  reflected  a 250  basis  point  decrease  in two to five year U.S.
Treasury rates during 2000.  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.  The 1999 decrease of $962,000 resulted from
net income of $8.3 million less the following:  (1) cash dividends declared of
$2.5 million,  (2) an unfavorable AFS adjustment of $6.6 million,  net of tax,
and (3) $87,000 for the purchase of treasury  stock.  This 1999 AFS adjustment
reflected a 350 basis point  increase in two to five year U. S. Treasury rates
during 1999.
     Other than those discussed in this management  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.

Allowance for Credit Risk

     At December 31, 2000, the allowance for loan losses was $7.1 million,  or
0.99% of total loans  outstanding,  versus $6.5  million,  or 1.00%,  of total
loans  outstanding at December 31, 1999.  The process of identifying  probable
credit  losses is a subjective  process.  Therefore,  the Company  maintains a
general allowance to cover all credit losses within the entire portfolio.  The
methodology management uses to determine the adequacy of the loan loss reserve
includes the following:

- -    Management   reviews  the  larger  individual  loans  (primarily  in  the
     commercial  loan  portfolio)  for  unfavorable   collectability   factors
     (including impairment) and assesses the requirement for specific reserves
     on such  credits.  For  those  loans  not  subject  to  specific  review,
     management   reviews  historical  loan  loss  experience  and  ratios  to
     establish  trends in  charge-offs  by loan  category.  The  ratios of net
     charge-offs to a particular type of loan enables  management to establish
     probable  losses  by loan  category  and  thereby  establish  appropriate
     reserves for loans that are not specifically reviewed.

- -    Management reviews the current economic  conditions of its lending market
     to determine  the effect by loan  category,  as well as the effect on the
     aggregate loan portfolio.

- -    Management  reviews  delinquent  loan reports to determine  risk of loss.
     High  delinquencies  are  generally  indicative  of an  increase  in loan
     losses.

     As a  result  of the  methodology  in  determining  the  adequacy  of the
allowance  for loan losses,  the provision for loan losses was $1.2 million in
2000 versus $1.3 million in 1999.  The slight  decrease in the  provision  for
loan  losses was  primarily  related to slower  overall  loan  growth in 2000.
During 2000 a decision was made de-emphasize  indirect consumer lending.  This
action contributed to a decline in the consumer loan portfolio of $8.3 million
versus an increase of $53.7 million in 1999. Overall,  net loan growth in 2000
was $65.0  million  versus  $115.9  million in 1999.  As of December 31, 2000,
loans past due 90 days or more and still accruing were $6.8 million (excluding
impaired loans) versus $171,000 as of year end 1999 and nonaccrual  loans were
$206,000  versus  $329,000 as of year end 1999. The increase in loans past due
90 days or more and still  accruing  resulted  primarily from the inclusion of
two commercial loans totaling $6.2 million,  or approximately  90% of the $6.8
million in this category. Of this amount, $1.4 million was paid off subsequent
to the end of the fiscal year.  A second loan of $4.8  million  matured in the
fourth quarter of 2000 and has therefore  been included in this category.  The
borrower is current on all interest  under the matured  facility.  The Company
has reached an agreement  with a bank  participant  and the borrower to extend
the  terms  of the  financing  and  anticipates  that  the  extension  will be
completed during the first quarter of 2001.
     Overall,  the  trend  in  non-performing  loans  reflects  the  weakening
economic  conditions in some of the Company's markets,  as well as the general
economic  weakness  prevalent  throughout  much of the  country.  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.
     The  Company  has  experienced  growth in total loans over the last three
years of $260.2 million,  or 56.7%. The  concentration of this loan growth was
in the commercial loan portfolio.  Commercial loans comprised 61.3%, 57.4% and
56.0% of the  total  loan  portfolio  at  December  31,  2000,  1999 and 1998,
respectively.  Management  believes  that it is prudent to continue to provide
for loan losses at the current levels due to this  historical  loan growth and
current economic conditions.

                                      30

Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- ------------------------------------------------------------------------------
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.

