UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

(Mark One)

/X/     Quarterly  report under Section 13 or 15(d) of the  Securities  Exchange
        Act of 1934

        For the quarterly period ended June 30, 2004

/ /     Transition report under Section 13 or 15(d) of the Exchange Act

             For the transition period from _________ to ___________

                          Commission file number 0-631

                            WEBFINANCIAL CORPORATION
                            ------------------------
        (Exact Name of Small Business Issuer as Specified in Its Charter)


           DELAWARE                                             56-2043000
           --------                                             ----------
(State or Other Jurisdiction of                              (IRS Employer
Incorporation or Organization)                               Identification No.)


                         590 MADISON AVENUE, 32ND FLOOR
                               NEW YORK, NY 10022
                               ------------------
          (Address of Principal Executive Offices, Including Zip Code)

                                  212-758-3232
                                  ------------
                (Issuer's Telephone Number, Including Area Code)

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter 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 [ ]

     Shares  of  Issuer's Common Stock Outstanding at August 16, 2004: 4,366,866

     Transitional Small Business Disclosure Format:     Yes [   ]    No [ X ]






                                      INDEX


PART I - FINANCIAL INFORMATION                                       PAGE NUMBER

Item 1.   Condensed Consolidated Financial Statements:

          Condensed Consolidated Statements of Financial Condition as of
          June 30, 2004 (unaudited) and December 31, 2003....................  2

          Condensed Consolidated Statements of Income and Comprehensive
          Income Three Months Ended June 30, 2004 and 2003 (unaudited).......  4

          Condensed Consolidated Statements of Income and Comprehensive
          Income Six Months Ended June 30, 2004 and 2003 (unaudited).........  6

          Condensed Consolidated Statements of Cash Flows
          Six Months Ended June 30, 2004 and 2003 (unaudited)................  8

          Notes to Condensed Consolidated Financial Statements (unaudited)... 10

Item 2.   Management's Discussion and Analysis or Plan of Operation.......... 13

Item 3.   Controls and Procedures............................................ 24

PART II - OTHER INFORMATION

Item 5.   Other Information.................................................. 25

Item 6.   Exhibits and Reports on Form 8-K................................... 25

          Signatures......................................................... 26

                                       1





PART I.     FINANCIAL INFORMATION

ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                    (Amounts in thousands except share data)

                       ASSETS                                  JUNE 30, 2004        DECEMBER 31, 2003
                                                               -------------        -----------------
                                                               (unaudited)

Cash and due from banks                                         $     12                $     15
Interest bearing deposits in other banks                           2,017                   6,265
Federal funds sold                                                 1,207                     965
                                                                --------                --------
        Total cash and cash equivalents                            3,236                   7,245

Investment securities
        Held-to-maturity (estimated fair value $47 at June
                 30, 2004 and $49 at December 31, 2003)               47                      48
        Available-for-sale                                         1,589                     324
                                                                --------                --------
                 Total investment securities                       1,636                     372

Loans, net                                                        10,032                   8,819
Purchased receivables
        Accounts receivable factoring                              7,085                   7,352
        Other                                                        157                     268
Allowance for credit losses                                       (1,070)                 (1,302)
                                                                --------                --------
                 Total loans, net                                 16,204                  15,137

Foreclosed assets                                                    175                     200
Premises and equipment, net                                           29                      15
Accrued interest receivable                                          284                     244
Goodwill, net                                                      1,380                   1,380
Deferred tax assets                                                  575                     757
Other assets, net                                                  2,252                   1,098
                                                                --------                --------
                                                                $ 25,771                $ 26,448
                                                                ========                ========

                                   (Continued)

                                       2




                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)
                    (Amounts in thousands except share data)

         LIABILITIES AND STOCKHOLDERS' EQUITY                       JUNE 30, 2004          DECEMBER 31, 2003
                                                                    -------------          -----------------
                                                                    (unaudited)
Deposits
       Non interest-bearing demand                                     $    430                 $    206
       NOW/MMA accounts                                                     329                      347
       Certificates of deposit                                           10,092                   11,364
                                                                       --------                 --------
               Total deposits                                            10,851                   11,917

Other liabilities                                                           502                      377
                                                                       --------                 --------
Total liabilities before minority interest                               11,353                   12,294

Minority interest                                                           487                      463

Commitments and contingencies                                                --                       --

Stockholders' Equity
       Preferred stock, 10,000,000 shares authorized, none issued            --                       --
       Common stock 50,000,000 shares authorized,
           $.001 par value, 4,366,866 shares issued
           and outstanding at June 30, 2004 and
           December 31, 2003                                                  4                        4
       Additional paid-in-capital                                        36,606                   36,606
       Accumulated  deficit                                             (22,909)                 (22,974)
       Accumulated other comprehensive income                               230                       55
                                                                       --------                 --------
Total stockholders' equity                                               13,931                   13,691
                                                                       --------                 --------
                                                                       $ 25,771                 $ 26,448
                                                                       ========                 ========

        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                       3





                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
                               INCOME (UNAUDITED)
                 (Amounts in thousands except per share amounts)

                                                                                     FOR THE THREE MONTHS
                                                                                         ENDED JUNE 30,
                                                                                     2004         2003
                                                                                     ----         ----
  Interest income
     Loans, including fees                                                        $   195       $   210
     Purchased receivables
                Accounts receivable factoring                                         677           885
                Other                                                                   4             9
     Interest bearing deposits in other banks                                           6             3
     Federal funds sold                                                                 3            16
     Investment securities                                                             22            38
                                                                                  -------       -------
             Total interest income                                                    907         1,161

  Interest expense                                                                     61            94
                                                                                  -------       -------

                    Net interest income before credit for
                    credit losses                                                     846         1,067

Credit for credit losses                                                             (123)           (3)
                                                                                  -------       -------

                    Net interest income after credit for
                    credit losses                                                     969         1,070

Noninterest income
       Gain on sale of assets                                                          --           233
       Fee income                                                                      63           102
       Accounts receivable factoring servicing revenue                                180            --
       Miscellaneous income, net                                                       78            64
                                                                                  -------       -------
               Total noninterest income                                               321           399

Noninterest expenses
       Salaries, wages, and benefits                                                  220           247
       Professional and legal fees                                                     36            93
       Accounts receivable factoring management and broker fees                       422           316
       Other management fees - related party                                           78            78
       Other general and administrative                                               164           153
                                                                                  -------       -------
               Total noninterest expenses                                             920           887
                                                                                  -------       -------
                  Operating income                                                    370           582

 Income taxes                                                                         115            --
                                                                                  -------       -------

       Income before minority interest                                                255           582

 Income attributable to minority interest                                              16            18
                                                                                  -------       -------

       Net income                                                                     239           564

                                   (Continued)

                                       4



                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
                         INCOME (UNAUDITED) (Continued)
                 (Amounts in thousands except per share amounts)

                                                                                       FOR THE THREE MONTHS
                                                                                          ENDED JUNE 30,
                                                                                    2004                2003
                                                                                    ----                ----

Other comprehensive income (loss)
      Unrealized gains (losses) on available for sale securities                        140             (154)
       Income tax expense on other comprehensive income                                  --               --
                                                                                -----------      -----------
             Total other comprehensive income (loss), net of tax                        140             (154)
                                                                                -----------      -----------

 Comprehensive income                                                           $       379      $       410
                                                                                ===========      ===========


Net income per common share, basic and diluted                                  $       .05      $       .13
Weighted average number of common shares:
        Basic                                                                     4,366,866        4,366,866
        Diluted                                                                   4,370,083        4,366,957


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                       5



                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
                               INCOME (UNAUDITED)
                 (Amounts in thousands except per share amounts)

                                                                       FOR THE SIX MONTHS
                                                                          ENDED JUNE 30,
                                                                       2004          2003
                                                                       ----          ----
  Interest income
     Loans, including fees                                           $   388       $   452
     Purchased receivables
                Accounts receivable factoring                          1,407         1,585
                Other                                                      9            18
     Interest bearing deposits in other banks                             15             8
     Federal funds sold                                                    7            25
     Investment securities                                                49            43
                                                                     -------       -------
             Total interest income                                     1,875         2,131

  Interest expense                                                       134           191
                                                                     -------       -------

                    Net interest income before credit for
                    credit losses                                      1,741         1,940

Credit for credit losses                                                (148)           (6)
                                                                     -------       -------

                    Net interest income after credit for
                    credit losses                                      1,889         1,946

