Performance Strategy Core Earnings The local economy remained in the doldrums, although promising signs of future activity were seen in rising steel production, modest improvement in employment, and an increase in  the number of mortgages tied to first time home buyers as well as empty nester home sales. The Bank’s consumer, home mortgage, and commercial loan officers diligently pursued credit worthy borrowers but were hampered in their endeavors by a lack of consumer confidence in today’s economy. One bright spot in our effort was a modest refinancing boom by home owners who took advantage of low interest rates to reduce their monthly mortgage payments. In the wake of the stress of the world wide economic slowdown, bank supervisors both in America and abroad signaled the coming of new capital standards for the world’s banking system. The proposed standards require banks, including our nation’s community banks, to hold more capital on their balance sheets as an offset to economic fluctuations. Your company took a  proactive stance to these coming changes by taking prudent action to increase capital.  The Bancorp’s superior operating results reflect the underlying strength of the Bancorp’s financial and operating performance. The Bank has strong management dedicated to building shareholder, stakeholder, and community value through the utilization of key banking principles. Our performance has been driven by banking fundamentals and focuses on maintaining strong core earnings, a strong capital position, asset quality, operating efficiency, diversified sources of income from banking operations, and smart growth. We prudently manage the resources entrusted to us by our customers with an outcome that provides sustainable earnings that fund our operations, permit capital growth, and establish reserves for troubled assets in  these challenging times. The Bank’s operating strategy centers on our net interest margin, the difference between interest earned on loans and investments and payments on deposits and borrowings. For 2010, this measure of core earnings on a tax equivalent basis averaged 4.25%, a remarkable result of our core funding strategy. The Bank continues to be strategically positioned with core funding as the driver of profitability. We define core accounts as savings, checking, and money market accounts and these three measures combine to provide 61.9% of our total deposit base. At the same time we continue to avoid dependence on non-core funding products like high rate certificates of deposit, deposits brokered through Wall Street investment bankers, and significant borrowings in our liability base. Although management does not rely on predictions regarding the direction of interest rates, many experts have noted that the current low interest rate policy designed to stimulate the economy cannot be sustained over the longer term. Current monetary policy has driven home loan rates to historic lows with risk to bank earnings should those low rate loans remain on the books when interest rates begin to rise. To mitigate this risk, the Bank sold $41.4 million of fixed rate home mortgage loans into the secondary mortgage market during 2010. 2