                                      31

Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- ------------------------------------------------------------------------------
RESULTS OF OPERATIONS

2000 versus 1999

     The  Company  reported  record  net income of $9.3  million  in 2000,  an
increase of $1.0 million,  or 12.1% versus net income of $8.3 million in 1999.
The increase resulted in part from a $109.3 million, or 10.5% growth in assets
from $1.0  billion  in 1999 to $1.1  billion  in 2000.  The  primary  increase
occurred in total loans,  which increased 9.9%, or $65.0 million,  from $653.9
million in 1999 to $718.9 million in 2000.
     Net interest  income  increased  $2.7 million,  or 8.5%, to $35.0 million
versus $32.3 million in 1999.  Interest  income  increased  $10.7 million,  or
15.4%,  from $69.4  million in 1999 to $80.1  million  in 2000.  The  increase
occurred as a result of earning asset growth of $86.4 million,  or 9.4%,  from
$923.4  million in 1999 to over $1.0 billion in 2000. In addition,  an overall
increase in interest rates that began at the end of 1999 and continued  during
the first half of 2000  contributed  to the increase in interest  income.  The
Company  had a net  interest  margin  of 3.72% in 2000  versus  3.70% in 1999.
Interest expense increased $7.9 million to $45.0 million, an increase of 21.3%
versus  $37.1  million in 1999.  Deposits  increased  to fund the loan  growth
during 2000,  driven  primarily by an increase in time deposits.  Increases in
noninterest  bearing demand  deposits of $28.0 million and  Investor's  Weekly
accounts of $9.2 million  versus 1999 also  contributed to the funding of loan
growth in 2000.  The  growth in  relationship  type  accounts  has been a core
funding  strategy of the Company  during 1999 and 2000.  The Company  believes
that the growth in the loan portfolio  will continue in  conjunction  with the
ongoing funding strategy that was implemented in 1999.
     The Company  believes  that it  maintained  strong asset quality in 2000.
Nonaccrual loans were $206,000,  or 0.03% of total loans versus $ 329,000,  or
0.05% of total loans in 1999.  There were no loans  classified  as impaired in
2000 and one loan of $246,000  classified as impaired in 1999. Net charge-offs
were  $604,000,  or 0.09% of average daily loans in 2000 versus  $298,000,  or
0.05% of average daily loans in 1999.  The provision for loan loss expense was
$1.2 million in 2000,  resulting  in an allowance  for loan losses at December
31, 2000 of $7.1 million, which represented 0.99% of the loan portfolio versus
$6.5 million in 1999, or 1.00% of the loan  portfolio.  The lower provision in
2000 versus 1999 was attributable to a number of factors,  but was primarily a
result of slower loan growth during 2000. 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 $10.4  million in 2000  versus  $12.0  million in
1999, a decrease of $1.6 million,  or 13.2%.  The largest  contributor  to the
decrease  was the  absence  of  security  gains in 2000  versus  gains of $1.3
million in 1999. The decrease in noninterest income was also reflective of the
rising rate  environment  which slowed new  mortgage and mortgage  refinancing
activity.  The  reduction in mortgage  activity  resulted in a decrease in the
gains on sale of mortgages,  which were $504,000,  a reduction of 61.3% versus
$1.3 million in 1999. Trust and brokerage fees increased  $401,000,  or 23.2%,
to $2.1 million versus $1.7 million in 1999.
     Noninterest  expense  increased less than 1.0% from $30.5 million in 1999
to $30.8 million in 2000. Various increases in noninterest  expense categories
were offset by a $500,000 gain that resulted from the Company's curtailment of
the pension plan in the second quarter of 2000. Salaries and wages,  exclusive
of the pension plan curtailment gain,  increased  $516,000,  or 3.2%, to $16.4
million in 2000 versus $15.9 million in 1999.  This increase was  attributable
to normal salary increases, staff additions and significantly increased health
care costs. Other expense increased $447,000, or 4.8%, to $9.8 million in 2000
driven by an increase in professional  fees. The increase in professional fees
was  primarily  due to expenses  incurred  with  outside  financial  and legal
advisors  related to the  pension  plan  curtailment  and  changes to employee
benefit plans in 2000.  Net occupancy  expense and equipment  costs  decreased
from $5.3  million in 1999 to $5.1  million in 2000 as a result of the sale of
two branch offices and related equipment during 2000.
     As a result of these factors,  income before income tax expense increased
$1.0  million,  or 8.3%,  from $12.4 million in 1999 to $13.4 million in 2000.
Income tax  expense  was $4.1  million in both 2000 and 1999.  Income tax as a
percent  of income  before  tax was 30.6% in 2000  versus  32.9% in 1999.  The
decrease  in income tax as a percent of income  before tax  resulted  from the
implementation  of various tax  strategies  in 2000 and late 1999.  Net income
increased $1.0 million,  or 12.1%, to $9.3 million in 2000 versus $8.3 million
in 1999.  Basic  earnings  per share in 2000 was $1.60,  an  increase of 11.9%
versus $1.43 in 1999. The Company's net income performance represented a 15.8%
return  on  January  1,  2000,  stockholders'  equity  (excluding  the  equity
adjustment  related  to SFAS No.  115)  versus  15.6% in 1999.  The net income
performance  resulted in a 0.88% return on average daily assets in 2000 versus
0.84% in 1999.