Noninterest income
       Gain on sale of assets                                              1           233
       Fee income                                                        134           265
       Accounts receivable factoring servicing revenue                   261            --
       Miscellaneous income, net                                         140           136
                                                                     -------       -------
               Total noninterest income                                  536           634

Noninterest expenses
       Salaries, wages, and benefits                                     489           485
       Professional and legal fees                                       330           228
       Accounts receivable factoring management and broker fees          774           573
       Other management fees - related party                             147           155
       Other general and administrative                                  393           325
                                                                     -------       -------
               Total noninterest expenses                              2,133         1,766
                                                                     -------       -------
                    Operating income                                     292           814

 Income taxes                                                            204             2
                                                                     -------       -------

       Income before minority interest                                    88           812

 Income attributable to minority interest                                 24            34
                                                                     -------       -------

       Net income                                                         64           778

                                   (Continued)

                                       6





                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
          CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE
                         INCOME (UNAUDITED) (CONTINUED)
                 (Amounts in thousands except per share amounts)

                                                                              FOR THE SIX MONTHS
                                                                                ENDED JUNE 30,
                                                                             2004            2003
                                                                             ----            ----

Other comprehensive income
      Unrealized gains on available for sale securities                         175             155
       Income tax expense on other comprehensive income                          --              --
                                                                         ----------      ----------
             Total other comprehensive income, net of tax                       175             155
                                                                         ----------      ----------

 Comprehensive income                                                    $      239      $      943
                                                                         ==========      ==========


Net income per common share, basic and diluted                           $      .01      $      .18
Weighted average number of common shares:
        Basic                                                             4,366,866       4,366,866
        Diluted                                                           4,369,972       4,367,183

        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                       7





                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                             (Amounts in thousands)
                                                                               FOR THE SIX MONTHS
                                                                                  ENDED JUNE 30,
                                                                                2004         2003
                                                                                ----         ----
        Cash flows from operating activities:
        Net income from operations                                               64           778
        Adjustments to reconcile net income to net cash
              used in operating activities:
            Minority interest                                                    24            34
            Depreciation                                                          8            18
            Credit for credit losses                                           (148)           (6)
            Accretion of loan income and fees, net                              (40)          (82)
            Amortization of servicing assets                                      8            38
            Amortization of other assets                                          1             4
            Write down of foreclosed assets                                      25            --
            Loss on sale of foreclosed assets                                    --            36
            Gain on sale of AFS securities                                       (1)         (274)
        Changes in operating assets and liabilities:
                  Accrued interest receivable                                   (40)         (133)
                  Deferred tax assets                                           182            --
                  Other assets                                               (1,162)         (527)
                  Interest payable                                               (7)          (57)
                  Other liabilities                                             132          (675)
                                                                            --------      --------
                         Net cash used in operating activities                 (954)         (846)

       Cash flows from investing activities:
            Principal payments received on investment securities held-
            to-maturity                                                           1             7
            Purchase of investment securities available-for-sale             (1,106)       (2,425)
            Sale of investment securities available-for-sale                      2           858
            Principal payments received on investment securities
            available-for-sale                                                   15         2,046
            Purchase of premises and equipment                                  (22)           --
            Proceeds from sale of foreclosed assets                              --            --
            Loans originated, receivables purchased, and principal
            collections, net                                                   (879)       (1,145)
                                                                            --------      --------
                       Net cash used in investing activities                 (1,989)         (659)

       Cash flows from financing activities:
              Net increase (decrease) in noninterest bearing deposits           224          (368)
              Net increase (decrease) in NOW/MMA deposits                       (18)          139
              Net increase (decrease)  in certificates of deposit            (1,272)           18
                                                                            --------      --------
                     Net cash used in financing activities                   (1,066)         (211)

        Net decrease in cash and cash equivalents                            (4,009)       (1,716)

            Cash and cash equivalents at beginning of period                  7,245         6,546
                                                                            --------      --------
            Cash and cash equivalents at end of period                      $ 3,236       $ 4,830
                                                                            ========      ========

                                   (Continued)

                                       8



                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
                             (Amounts in thousands)

                                                           FOR THE SIX MONTHS
                                                              ENDED JUNE 30,
                                                           2004           2003
                                                           ----           ----
Supplemental disclosure of cash flow information:
         Cash paid for interest                            $141           $185
         Cash paid for income taxes                        $ 21           $  2

Supplemental disclosure of additional non-cash activities:

During the first quarter of 2003, the Company acquired foreclosed assets of $220
in  lieu of  loan  payments.  In the  third  quarter  of  2003,  these  acquired
foreclosed  assets were written down to an expected market value, net of selling
costs,  of $200. In the first and second  quarters of 2004, the same  foreclosed
assets were written down again to expected market values,  net of selling costs,
of $180 and $175, respectively.

At June 30,  2004,  the  Company  had a balance  of net  unrealized  gains  from
available-for-sale securities of $230. The balance at December 31, 2003 was $55.
Net unrealized  gains and losses on  available-for-sale  securities are shown as
"accumulated  other   comprehensive   income"  on  the  Condensed   Consolidated
Statements  of  Financial  Condition.  The  change  in net  unrealized  gains on
available-for-sale  securities  between  the  two  periods  resulted  in a  $175
increase in accumulated  other  comprehensive  income in the first six months of
2004.

        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

                                       9





                    WEBFINANCIAL CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
           (All numbers except shares and per share data in thousands)

1.          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            Basis   of   Presentation--The    accompanying   interim   condensed
consolidated   financial   statements  of   WebFinancial   Corporation  and  its
subsidiaries  (the "Company") are unaudited and have been prepared in conformity
with the  requirements  of  Regulation  S-X  promulgated  under  the  Securities
Exchange Act of 1934, as amended (the "Exchange Act"),  particularly  Rule 10-01
thereof,  which  governs  the  presentation  of  interim  financial  statements.
Accordingly,  they do not include all of the information and footnotes  required
by accounting principles generally accepted in the United States of America. The
accompanying interim condensed  consolidated financial statements should be read
in conjunction with the Company's  significant  accounting policies as set forth
in Note 1 to the  consolidated  financial  statements  in the  Company's  Annual
Report  on Form  10-KSB/A  for the year  ended  December  31,  2003  (the  "2003
10-KSB/A").  The  Condensed  Consolidated  Statement of  Financial  Condition at
December  31,  2003  was  extracted  from  the  Company's  audited  consolidated
financial  statements  contained in the 2003 10-KSB/A,  and does not include all
disclosures  required by accounting  principles generally accepted in the United
States of America for annual consolidated financial statements.

            In the opinion of  management,  all  adjustments  are  comprised  of
normal  recurring  accruals  necessary for the fair  presentation of the interim
financial  statements.  Operating results for the six months ended June 30, 2004
are not necessarily  indicative of the results that may be expected for the year
ending December 31, 2004.

2.          ORGANIZATION AND RELATIONSHIPS

            The  condensed   consolidated   financial   statements  include  the
financial   statements  of  WebFinancial   Corporation  and  its   subsidiaries:
WebFinancial Holding  Corporation,  WebBank,  Praxis Investment Advisers,  Inc.,
WebFinancial   Government   Lending,   Inc.,  and  Web  Film  Financial,   Inc.,
collectively referred to as the Company. WebBank is a Utah-chartered  industrial
loan corporation,  and is subject to comprehensive regulation,  examination, and
supervision by the Federal Deposit Insurance Corporation ("FDIC"), and the State
of Utah Department of Financial  Institutions.  WebBank provides  commercial and
consumer specialty finance services.  All intercompany accounts and transactions
have been eliminated in consolidation.

3.          OTHER COMPREHENSIVE INCOME

            Other comprehensive income is defined as the change in equity during
a period  from  transactions  and  other  events  not  included  in net  income,
excluding changes  resulting from investments by owners (e.g.,  supplement stock
offerings) and distributions to owners (e.g., dividends).

            As  of  June  30,  2004,   accumulated  other  comprehensive  income
consisted of the following:

            Balance at December 31, 2003                        $    55
            Net change during  the period related
                to unrealized holding gains
                on available-for-sale
                securities arising during the
                period.                                             175
                                                                --------
            Balance at June 30, 2004                            $   230
                                                                ========

4.          OPERATING SEGMENT INFORMATION

Operating  segments  represent  components of an enterprise about which separate
financial  information  is available  that is  evaluated  regularly by the chief
operating  decision maker in deciding how to allocate resources and in assessing
performance.

