The Company markets its card products to specific consumer populations. The terms of each card product are actively managed to achieve a balance between risk and expected performance, while obtaining the expected return. For example, card product terms include the ability to reprice individual accounts upwards or downwards based on the consumer’s performance. In addition, since 1998, the Company has aggressively marketed low non-introductory rate cards to consumers with the best established credit profiles to take advantage of the favorable risk return characteristics of this consumer type. Industry competitors have continuously solicited the Company’s customers with similar interest rate strategies. Management believes the competition has placed, and will continue to place, pressure on the Company’s pricing strategies. 5.4 RISK ADJUSTED REVENUE  ($ in billions) 6.9 2002 2001 2000 4.1 MANAGED RISK  ADJUSTED MARGIN (%) 12.09 2002 2001 13.95 2000 16.77 The Company also offers other credit card products. Examples of such products include secured cards, lifestyle cards, co-branded cards, student cards and other cards marketed to certain consumer populations that the Company believes are underserved by its competitors. These products do not have a significant, immediate impact on managed loan balances; rather they typically consist of lower credit limit accounts and balances that build over time. The terms of these customized card products tend to include membership fees and higher annual finance charge rates. The profile of the consumer populations that these products are marketed to, in some cases, may also tend to result in higher account delinquency rates and consequently higher past-due and overlimit fees as a percentage of loan receivables outstanding than the low non-introductory rate products. Table 5 provides income statement data and ratios for the Company’s managed consumer loan portfolio. The causes of increases and decreases in the various components of risk adjusted revenue are discussed in sections previous to this analysis. Table 5: Managed Risk Adjusted Revenue Year Ended December 31 (Dollars in Thousands) 2002 2001 2000 Managed Income Statement: Net interest income (2) $ 5,284,338 $ 3,633,817 $ 2,710,859 Non-interest income (2) 4,411,174 3,413,777 2,411,496 Net charge-offs (2,769,249) (1,655,947)(1,031,590) Risk adjusted revenue $ 6,926,263 $ 5,391,647 $ 4,090,765 Ratios (1) : Net interest margin (2) 9.23% 9.40% 11.11% Non-interest income (2) 7.70 8.83 9.89 Net charge-offs (4.84) (4.28)(4.23) Risk adjusted margin (2) 12.09% 13.95% 16.77% (1) As a percentage of average managed earning assets. (2) Net interest income and non-interest income include $38.4 million and $44.4 million, respectively, related to the one-time impact of the change in recoveries assumption. This resulted in a 7 basis point increase in the managed net interest margin, a 7 basis point increase in non-interest income and a 14 basis point increase in the risk adjusted margin. ASSET QUALITY The asset quality of a portfolio is generally a function of the initial underwriting criteria used, levels of competition, account management activities and demographic concentration, as well as general economic conditions. The seasoning of the accounts is also an important factor in the delinquency and loss levels of the portfolio. Accounts tend to exhibit a rising trend of delinquency and credit losses as they season. As of December 31, 2002 and 2001, 45% and 58% of managed accounts, respectively, each representing 51% of the total managed loan balance, were less than eighteen months old. Accordingly, it is likely that the Company’s managed loan portfolio could experience increased levels of delinquency and credit losses as the average age of the Company’s accounts increases during 2003. Changes in the rates of delinquency and credit losses can also result from a shift in the product mix. As discussed in “Risk Adjusted Revenue and Margin,” certain customized card products have, in some cases, higher delinquency and higher charge-off rates. In the case of secured card loans, collateral, in the form of cash deposits, reduces any ultimate charge-offs. The costs associated with higher delinquency and charge-off rates are considered in the pricing of individual products. 29