1999 versus 1998

     The Company  reported  record earnings with net income at $8.3 million in
1999, an increase of $431,000,  or 5.5%, versus $7.9 million in 1998. Interest
income in 1999 was $69.4 million, an increase of $5.7 million, or 9.0%, versus
$63.7 million in 1998.  The increase  resulted from the Company's  strategy in
1999 to transfer assets from the securities  portfolio to fund higher yielding
loans.  The loan to deposit ratio increased from 72.8% as of December 31, 1998
to 87.4% at year-end 1999.  Interest and fees on loans increased $7.4 million,
or 16.6%,  while interest and dividends on securities  decreased $1.4 million,
or 7.4%,  versus 1998.  Total  interest  expense was $37.1 million in 1999, an
increase of $1.0 million,  or 2.8%,  versus $36.1 million in 1998. An emphasis
on controlling the Company's funding costs during the year contributed to this
modest  increase.  The result of the above factors was net interest  income of
$32.3  million in 1999, a 17.1%  increase  versus $27.6  million in 1998.  The
impact to the  interest  margin was an increase of 12 basis points to 3.70% in
1999 versus  3.58% in 1998.  During  1999,  the  Company  intended to continue
growing the loan  portfolio,  as well as continuing the  relationship  funding
strategy  implemented  during 1999.  The prime rate  increased 75 basis points
during the second half of 1999 with 50 basis points of the increase  occurring
in the last two  months  of the year.  The  effect  of this  increase  was not
significant.
      Nonaccrual  loans were  $329,000  at  year-end,  or 0.05% of total loans
versus $0 in 1998. The 1999 amount included one loan totaling $246,000,  which
was recognized as impaired in 1999. Net charge-offs in 1999 were $298,000,  or
0.05% of average daily loans, versus $278,000, or 0.06% of average daily loans
in 1998.  Although the Company  believes asset quality  remained  strong,  the
growth in the loan portfolio made it necessary to recognize provision for loan
loss expense of $1.3  million.  The  allowance for loan losses at December 31,
1999 was $6.5 million,  which  represented  1.00% of the loan portfolio versus
$5.5 million, or 1.02% of the loan portfolio as of year-end 1998.
     Noninterest  income was strong in 1999;  however  slowing  mortgage  loan
demand  reduced  the  contribution   from  this  area  as  compared  to  1998.
Noninterest  income for 1999 was $12.0  million,  an increase of $744,000,  or
6.6%, versus $11.2 million in 1998.  Deposit fees increased  $317,000 or 7.9%,
with other major increases in brokerage income,  which increased $159,000,  or
37.7%, insurance and credit card fees. Mortgage originations decreased 3.6% in
1999 versus 1998 as a result of rising  interest  rates and lower  refinancing
volume. Gains on sale of mortgage loans decreased 11.2% as a result.  Security
gains in 1999 increased 6.6% to $ 1.3 million.
     Noninterest  expense  in 1999 was  $30.5  million,  an  increase  of $4.1
million,  or 15.3%,  versus  $26.5  million  in 1998.  Salaries  and  employee
benefits  increased  $1.8  million,  or 13.0%,  from $ 14.1  million to $ 15.9
million, reflecting normal salary increases,  additions to staff and increased
health care costs. Occupancy and equipment expenses increased $1.2 million, or
30.6% from $ 4.1 million in 1998 to $ 5.3 million in 1999.  This reflected the
investments in equipment and technology as part of the Company's commitment to
prepare for the year 2000. Other expense  increased  $971,000,  or 11.6%, from
$8.3  million  in 1998 to $9.3  million  in 1999  with  the  largest  increase
occurring in data  processing  fees,  which  increased  $431,000 in 1999. This
reflected both changes in the Company's Trust Accounting  System and year 2000
preparations.
     As a result of these factors,  income before income tax expense increased
$590,000,  or 5.0%,  to $12.4  million in 1999 versus  $11.8  million in 1998.
Income tax  expense  was $4.1  million in 1999  versus  $3.9  million in 1998.
Income tax as a percent of income before tax was 32.9% in 1999 versus 33.2% in
1998. Net income increased  $431,000,  or 5.5%, to $8.3 million in 1999 versus
$7.9 million in 1998. Basic earnings per share in 1999 were $1.43 versus $1.36
in 1998.  Net income of $8.3 million  represented a 15.6% return on January 1,
1999,  stockholders'  equity (excluding the equity adjustment  related to SFAS
No. 115), and a 0.84% return on average daily assets.