                                       10





The Company evaluates segment performance  internally based on lines of business
and the  operating  segments  are so defined.  The Company  has  identified  two
operating  segments.  The first is the  accounts  receivable  factoring  program
operated by WebBank.  The second  operating  segment,  termed "other,"  includes
commercial  lending,  fee  for  services,  and  investment  activities.   Income
generated from  investments in factoring  receivables by Company  entities other
than WebBank is included in the "other"  operating  segment.  For the six months
ended June 30, 2004 and 2003,  factoring  income  earned by entities  other than
WebBank was $6 and $159, respectively.

Note 5 of the Notes to  Condensed  Consolidated  Financial  Statements  provides
information  regarding  termination of the WebBank accounts receivable factoring
programs described above as the first operating segment.

The following is a summary of selected  operating  segment  information  for the
three  months  and six  months  ended June 30,  2004 and 2003.  The  information
represents  operating  results as if the segments were operated on a stand alone
basis.  However,  the results do not reflect a full allocation of costs based on
the  current  structure  of the  entities,  and thus the  results  might  not be
comparable to like information from other companies.

                                                         Accounts
                                                        Receivable                    Consolidated
                                                         Factoring       Other          Company
                                                         ---------       -----          -------

THREE MONTHS ENDED JUNE 30, 2004:
Statement of Operations Information (Quarter):
Net interest income after credit for credit losses       $    612      $    357       $    969
Noninterest income                                            180           141            321
Noninterest expense                                           425           495            920
                                                         --------      --------       --------
Operating income                                              367             3            370
Income taxes                                                   --           115            115
Income attributable to minority interest                       --            16             16
                                                         --------      --------       --------
Net income (loss)                                        $    367      $   (128)      $    239

Statement of Financial Condition Information (As
of June 30, 2004):
Total assets                                             $  8,573      $ 17,198       $ 25,771
Net loans and purchased receivables                      $  6,943      $  9,261       $ 16,204
Deposits                                                 $  7,201      $  3,650       $ 10,851

THREE MONTHS ENDED JUNE 30, 2003:
Statement of Operations Information (Quarter):
Net interest income after credit  for credit losses      $    716      $    354       $  1,070
Noninterest income                                             --           399            399
Noninterest expense                                           341           546            887
                                                         --------      --------       --------
Operating income                                              375           207            582
Income taxes                                                   --            --             --
Income attributable to minority interest                       --            18             18
                                                         --------      --------       --------
Net income                                               $    375      $    189       $    564
                                                         --------      --------       --------

Statement of Financial Condition Information (As
of June 30, 2003):
Total assets                                             $  8,066      $ 18,123       $ 26,189
Net loans and purchased receivables                      $  6,505      $  9,909       $ 16,414
Deposits                                                 $  7,207      $  6,202       $ 13,409

                                       11



                                                         Accounts
                                                        Receivable                    Consolidated
                                                         Factoring       Other          Company
                                                         ---------       -----          -------

SIX MONTHS ENDED JUNE 30, 2004:
Statement of Operations Information (Period):
Net interest income after credit for credit losses       $  1,283      $    606       $  1,889
Noninterest income                                            261           275            536
Noninterest expense                                           826         1,307          2,133
                                                         --------      --------       --------
Operating income (loss)                                       718          (426)           292
Income taxes                                                   --           204            204
Income attributable to minority interest                       --            24             24
                                                         --------      --------       --------
Net income (loss)                                        $    718      $   (654)      $     64

Statement of Financial Condition Information (As
of June 30, 2004):
Total assets                                             $  8,573      $ 17,198       $ 25,771
Net loans and purchased receivables                      $  6,943      $  9,261       $ 16,204
Deposits                                                 $  7,201      $  3,650       $ 10,851

SIX MONTHS ENDED JUNE 30, 2003:
Statement of Operations Information (Period):
Net interest income after credit  for credit losses      $  1,292      $    654       $  1,946
Noninterest income                                             --           634            634
Noninterest expense                                           646         1,120          1,766
                                                         --------      --------       --------
Operating income                                              646           168            814
Income taxes                                                   --             2              2
Income attributable to minority interest                       --            34             34
                                                         --------      --------       --------
Net income                                               $    646      $    132       $    778
                                                         --------      --------       --------

Statement of Financial Condition Information (As
of June 30, 2003):
Total assets                                             $  8,066      $ 18,123       $ 26,189
Net loans and purchased receivables                      $  6,505      $  9,909       $ 16,414
Deposits                                                 $  7,207      $  6,202       $ 13,409

5.          TERMINATED OPERATIONS INFORMATION

On February  20,  2004,  WebBank  gave notice of  termination  of a Sourcing and
Servicing  Agreement  and an  Employment  Agreement to one of the two  factoring
companies providing accounts receivable  factoring services to WebBank. On March
1, 2004, that factoring company  acknowledged  receipt of the termination notice
and,  under the terms of the Sourcing and  Servicing  Agreement,  gave notice to
WebBank that the  factoring  company  would  exercise its option to purchase the
existing portfolio of accounts  receivable from WebBank at book value on May 12,
2004.  On May 6, 2004,  WebBank and the factoring  company  agreed to extend the
termination  date of the Sourcing and  Servicing  Agreement to December 31, 2004
and to extend  the  option  period  to  purchase  the  portfolio  to a  mutually
agreeable  date no earlier  than July 31,  2004 and no later than  December  31,
2004. The accounts receivable factoring  arrangement with that factoring company
accounted for  approximately 45% and 70% of the Company's  consolidated  revenue
and 63% and 78% of its consolidated operating income for the quarters ended June
30,  2003  and  2004,   respectively.   The  same   arrangement   accounted  for
approximately 47% and 68% of the Company's consolidated revenue and 69% and 237%
of its  consolidated  operating  income for the six month periods ended June 30,
2003 and 2004, respectively.  There can be no assurance that the Company will be
able to successfully enter into a replacement  arrangement or arrangements.  The
Company  believes that if the purchase  option  becomes  effective  during 2004,
WebBank  will (a) not  generate  any gain or loss as a result of the sale of the
portfolio because the factoring company has elected to purchase the portfolio of
accounts receivable at WebBank's net book value, and (b) generate  approximately
$7 million of cash as a result of the sale of the portfolio. WebBank anticipates
that  the  cash  generated  by a sale of the  portfolio  will be used to  retire
Certificates of Deposit as they mature.

Under a Termination Agreement dated February 27, 2004, WebBank and the second of
two companies providing accounts receivable factoring services to WebBank agreed
to the  termination  of a Sourcing and  Servicing  Agreement  and an  Employment
Agreement  between the parties.  Under the terms of that Termination  Agreement,
the factoring company purchased a portfolio of accounts  receivable from WebBank
at book value on March 2, 2004. The accounts  receivable  factoring  arrangement
with  that  factoring  company  accounted  for  approximately  7%  and 0% of the
Company's  consolidated  revenue  and 7% and  0% of its  consolidated  operating
income for the  quarters  ended June 30, 2003 and 2004,  respectively.  The same
arrangement accounted for approximately 4% and 1% of the Company's  consolidated
revenue  and 5% and 9% of its  consolidated  operating  income for the six month
periods ended June 30, 2003 and 2004, respectively.

                                       12




Note 4 of the Notes to Condensed  Consolidated  Financial  Statements  shows the
income and expenses  attributable to the Company's accounts receivable factoring
operating  segment for the six months ended June 30, 2004 and 2003, all of which
were generated by the two accounts receivable factoring  arrangements  described
above.  The Company  believes that an early  termination of one month or more of
the accounts receivable factoring arrangement scheduled to terminate on December
31, 2004 will have a significant adverse affect on its net income during 2004.

On February 23, 2004, the third party sourcing company engaged to source private
label  student  loans on behalf of WebBank  gave notice to WebBank that it would
not renew the Loan Sale  Agreement  and Loan Program  Agreement  between the two
parties.  Consequently,  those agreements  terminated at the conclusion of their
current term on May 31, 2004. The terminated  private label student loan program
generated  revenue of $42 and $75 for each of the six month  periods  ended June
30, 2004 and 2003, respectively.

