RESULTS OF OPERATIONS The Company reported net income of $18.4 million, $14.5 million and $13.0 million for the years ended December 31, 2002, 2001 and 2000, respectively. Earnings per share (“EPS”) on a diluted basis, including any one-time items, was $3.02 for 2002, $2.36 for 2001 and $2.12 for 2000. In accordance with new accounting standards issued in 2001, the amortization of goodwill ceased completely beginning in 2002. Excluding this after-tax benefit of $2.0 million, net income increased $1.9 million, or 13.2% over last year. The corresponding EPS for 2002, excluding this benefit, would have been $2.68, or a 13.6% increase. During 2002, interest income decreased $12.8 million, interest expense decreased $18.1 million, the provision for loan losses increased $1.2 million, noninterest income increased $2.7 million, noninterest expense increased $2.3 million and income tax expense increased $549,000. Cash earnings, defined as net income before the amortization of acquisition intangibles, amounted to $18.7 million, $16.9 million and $15.5 million for the years ended December 31, 2002, 2001 and 2000, respectively. NET INTEREST INCOME -  As the primary driver of core earnings, net interest income is subject to constant evaluation. The rate of return and relative risk associated with earning assets are weighed to determine the appropriateness and mix of earning assets. Additionally, the need for lower cost funding sources is weighed against relationships with clients and future growth requirements. Net interest income is the difference between interest realized on earning assets and interest paid on interest-bearing liabilities. The Company’s average interest rate spread, which is the difference between the yields earned on earning assets and the rates paid on interest-bearing liabilities, was 4.13%, 3.52% and 3.36% during the years ended December 31, 2002, 2001 and 2000, respectively. The Company’s net interest margin on a taxable equivalent basis, which is net interest income as a percentage of average earning assets, was 4.49%, 4.11% and 3.95% during the years ended December 31, 2002, 2001 and 2000, respectively.  Net interest income increased $5.2 million, or 9.6%, in 2002 to $59.6 million compared to $54.3 million in 2001. This increase was due to an $18.1 million, or 39.2%, decrease in interest expense, which was partially offset by a $12.8 million, or 12.8%, decrease in interest income. In 2001, net interest income increased $3.1 million, or 6.1%, to $54.3 million compared to $51.2 million in 2000. The reason for the increase was a $6.7 million, or 12.7%, decrease in interest expense, which was partially offset by a $3.6 million, or 3.5%, decrease in interest income. Average loans made up 72.2% of average earning assets as of December 31, 2002 as compared to 71.6% at December 31, 2001. This was an increase of 3.0%. The increase in average loans was mainly funded by increased borrowings. Average investment securities made up 24.7% of average earning assets at December 31, 2002 compared to 22.5% at December 31, 2001. Average interest-bearing deposits made up 93.1% of average interest-bearing liabilities at December 31, 2002 compared to 94.6% at December 31, 2001. Average borrowings made up 6.9% of average interest-bearing liabilities at December 31, 2002 compared to 5.4% at December 31, 2001. Tables 7 and 8 further explain the changes in net interest income. 26 4.50% 4.40% 4.30% 4.20% 4.10% 4.00% 3.90% 3.80% 3.70% 1998 1999 2000 2001 2002 3.60% 4.03% 3.96% 3.95% 4.11% 4.49% Net Interest Margin (TE)