                                      32

LAKE CITY BANK OFFICERS
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Michael L. Kubacki                 President                            Operations
Robert C. Condon                   Executive Vice President             Frank A. Soltis                  Senior Vice President
Kevin L. Deardorff                 Executive Vice President             Vicki D. Martin                  Vice President
David M. Findlay                   Executive Vice President             Angela K. Ritchey                Vice President
Charles D. Smith                   Executive Vice President             Lisa M. Bicknese                 Assistant Vice President
Walter L. Weldy                    Executive Vice President             Jean A. Ciriello                 Assistant Vice President
                                                                        Kirk B. Davis                    Assistant Vice President
Audit                                                                   Joanie L. Foreman                Assistant Vice President
Betty L. McHenry                   Senior Vice President                Lisa A. Fulton                   Assistant Vice President
                                   and Auditor                          Ruth A. Hutcherson               Assistant Vice President
Michelle R. Halter                 Assistant Vice President             Linda A. Owens                   Assistant Vice President
Teah D. Ruckman                    Assistant Auditor                    Lorretta J. Burnworth            Operations Officer
                                                                        Janice J. Cox                    Operations Officer
Commercial Services                                                     William L. Hilliard              Operations Officer
Michael E. Gavin                   Senior Vice President                Scot A. Karbach                  Operations Officer
H.A. "Rocky" Meyer                 Senior Vice President                Jan R. Martin                    Operations Officer
J. A. Arnold                       Vice President                       Linda L. Swoverland              Operations Officer
Kelly K. Ayers                     Vice President
David A. Bickel                    Vice President                       Retail Services
James R. Cowan                     Vice President                       Thomas P. Frantz                 Senior Vice President
Drew D. Dunlavy                    Vice President                       Dale L. Cramer                   Vice President
Brent E. Hoffman                   Vice President                       Dennis E. Dolby                  Vice President
Kenneth L. Kasamis                 Vice President                       James D. Tague                   Vice President
Joseph F. Kessie                   Vice President                       Janet K. Anderson                Assistant Vice President
William D. Leedy                   Vice President                       Carolyn A. Crabb                 Assistant Vice President
J. Randall Leininger               Vice President                       Craig A. Haecker                 Assistant Vice President
Jack E. Mills                      Vice President                       T. Larry Mitchell                Assistant Vice President
Eric H. Ottinger                   Vice President                       W. John Pritz                    Assistant Vice President
Larry L. Penrod                    Vice President                       Sue L. Sands                     Assistant Vice President
Clinton R. Pletcher                Vice President                       Shannon D. Schrock               Assistant Vice President
Kelli S. Robinson                  Vice President                       Bradley W. Smith                 Assistant Vice President
Thomas G. Stark                    Vice President                       W. Randy Yoder                   Assistant Vice President
J. Chad Stoltzfus                  Vice President                       Glenn A. Goudey                  Senior Mortgage Underwriter
J. Mark Ulrich                     Vice President                       Lisa A. Stookey                  Merchant Services Officer
Randal U. Vutech                   Vice President                       Aaron M. Stroup                  Mortgage Banking Officer
Todd A. Bruce                      Assistant Vice President             Melanie R. Shipley               Retail Banking Officer
Kathy L. Sears                     Assistant Vice President             Rafael M. Villalon               Retail Banking Officer