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

            The  following  discussion  should be read in  conjunction  with the
condensed  consolidated unaudited interim financial statements as of and for the
three  month and six month  periods  ended June 30,  2004 of the Company and the
notes thereto presented elsewhere herein.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003

            At  June  30,  2004,  accounts  receivable   factoring   constituted
WebBank's principal line of business.  WebBank is engaged in accounts receivable
factoring utilizing a factoring company. The Company has announced that a notice
of  termination  has been issued with respect to a certain  accounts  receivable
factoring  arrangement,  with the  termination  to be  effective  no later  than
December 31, 2004 (see Note 5 of the Notes to Condensed  Consolidated  Financial
Statements),  and that another  accounts  receivable  program was  terminated in
February 2004. The accounts receivable  factoring  arrangement that is scheduled
to be terminated no later than December 31, 2004 generated revenue and income in
the quarters ended June 30, 2003 and 2004 which accounted for (a)  substantially
all of the revenue and  operating  income  generated by the  Company's  accounts
receivable factoring operating segment for those quarters, and (b) a significant
part of the revenue and operating  income of the Company for those quarters (see
Note 4 of the Notes to Condensed Consolidated Financial Statements). In light of
the  significant  revenue and  operating  income  attributable  to this accounts
receivable factoring  arrangement,  the Company believes that an exercise of the
purchase  option  one month or more  prior to  December  31,  2004  could have a
significant  adverse  effect on its net income  during  2004.  The Company  also
believes that if the purchase option becomes effective during 2004, WebBank will
(a) not  generate  any  gain or loss as a result  of the  sale of the  portfolio
because the factoring  company has elected to purchase the portfolio of accounts
receivable  at  WebBank's  net book value,  and (b)  generate  approximately  $7
million of cash as a result of the sale of the  portfolio.  WebBank  anticipates
that  the  cash  generated  by a sale of the  portfolio  will be used to  retire
Certificates of Deposit as they mature.

            Net income for the quarter  ended June 30, 2004 was $239,000 or $.05
per share  compared  to net  income of  $564,000  or $.13 per share for the same
period in 2003. The change between  quarters  represented a decrease of $325,000
or $.08 per share.

            As shown in the two tables below,  the Company's net interest income
before  credit for credit  losses  decreased  from  $1,067,000  to  $846,000,  a
difference of $221,000.  Interest income decreased by $254,000.  Interest income
from accounts receivable factoring decreased by $208,000, accounting for most of
the decrease.  Of the $208,000 decrease in accounts  receivable interest income,
$20,000  was due to a decline in average  volume and  $188,000  was due to lower
yields.  Interest  expense  decreased  by  $33,000,  primarily  due to a $31,000
decrease in interest expense on certificates of deposit. Of the $31,000 decrease
in  certificate  of deposit  interest  expense,  $21,000 was due to a decline in
average volume and $10,000 was due to lower rates.

                                       13




                The  following  table shows an analysis of net  interest  income
before credit for credit losses for the three-month  periods ended June 30, 2004
and 2003 (amounts in thousands):

                                               Average      Interest      Ave. Annual
                                               Amount        Earned       Yield/Rate
                                               ------       --------      -----------
       QUARTER ENDED JUNE 30, 2004

INTEREST EARNING ASSETS
Interest bearing deposits in other banks      $ 1,987       $     6          1.21%
Federal funds sold                              1,008             3          1.19%
Investment securities                           1,640            22          5.37%
Loans, net                                      9,945           195          7.84%
Purchased receivables
   Accounts receivable factoring                7,325           677         36.97%
   Other                                          179             4          8.94%
                                              -------      --------
  TOTAL INTEREST EARNING ASSETS               $22,084       $   907         16.43%
                                              =======      ========

INTEREST BEARING LIABILITIES
NOW/MMA deposits                              $    82       $     3          4.26%
Certificates of deposit                        10,234            58          2.27%
                                              -------      --------
   TOTAL INTEREST BEARING LIABILITIES         $10,516       $    61          2.32%
                                              =======      ========

NET INTEREST INCOME                                         $   846
                                                           ========
NET INTEREST MARGIN                                                         15.33%

                                               Average      Interest       Ave. Annual
                                               Amount        Earned        Yield/Rate
                                               ------       --------       -----------
       QUARTER ENDED JUNE 30, 2003

INTEREST EARNING ASSETS
Interest bearing deposits in other banks      $ 3,697       $     3           .32%
Federal funds sold                              1,804            16          3.55%
Investment securities                           1,900            38          8.00%
Loans, net                                     10,439           210          8.05%
Purchased receivables
   Accounts receivable factoring                7,538           885         46.96%
   Other                                          396             9          9.09%
                                              -------      --------
  TOTAL INTEREST EARNING ASSETS               $25,774       $ 1,161         18.02%
                                              =======      ========

INTEREST BEARING LIABILITIES
NOW/MMA deposits                              $   834       $     5          2.40%
Certificates of deposit                        13,670            89          2.60%
                                              -------      --------
   TOTAL INTEREST BEARING LIABILITIES         $14,504       $    94          2.59%
                                              =======      ========

NET INTEREST INCOME                                         $ 1,067
                                                           ========
NET INTEREST MARGIN                                                         16.56%

                                       14




The  following  table  represents  the  effect of  changes  in  volume  (average
balances)  and  interest  rates on  interest  income,  interest  expense and net
interest  income when comparing the second quarter of 2004 to the second quarter
of 2003.  The effect of a change in volume has been  determined  by applying the
highest  average  rate to the change in the  average  balances  between  the two
periods.  The  effect of a change in the  average  rate has been  determined  by
applying the highest  average balance to the change in average rates between the
two  periods.  Changes  resulting  from  a mix  of  volume/rate  variances  were
distributed proportionately between volume and rate based on the relative values
of the volume and rate variances to the total mix variance.




                                                 Quarter Ended June 30, 2004
                                                      Compared to 2003
                                               -------------------------------
                                                   (amounts in thousands)
                                               Due to     Due to       Total
                                               Volume      Rate       Change
                                               ------      ----       ------

INCREASE (DECREASE) IN INTEREST INCOME
Interest bearing deposits in other banks      $  (1)      $   4       $   3
Federal funds sold                               (4)         (9)        (13)
Investment securities                            (4)        (12)        (16)
Loans, net                                      (10)         (5)        (15)
Purchased receivables
   Accounts receivable factoring                (20)       (188)       (208)
   Other                                         (5)         --          (5)
                                              -------   ---------   -------
   TOTAL INTEREST INCOME                      $ (44)      $(210)      $(254)
                                              =======   =========   =======

INCREASE (DECREASE) IN INTEREST EXPENSE
NOW/MMA deposits                              $  (3)      $   1       $  (2)
Certificates of deposit                         (21)        (10)        (31)
                                              -------   ---------   -------
   TOTAL INTEREST EXPENSE                     $ (24)      $  (9)      $ (33)
                                              =======   =========   =======

The credit for credit losses  increased by $120,000.  A credit for credit losses
rather than a provision for credit losses is the result of principal  reductions
and risk grade changes  within the  discontinued  commercial  loan  portfolio at
WebBank.  WebBank discontinued new originations of commercial loans in 2001. The
allowance  for credit  losses is  established  as losses are  estimated  to have
occurred  through a provision  for credit  losses  charged to  earnings.  Credit
losses  are  charged  against  the  allowance  when   management   believes  the
uncollectibility  of a loan  or  receivable  balance  is  confirmed.  Subsequent
recoveries, if any, are credited to the allowance. Principal reductions or grade
changes that reduce the risk inherent in the portfolio also result in credits to
the allowance.

The  allowance  for credit  losses is evaluated on a regular basis by management
and is based upon  management's  periodic  review of the  collectibility  of the
amounts due in light of historical experience, the nature and volume of the loan
portfolio,  adverse  situations that may affect the borrower's ability to repay,
estimated value of any underlying collateral and prevailing economic conditions.
This  evaluation is  inherently  subjective  as it requires  estimates  that are
susceptible to significant revision as more information becomes available.

The  allowance  for  purchased  receivable  losses,  which is included  with the
allowance for credit losses,  is increased by charges to income and decreased by
charge offs (net recoveries).  Management's  periodic evaluation of the adequacy
of the  allowance is based on the  Company's  past  purchased  receivables  loss
experience,  known and inherent risks in the portfolio,  adverse situations that
may affect the debtor's  ability to repay, the estimated value of any underlying
collateral and current economic  conditions.  Purchased  receivables are charged
off when they are 120 days contractually past due, at which time the Company may
enforce the  recourse  agreement  to collect  from the  customer  the  remaining
outstanding balances.

The  following  table shows an analysis of the  Company's  allowance  for credit
losses for the quarters ended June 30, 2004 and 2003 (amounts in thousands):

                                       15




                                                Quarter Ended June 30,
                                                ----------------------
                                                 2004           2003
                                                 ----           ----

Balance at beginning of period                 $ 1,228        $ 1,517

Charge-offs by category:
   Commercial, financial and agricultural           --             --
   Installment loans to individuals                  3              4
   Purchased receivables


      Accounts receivable factoring                 32             --
      Other                                         --             --
                                               -------        -------
         Total charge-offs                          35              4

Recoveries by category:
   Commercial, financial and agricultural           --             --
   Installment loans to individuals                 --             --
   Purchased receivables
      Accounts receivable factoring                 --             --
      Other                                         --             --
                                               -------        -------
         Total recoveries                           --             --
                                               -------        -------

Net charge-offs                                     35              4

Credit for credit losses                          (123)            (3)
                                               -------        -------

Balance at end of period                       $ 1,070        $ 1,510
                                               =======        =======

Ratio of net charge-offs to average loans
   outstanding during the quarter                 0.20%          0.02%
                                               =======        =======


The following  table shows the  allocation  between  categories of loans for the
allowance for credit losses as of June 30, 2004 and 2003 (amounts in thousands):

                                                                         June 30,
                                                         2004                              2003
                                                         ----                              ----

                                                 Amount of     % of loans in      Amount of    % of loans in
                                                allowance by    category to     allowance by    category to
Balance at End of Quarter Applicable to:          category      total loans       category      total loans
                                                  --------      -----------     ------------    -----------

Commercial, financial and agricultural             $  929          57.72%          $1,350          52.74%
Installment loans to individuals                        1           0.36%               2           0.68%

   Accounts receivable factoring                      135          41.02%             149          44.47%
   Other                                                5            .91%               9           2.10%
Unallocated                                            --            N/A               --            N/A
                                                   ------         ------           -------        ------
   Totals                                          $1,070         100.00%          $1,510         100.00%
                                                   ======         ======           =======        ======

                Noninterest  income for the Company  decreased  by $78,000.  The
primary  reason for the  decline was a gain on sale of assets of $233,000 in the
second  quarter of 2003 that did not reoccur in 2004.  Fee income  decreased  by
$39,000,  primarily  because  of a decline  in the  number  of  fee-for-services
partners at WebBank.  Accounts receivable factoring servicing revenue,  received
from  participants  with  WebBank  in  several  accounts  receivable   factoring
transactions, increased by $180,000.

                The  Company's   noninterest   expenses  increased  by  $33,000,
comparatively,  between the two quarters.  The primary reason for the change was
an increase  in  accounts  receivable  factoring  management  and broker fees of
$106,000 due to increases in average outstandings,  on which the fees are based.
The general and  administrative  expense  increase of $11,000  included a $5,000
write down of foreclosed  assets.  Offsetting  the  aforementioned  increases in
noninterest  expenses,  salaries,  wages,  and  benefits  expenses  decreased by
$27,000 and  professional  and legal fees decreased by $57,000.  The decrease in
salaries expense was due to a reduction of full time equivalent employees in the
accounts  receivable  factoring program.  The decrease in legal expense occurred

                                       16





because  a  significant  amount of the legal  costs in 2004  were  direct  costs
associated  with the  preparation  of a registration  statement  relating to the
Company's  subscription  rights offering commenced in July 2004. These costs are
not  expensed.  Instead,  they are treated as a reduction of the proceeds of the
rights  offering.  For  additional  details  regarding the  subscription  rights
offering, see Part II, Item 5 "Other Information."

            Income tax expense  increased  by  $115,000.  The  Company  began to
recognize  certain deferred taxes at the end of 2003,  resulting in a larger tax
provision in 2004.

            Other  comprehensive  income increased by $294,000 due to changes in
the market value of securities available- for-sale.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003

            At  June  30,  2004,  accounts  receivable   factoring   constituted
WebBank's principal line of business.  WebBank is engaged in accounts receivable
factoring utilizing a factoring company. The Company has announced that a notice
of  termination  has been issued with respect to a certain  accounts  receivable
factoring  arrangement,  with the  termination  to be  effective  no later  than
December 31, 2004 (see Note 5 of the Notes to Condensed  Consolidated  Financial
Statements),  and that another  accounts  receivable  program was  terminated in
February 2004. The accounts receivable  factoring  arrangement that is scheduled
to be terminated no later than December 31, 2004 generated revenue and income in
the six month  periods  ended  June 30,  2003 and 2004 which  accounted  for (a)
substantially all of the revenue and operating income generated by the Company's
accounts  receivable  factoring  operating segment for those periods,  and (b) a
significant  part of the revenue and  operating  income of the Company for those
periods  (see  Note  4  of  the  Notes  to  Condensed   Consolidated   Financial
Statements).   In  light  of  the  significant   revenue  and  operating  income
attributable  to this accounts  receivable  factoring  arrangement,  the Company
believes  that an  exercise  of the  purchase  option one month or more prior to
December  31,  2004 could have a  significant  adverse  effect on its net income
during 2004.  The Company also  believes  that if the  purchase  option  becomes
effective  during  2004,  WebBank  will (a) not  generate  any gain or loss as a
result of the sale of the portfolio because the factoring company has elected to
purchase the portfolio of accounts  receivable at WebBank's net book value,  and
(b)  generate  approximately  $7  million of cash as a result of the sale of the
portfolio.  WebBank  anticipates  that  the  cash  generated  by a  sale  of the
portfolio will be used to retire Certificates of Deposit as they mature.

                Net income for the six months ended June 30, 2004 was $64,000 or
$.01 per share compared to net income of $778,000 or $.18 per share for the same
period in 2003. The change between  quarters  represented a decrease of $714,000
or $.17 per share.

                As shown in the two tables  below,  the  Company's  net interest
income before credit for credit losses  decreased by $199,000.  Interest  income
decreased  by  $256,000.  Interest  income from  accounts  receivable  factoring
decreased  by $178,000,  accounting  for most of the  decrease.  Of the $178,000
decrease in accounts receivable  factoring interest income,  $232,000 was due to
lower yields  which was offset by a positive  impact of $54,000 due to increased
volume.  Interest  income  from loans  decreased  by $64,000,  of which  $52,000
resulted from decreases in volume and $12,000 from decreases in yield.  Interest
expense  decreased by $57,000,  primarily due to a $51,000  decrease in interest
expense on  certificates of deposit.  Of the $51,000  decrease in certificate of
deposit  interest  expense,  $34,000 was due to a decline in average  volume and
$17,000 was due to lower rates.

                                       17



                The  following  table shows an analysis of net  interest  income
before  credit for credit  losses for the six month  periods ended June 30, 2004
and 2003(amounts in thousands):

                                                             Average      Interest      Ave. Annual
                                                             Amount        Earned       Yield/Rate
                                                             ------       --------      -----------
    SIX MONTHS ENDED JUNE 30, 2004

INTEREST EARNING ASSETS
Interest bearing deposits in other banks                     $ 3,913       $    15          0.77%
Federal funds sold                                             1,224             7          1.14%
Investment securities                                          1,021            49          9.60%
Loans                                                          9,392           388          8.26%


Purchased receivables
   Accounts receivable factoring                               7,173         1,407         39.23%
   Other                                                         208             9          8.65%
                                                             --------   ----------
  TOTAL INTEREST EARNING ASSETS                              $22,931       $ 1,875         16.35%
                                                             ========   ==========

INTEREST BEARING LIABILITIES
NOW/MMA deposits                                             $   340       $     4          2.35%
Certificates of deposit                                       10,705           130          2.45%
                                                             --------   ----------
   TOTAL INTEREST BEARING LIABILITIES                        $11,045       $   134          2.44%
                                                             ========   ==========

NET INTEREST INCOME                                                        $ 1,741
                                                                        ==========
NET INTEREST MARGIN                                                                        15.18%

                                                             Average      Interest      Ave. Annual
                                                             Amount        Earned       Yield/Rate
                                                             ------       --------      -----------
    SIX MONTHS ENDED JUNE 30, 2003

INTEREST EARNING ASSETS
Interest bearing deposits in other banks                     $ 2,822       $     8          0.57%
Federal funds sold                                             2,474            25          2.02%
Investment securities                                          2,122            43          4.05%
Loans                                                         10,617           452          8.51%
Purchased receivables
   Accounts receivable factoring                               6,897         1,585         45.96%
   Other                                                         422            18          8.53%
                                                             --------   ----------
  TOTAL INTEREST EARNING ASSETS                              $25,354       $ 2,131         16.81%
                                                             ========   ==========

INTEREST BEARING LIABILITIES
NOW/MMA deposits                                             $   730       $    10          2.74%
Certificates of deposit                                       13,318           181          2.72%
                                                             --------   ----------
   TOTAL INTEREST BEARING LIABILITIES                        $14,048       $   191          2.72%
                                                             ========   ==========

NET INTEREST INCOME                                                        $ 1,940
                                                                           =======
NET INTEREST MARGIN                                                                        15.30%
                                       18




            The  following  table  represents  the  effect of  changes in volume
(average  balances) and interest rates on interest income,  interest expense and
net interest income when comparing the first six months of 2004 to the first six
months of 2003. The effect of a change in volume has been determined by applying
the highest average rate to the change in the average  balances  between the two
periods.  The  effect of a change in the  average  rate has been  determined  by
applying the highest  average balance to the change in average rates between the
two  periods.  Changes  resulting  from  a mix  of  volume/rate  variances  were
distributed proportionately between volume and rate based on the relative values
of the volume and rate variances to the total mix variance.