Corporate Cash Management                                               Trust & Investments
Julie W. Whitehead                 Vice President                       Patricia L. Culp                 Vice President
Abbe S. Muta                       Cash Management Officer              Keith E. Davis                   Vice President
                                                                        Jeanine D. Knowles               Vice President
Financial                                                               Dennis A. Reeve                  Vice President
Teresa A. Bartman                  Vice President and Controller        Alan S. Duff                     Assistant Vice President
James J. Nowak                     Vice President and Treasurer         Larry L. Poyser                  Assistant Vice President
Brian M. Lamb                      Assistant Vice President             Kevin M. Reed                    Assistant Vice President
                                                                        Debra L. Rich                    Assistant Vice President
Marketing, Human Resources and Facilities                               Sarah A. Richardson              Assistant Vice President
Jill A. DeBatty                    Senior Vice President                Peggy L. Terhaar                 Assistant Vice President
Allyn P. Decker                    Vice President                       Marjorie E. Kurtz                Trust Administrator
John W. Gove                       Vice President
Paul S. Purvis                     Vice President
Cathy L. Teghtmeyer                Vice President
Aimee C. Morgan                    Human Resource Officer

                                      33

LAKE CITY BANK OFFICERS (continued)
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Office Administration
Jeri L. Yoder-Gluck                           Vice President - Regional Manager
Jeannine P. Cooley                            Assistant Vice President
Karin A. Steffensmeier                        Assistant Vice President

Offices
Akron                                         L. Jane Murphy                                     Vice President
Argos                                         Stanley G. Reinholt                                Assistant Vice President
Bremen                                        Matthew K. Bixel                                   Vice President
Columbia City                                 Donald L. Sexton                                   Vice President
Concord                                       Steven Colagrossi                                  Assistant Vice President
Cromwell                                      Jana L. Miller                                     Office Manager
Elkhart Beardsley                             Samuel M. Bouie                                    Vice President
Elkhart East                                  Kathleen M. Enfield                                Office Manager
Elkhart Hubbard Hill                          Jane E. Miller                                     Vice President
Elkhart Northwest                             Don A. Brincefeild                                 Vice President
Fort Wayne North                              Bruce A. Wright                                    Vice President - Regional Manager
Fort Wayne Southwest                          Robert J. Savage                                   Vice President
Goshen Downtown                               Jane M. Greene                                     Assistant Vice President
Goshen South                                  Clarence J. "CJ" Yoder                             Vice President
Granger                                       Gregory A. Fawley                                  Office Manager
Greentown                                     Donna L. Graham                                    Assistant Vice President
Huntington                                    Joseph E. Blomeke                                  Vice President
Kendallville East                             L. Duane Smith                                     Vice President
                                              Mark R. Rensner                                    Office Manager
LaGrange                                      Cathy I. Hefty                                     Assistant Vice President
Ligonier Downtown                             Gaylord A. West                                    Vice President
                                              Lori I. Cunningham                                 Assistant Office Manager
Ligonier South                                Craig R. Atz                                       Vice President
                                              Nanceen P. Briggs                                  Office Manager
Logansport                                    J. Bradley Glasson                                 Assistant Vice President
Medaryville                                   Elaine C. Parish                                   Assistant Vice President
Mentone                                       Karen A. Francis                                   Vice President
Middlebury                                    Ryan E. Bender                                     Office Manager
Milford                                       Brenda S. Peterson                                 Office Manager
Mishawaka                                     Robert J. DeCola                                   Vice President - Regional Manager
                                              Tricia D. Peffley                                  Assistant Office Manager
Nappanee                                      Jeffery W. Krusenklaus                             Office Manager
North Webster                                 Jeanne G. Bowen                                    Vice President
Peru                                          Linda L. Rodgers                                   Assistant Vice President
Pierceton                                     Lisa L. Hockemeyer                                 Assistant Vice President
Plymouth                                      Michael D. Burroughs                               Vice President - Regional Manager
                                              Carol D. Brown                                     Assistant Office Manager
Roann                                         Merrill A. Templin                                 Assistant Vice President
Rochester                                     Phyllis M. Biddinger                               Office Manager
Shipshewana                                   Michele D. Grimm                                   Office Manager
                                              Sarah Miller-Bontrager                             Assistant Office Manager
Silver Lake                                   Tammy D. Shafer                                    Office Manager
Syracuse                                      Amanda Russell                                     Office Manager
Wabash North                                  Merrill A. Templin                                 Assistant Vice President
Warsaw Downtown                               Rosemary K. Baumgardner                            Assistant Vice President
Warsaw East                                   Pamela F. Messmore                                 Vice President
Warsaw West                                   Shelly R. Fraley                                   Office Manager
Winona Lake                                   Allan L. Disbro                                    Vice President
Winona Lake East                              Linda M. Riley                                     Office Manager

                                                                34