                                              Six Months Ended June 30, 2004
                                                     Compared to 2003
                                             --------------------------------
                                                (amounts in thousands)
                                             Due to       Due to      Total
                                             Volume        Rate       Change
                                             ------        ----       ------

INCREASE (DECREASE) IN INTEREST INCOME
Interest bearing deposits in other banks      $   4       $   3       $   7



Federal funds sold                              (10)         (8)        (18)
Investment securities                           (22)         28           6
Loans                                           (52)        (12)        (64)
Purchased receivables
   Accounts receivable factoring                 54        (232)       (178)
   Other                                         (9)         --          (9)
                                              -------   ---------   -------
   TOTAL INTEREST INCOME                      $ (35)      $(221)      $(256)
                                              =======   =========   =======

INCREASE (DECREASE) IN INTEREST EXPENSE
NOW/MMA deposits                              $  (5)      $  (1)      $  (6)
Certificates of deposit                         (34)        (17)        (51)
                                              -------   ---------   -------
   TOTAL INTEREST EXPENSE                     $ (39)      $ (18)      $ (57)
                                              =======   =========   =======

            The credit for credit  losses  increased by  $142,000.  A credit for
credit  losses  rather  than a  provision  for  credit  losses is the  result of
principal  reductions and risk grade changes within the discontinued  commercial
loan portfolio at WebBank.  WebBank  discontinued new originations of commercial
loans in 2001.  The  allowance for credit  losses is  established  as losses are
estimated to have  occurred  through a provision  for credit  losses  charged to
earnings.  Credit  losses are charged  against  the  allowance  when  management
believes the  uncollectibility  of a loan or  receivable  balance is  confirmed.
Subsequent  recoveries,  if  any,  are  credited  to  the  allowance.  Principal
reductions or grade changes that reduce the risk inherent in the portfolio  also
result in credits to the allowance.

            The  allowance  for credit losses is evaluated on a regular basis by
management and is based upon management's  periodic review of the collectibility
of the amounts due in light of historical  experience,  the nature and volume of
the loan portfolio, adverse situations that may affect the borrower's ability to
repay,  estimated  value of any underlying  collateral  and prevailing  economic
conditions.  This evaluation is inherently  subjective as it requires  estimates
that  are  susceptible  to  significant  revision  as more  information  becomes
available.

            The  allowance for purchased  receivable  losses,  which is included
with the  allowance  for credit  losses,  is  increased by charges to income and
decreased by charge offs (net recoveries).  Management's  periodic evaluation of
the  adequacy  of the  allowance  is  based  on  the  Company's  past  purchased
receivables loss experience,  known and inherent risks in the portfolio, adverse
situations that may affect the debtor's ability to repay, the estimated value of
any underlying collateral and current economic conditions. Purchased receivables
are charged off when they are 120 days contractually past due, at which time the
Company may enforce the  recourse  agreement  to collect  from the  customer the
remaining outstanding balances.

                                       19


            The following table shows an analysis of the Company's allowance for
credit  losses  for the six  months  ended June 30,  2004 and 2003  (amounts  in
thousands):

                                              Six Months Ended June 30,
                                                 2004           2003
                                                 ----           ----

Balance at beginning of year                   $ 1,302        $ 1,526

Charge-offs by category:
   Commercial, financial and agricultural           --             --
   Installment loans to individuals                  6             10
   Purchased receivables
      Accounts receivable factoring                 78             --
      Other                                         --             --
                                               ---------    ---------
         Total charge-offs                          84             10

Recoveries by category:
   Commercial, financial and agricultural           --             --

   Installment loans to individuals                 --             --
   Purchased receivables
      Accounts receivable factoring                 --             --
      Other                                         --             --
                                               ---------   ----------
         Total recoveries                           --             --
                                               ---------   ----------

Net charge-offs                                     84             10

Credit for credit losses                          (148)            (6)
                                               ---------   ----------

Balance at end of period                       $ 1,070        $ 1,510
                                               =========   ==========

Ratio of net charge-offs to average loans
   outstanding during the period                  0.50%          0.06%
                                               =========   ==========

The following  table shows the  allocation  between  categories of loans for the
allowance for credit losses as of June 30, 2004 and 2003 (amounts in thousands):

                                                                         June 30,
                                                         2004                              2003
                                                         ----                              ----

                                                  Amount of    % of loans in      Amount of    % of loans in
                                                allowance by    category to     allowance by    category to
Balance at End of Quarter Applicable to:          category      total loans       category      total loans
                                                  --------      -----------     ------------    -----------

Commercial, financial and agricultural            $  929          57.72%          $1,350          52.74%
Installment loans to individuals                       1           0.36%               2           0.68%
Purchased receivables
   Accounts receivable factoring                     135          41.02%             149          44.47%
   Other                                               5            .91%               9           2.10%
Unallocated                                           --            N/A               --            N/A
                                                ----------    ------------    --------------   ---------
   Totals                                         $1,070         100.00%          $1,510         100.00%
                                                ==========    ============    ==============   =========

                Noninterest  income for the Company  decreased  by $98,000.  The
primary  reason for the  decline was a decrease in the gain on sale of assets of
$232,000.  Fee income decreased by $131,000,  primarily  because of a decline in
the  number  of  fee-for-services   partners  at  WebBank.  Accounts  receivable
factoring servicing revenue,  received from participants with WebBank in several
accounts receivable factoring transactions, increased by $261,000.

                The  Company's   noninterest  expenses  increased  by  $367,000,
comparatively, between the two periods. The primary reason for the change was an
increase in accounts receivable factoring management and broker fees of $201,000
due to  increases  in  average  outstandings,  on  which  the  fees  are  based.
Professional and legal fees increased  $102,000  primarily due to additional SEC
filings not directly related to the the stock rights  offering.  The general and
administrative  expense  increase  of $68,000  included a $25,000  write down of
foreclosed assets.

            Income tax expense  increased  by  $202,000.  The  Company  began to
recognize  certain deferred taxes at the end of 2003,  resulting in a larger tax
provision in 2004.

            Other  comprehensive  income  increased by $25,000 due to changes in
the market value of securities available-for-sale.

                                       20




LIQUIDITY AND CAPITAL RESOURCES

            At June 30, 2004 and December 31, 2003,  the Company's cash and cash
equivalents totaled $3,236,000 and $7,245,000,  respectively.  The cash balances
at December 31, 2003  included  liquidity to fund  expected  growth in purchased
receivables.  However, after accumulating these balances, notices of termination
were given with  respect to two  agreements  included  in the  WebBank  accounts
receivable factoring program (see Note 5 of the Notes to Condensed  Consolidated
Financial  Statements).  Based on the terms of the accounts receivable factoring
agreements,  the other parties to the agreements  have the right to purchase our
current  portfolio  of purchased  receivables.  One of these  parties  purchased
approximately  $500,000 of the factoring portfolio in February 2004. The Company
used  the  proceeds  to  reduce  outstanding  certificates  of  deposit.  If the
remainder of the  purchased  receivables  is  purchased by the other party,  the
Company also intends to use those proceeds of approximately $7 million to reduce
the  outstanding  certificates  of deposit as they mature.  During the six month
period,  recognizing  the prospect of slower  growth in the accounts  receivable
factoring  program,  WebBank  did not  fully  replace  several  of the  maturing
certificates  of deposit.  Additionally,  the Company used some of its liquidity
during the first six months of 2004 to purchase  $2,000,000 of equity securities
and a $1,500,000 loan participation.

            The Company's funding depends primarily on brokered  certificates of
deposit.  Brokered  certificates  of deposit  are time  deposits,  generally  in
amounts of $100,000 or less, placed in a bank by a broker. The broker receives a
fee from the bank and/or the depositor for providing this intermediary  service.
Depositors  that  invest in  brokered  certificates  of  deposit  are  generally
interest  rate  sensitive  and  well  informed  about  alternative  markets  and
investments. Consequently, funding with brokered certificates of deposit may not
provide the same stability to a bank's deposit base as traditional  local retail
deposit  relationships.  Because of the  Company's  dependence on the market for
brokered  certificates of deposit (93% of total deposits at June 30, 2004),  its
liquidity may be negatively  impacted if that funding source  experiences supply
difficulties  due to loss of investor  confidence or a flight to higher  quality
investments.   In  addition,   only  banks  that  are  determined  to  be  "well
capitalized"  by their  regulatory  agencies  are  permitted  to issue  brokered
certificates of deposit without restriction. In the event WebBank were no longer
classified as "well capitalized," it might be required to obtain permission from
its regulators to issue brokered certificates of deposit,  which could be denied
under certain circumstances.

            The  Company's  operating  results may be  negatively  impacted by a
change in interest rates required to obtain brokered certificates of deposit. In
general,  increases in interest rates on brokered  certificates  of deposit will
reduce the Company's  operating income.  Increases in the rates the Company pays
for brokered  certificates  of deposit  could occur  because of various  reasons
including shifts in the Treasury yield curve, a loss of confidence in the market
for brokered  certificates of deposit,  a potential  mismatch versus maturity or
duration of the  Company's  earning  assets,  or a  deterioration  of  WebBank's
financial condition.

            Funding for WebBank is also  available  from a $1,000,000  unsecured
line of credit with a local  correspondent  bank.  Management  believes that the
Company's  current cash and cash equivalent  balances,  expected  operating cash
inflows,  and  WebBank  borrowing  sources are  adequate  to meet the  Company's
liquidity needs through at least the next 12 months.

            The Company commenced a subscription rights offering that expired on
August 13, 2004. For more information on the subscription  rights offering,  see
Part II, Item 5 "Other Information."

            The Company and Steel  Partners,  Ltd., an entity  controlled by the
Company's  Chairman and Chief  Executive  Officer,  devote  significant  time to
exploration of potential  acquisition  and other business  opportunities  of the
Company.  There can be no assurance  that the Company will be able to acquire an
additional  business  or  secure  other  business  opportunities,  or that  such
business or other business opportunities will be profitable. In order to finance
an acquisition,  the Company may be required to incur or assume  indebtedness or
issue securities.

OFF-BALANCE SHEET ARRANGEMENTS

            The Company is a party to  financial  instruments  with  off-balance
sheet  risk.  In the normal  course of  business,  these  financial  instruments
include  commitments to extend credit in the form of loans or through letters of
credit.  Those instruments  involve, to varying degrees,  elements of credit and
interest rate risk in excess of the amount  recognized on the balance sheet. The
Company's  exposure to credit loss in the event of  nonperformance  by the other
party  to  the  financial   instrument  for  commitments  to  extend  credit  is
represented  by the  contractual  amount of those  instruments.  Commitments  to
extend  credit  are  agreements  to lend to a  customer,  provided  there  is no

                                       21





violation of any condition  established in the contract.  Commitments  generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since certain of the  commitments are expected to expire without being
drawn upon, the total  commitment  amounts do not necessarily  represent  future
cash requirements. The Company uses the same credit policy in making commitments
and conditional  obligations as they do for on-balance  sheet  instruments.  The
Company evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained,  if deemed necessary upon extension of credit, is
based on management's  credit  evaluation of the borrower.  At June 30, 2004 and
December 31, 2003, the Company had no undisbursed commercial loan commitments or
consumer  credit card loan  commitments.  For the same  periods,  the  Company's
undisbursed  accounts receivable  factoring  commitments  totaled  approximately
$4,704,000 and $8,138,000, respectively. Notices of termination have been issued
with respect to certain accounts receivable factoring and service arrangements.

CRITICAL ACCOUNTING ISSUES

ALLOWANCE FOR CREDIT LOSSES

            Management utilizes a comprehensive loan grading system to determine
risk  potential  in  its  loan  portfolio.  Determination  of the  allowance  is
inherently  subjective  as it  requires  significant  estimates,  including  the
amounts and timing of expected  future cash flows on impaired  loans,  estimated
losses on pools of homogeneous  loans based on historical loss  experience,  and
consideration  of current  economic  trends,  all of which may be susceptible to
significant change. The amount of allowance for credit losses assigned to a loan
or group of loans is determined by the category of loan as described below:

           o    The  allowance  for credit  losses for  non-impaired  commercial
                loans  is  calculated  on a loan by  loan  basis.  Each  loan is
                assigned a grade ranging from 1 (excellent) to 7  (substandard).
                A two  dimensional  matrix is used to  determine  the  amount of
                allowance assigned.

                One axis of the matrix  consists of six risk factors which could
                contribute to a potential  loss for that loan.  The risk factors
                cover both a) elements related  specifically to the loan such as
                financial  condition of the borrower and value of collateral and
                b) elements related to external matters such as the condition of
                the local economy or industry  trends.  Each of the risk factors
                is assigned a  percentage  weight which  reflects the  potential
                risk of loss relative to each of the other five factors.

                The  second  axis of the  matrix  consists  of up to  five  risk
                levels.  Each of the risk levels is  represented by a percentage
                figure that equals the portion of the  outstanding  loan balance
                that is expected to be a loss. The risk level  percentage  falls
                within a range of  percentages  assigned  to that grade based on
                historical loss experience.

                The  allowance  for  credit  losses  for a  particular  loan  is
                calculated  by  matching  one of the five risk levels to each of
                the six risk factors.  The product of the risk level  percentage
                and the risk factor  weight is  calculated  for each risk factor
                and all six are summed to produce the  allowance for credit loss
                percentage used for that loan.

                The matrix approach allows the Company to quantify, in a logical
                fashion  based  on  both  historical  experience  and  currently
                available  information,  whether or not a future  credit loss is
                probable and, if so,  approximately  how much that loss will be.
                This methodology,  in the Company's  opinion,  complies with the
                guidelines   of  the  FASB's   SFAS  No.  5,   "Accounting   for
                Contingencies" and related accounting and regulatory guidelines.

                The above  calculation is performed for non-impaired  commercial
                loans ranging from grade 1 (excellent) to grade 7 (substandard).
                For loans graded 8 (doubtful) or 9 (loss),  which are considered
                impaired,  the  matrix is not used.  The  allowance  for  credit
                losses for impaired loans is calculated  using the guidelines of
                SFAS No. 114,  "Accounting  for  Creditors  for  Impairment of a
                Loan." A loan is considered  impaired if it is probable that the
                Company  will not  collect  all  amounts  due  according  to the
                contractual terms of the original loan agreement.  The preferred
                methodology for calculating  impairment under SFAS No. 114 is to
                calculate the present value of expected cash flows from the loan
                and subtract  that from the current book value of the loan.  The
                difference,  if  positive,  requires  additional  allowance  for
                credit  losses.  If the loan is  collateral  dependent,  another
                methodology  used  is to  determine  the  market  value  of  the
                collateral,  less selling  expenses,  and subtract that from the
                current  book value of the loan.  The  difference,  if positive,
                requires additional allowance for credit losses.

                                       22





          o     The  allowance  for  credit  losses for  non-impaired  purchased
                receivables  is  calculated  on a  pooled  or group  basis.  The
                allowance  amount  is  based  on  a  percentage  of  outstanding
                receivables  which takes into  consideration  a  combination  of
                historical  loss  experience and industry loss  experience.  The
                allowance for credit losses for impaired  purchased  receivables
                is  calculated  on a loan by loan basis in  accordance  with the
                guidelines of FASB 114 as described above.

          o     The  allowance  for  credit  losses  for  credit  card  loans is
                calculated on a pooled or group basis.  The allowance  amount is
                based on a percentage  of  outstanding  receivables  which takes
                into  consideration  a combination of historical loss experience
                and current trends.

EQUITY SECURITIES AVAILABLE FOR SALE

            The Company,  both directly and through its WebBank subsidiary,  has
investments in equity securities.  Available-for-sale securities are recorded at
fair value. Unrealized holding gains or losses on available-for-sale  securities
are excluded from earnings and reported,  until realized,  in accumulated  other
comprehensive  income (loss) as a separate component of stockholders'  equity. A
decline  in the  market  value  of any  available-for-sale  or  held-to-maturity
security  below cost that is deemed other than  temporary is charged to earnings
resulting  in  the   establishment  of  a  new  cost  basis  for  the  security.
Determination  of whether a decline in market value is other than  temporary may
be  subjective  because  it  requires  significant  estimates  of the  projected
financial condition of the issuer, of the industry in which the issuer operates,
and of local, regional,  and national economies.  See Notes 1 and 2 of the Notes
to Consolidated  Financial  Statements in the 2003 10-KSB/A for a description of
the  methodology  used by the  Company to  determine  the cost and fair value of
equity securities available for sale.

DEFERRED INCOME TAXES

            The  Company  uses the  liability  method of  accounting  for income
taxes.  Under the  liability  method,  deferred  tax  assets  and  deferred  tax
liabilities  are  recognized  for the future tax  consequences  attributable  to
differences  between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carry  forwards.  Deferred tax assets and deferred tax  liabilities are measured
using  enacted  tax rates  expected  to apply to taxable  income in the years in
which those temporary  differences are expected to be recovered or settled.  The
effect on deferred tax assets and deferred  tax  liabilities  of a change in tax
rates is recognized in income in the period that includes the enactment date.

            The net change in the total deferred tax valuation allowance for the
year  ended  December  31,  2003 was a  decrease  of  $1,302,000.  The  decrease
represented the amount of valuation  allowance  remaining at WebBank.  Since its
inception in 1998,  WebBank had experienced a history of  inconsistent  earnings
which made it "more  likely than not" that some  portion or all of the  deferred
tax  assets  would not be  recognized.  Therefore,  a  valuation  allowance  was
established in accordance with FASB 109, paragraph 17e. As of December 31, 2003,
the Company  determined  that, based on the two previous years' earnings and the
prospect for similar  performance in the foreseeable future, it was "more likely
than not" that all of WebBank's  deferred tax assets  would be  recognized.  See
Notes 1 and 12 of the Notes to  Consolidated  Financial  Statements  in the 2003
10-KSB/A for a further  description  of the  methodology  used by the Company to
determine the deferred tax valuation allowance.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

            There  were  no  recently  issued  accounting   pronouncements  that
impacted the Company.

FORWARD-LOOKING STATEMENTS

            THE FOLLOWING  IMPORTANT FACTORS,  AMONG OTHERS,  COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY FORWARD-LOOKING  STATEMENTS
MADE IN THIS  QUARTERLY  REPORT  ON  FORM  10-QSB  AND  PRESENTED  ELSEWHERE  BY
MANAGEMENT.  ALL FORWARD-LOOKING  STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED
ON  INFORMATION  AVAILABLE  TO THE COMPANY ON THE DATE  HEREOF,  AND THE COMPANY
ASSUMES NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. A NUMBER OF

                                       23





UNCERTAINTIES  EXIST THAT COULD AFFECT THE COMPANY'S FUTURE  OPERATING  RESULTS,
INCLUDING, WITHOUT LIMITATION,  GENERAL ECONOMIC CONDITIONS, CHANGES IN INTEREST
RATES, THE COMPANY'S ABILITY TO ATTRACT  DEPOSITS,  AND THE COMPANY'S ABILITY TO
CONTROL COSTS.  BECAUSE OF THESE AND OTHER FACTORS,  PAST FINANCIAL  PERFORMANCE
SHOULD NOT BE  CONSIDERED AN  INDICATION  OF FUTURE  PERFORMANCE.  THE COMPANY'S
FUTURE  OPERATING  RESULTS  MAY VARY  SIGNIFICANTLY.  INVESTORS  SHOULD  NOT USE
HISTORICAL  TRENDS TO  ANTICIPATE  FUTURE  RESULTS  AND SHOULD BE AWARE THAT THE
TRADING PRICE OF THE COMPANY'S COMMON STOCK MAY BE SUBJECT TO WIDE  FLUCTUATIONS
IN RESPONSE TO  QUARTERLY  VARIATIONS  IN OPERATING  RESULTS AND OTHER  FACTORS,
INCLUDING THOSE  DISCUSSED IN THIS QUARTERLY  REPORT ON FORM 10-QSB AND THE RISK
FACTORS IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB.

ITEM 3.  CONTROLS AND PROCEDURES

            Disclosure  controls  are  procedures  that  are  designed  with the
objective of ensuring that information required to be disclosed in the Company's
reports under the Securities  Exchange Act of 1934, such as this Form 10-QSB, is
reported in accordance  with the  Securities  and Exchange  Commission's  rules.
Disclosure  controls are also  designed with the objective of ensuring that such
information is accumulated and  communicated to management,  including the Chief
Executive  Officer and Chief  Financial  Officer as  appropriate to allow timely
decisions regarding required disclosure.

            As of the end of the period covered by this Form 10-QSB, the Company
carried out an evaluation  under the supervision and with the  participation  of
the Company's  management,  including the Company's Chief Executive  Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Securities Exchange Act
Rules 13a-15(e) and 15d-15(e).  Based upon that evaluation,  the Chief Executive
Officer and Chief  Financial  Officer  concluded  that the Company's  disclosure
controls and procedures are effective to ensure that information  required to be
disclosed  in the reports  that the  Company  files  under the  Exchange  Act is
recorded,  processed,  summarized and reported within the time periods specified
by the SEC's rules and  regulations.  There were no  significant  changes in the
Company's internal controls or in other factors that could significantly  affect
these controls subsequent to the date of their evaluation.

            A control  system,  no matter how well  conceived and operated,  can
provide only  reasonable,  not absolute,  assurance  that the  objectives of the
control  system are met.  Because of the  inherent  limitations  in all  control
systems,  no  evaluation  of controls can provide  absolute  assurance  that all
control  issues  and  instances  of fraud,  if any,  within a company  have been
detected.

            Certifications  of the Chief  Executive  Officer and Chief Financial
Officer  regarding,  among other items,  disclosure  controls and procedures are
included as exhibits to this Form 10-QSB.

                                       24





PART II: OTHER INFORMATION

ITEM 5.    OTHER INFORMATION

            On July 14, 2004, the Company issued to shareholders of record as of
July 9, 2004 (the "Record  Date") one right for each share of common stock owned
on the Record Date (the "Offering").  Each right entitles shareholders of record
to purchase one share of the Company's  common stock at a subscription  price of
$2.25 per share.  The rights expired at 5:00 p.m., New York City time, on August
13, 2004.  The Company has been  advised by its  transfer  agent that all rights
have been exercised in the Offering.  Accordingly,  the Company expects to raise
approximately $9.8 million,  before expenses, and an additional 4,366,866 shares
of common stock will be issued to shareholders  who exercised their rights.  The
cover page of this Form  10-QSB  reports  the  number of shares of common  stock
issued and  outstanding  without  taking  into  account  the  additional  shares
expected to be issued as a result of the Offering. However, a total of 8,733,732
shares of common  stock is expected to be issued and  outstanding  after  giving
effect to the shares to be issued as a result of the Offering.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

     (a)    Exhibits

            *31.1     Certification  of  Chief  Executive  Officer  pursuant  to
                      Section 302 of The Sarbanes-Oxley Act of 2002.

            *31.2     Certification  of  Chief  Financial  Officer  pursuant  to
                      Section 302 of The Sarbanes-Oxley Act of 2002.

            *32.1     Certification  of  Chief  Executive  Officer  pursuant  to
                      Section 906 of The Sarbanes-Oxley Act of 2002.

            *32.2     Certification  of  Chief  Financial  Officer  pursuant  to
                      Section 906 of The Sarbanes-Oxley Act of 2002.

     * Filed herewith.

     (b)    Reports on Form 8-K during the quarter

            None.

                                       25






                                   SIGNATURES


            In  accordance  with  the  requirements  of the  Exchange  Act,  the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


Date:  August 16, 2004                WEBFINANCIAL CORPORATION


                                      By: /s/ Warren G. Lichtenstein
                                          -----------------------------
                                          President and Chief Executive Officer



                                      By: /s/ Glen M. Kassan
                                          -----------------------------
                                          Vice President and Chief
                                          Financial Officer

                                       26