In the normal course of business, the Company is a party to a number of activities that contain credit, market and operational risk that are not reflected in whole or in part in the Company’s consolidated financial statements. Such activities include traditional off-balance sheet credit-related financial instruments, commitments under operating leases and long-term debt. The Company provides customers with off-balance sheet credit support through loan commitments, lines of credit and standby letters of credit. Many of the unused commitments are expected to expire unused or be only partially used; therefore, the total amount of unused commitments does not necessarily represent future cash requirements. The Company anticipates it will continue to have sufficient funds together with available borrowings to meet its current commitments. At December 31, 2002, the total approved loan commitments outstanding amounted to $23.1 million. At the same date, commitments under unused lines of credit, including credit card lines, amounted to $193.9 million. Included in these totals are commercial commitments amounting to $111.2 million as shown in Table 9 below. The Company has entered into a number of long-term leasing arrangements to support the ongoing activities of the Company. The required payments under such commitments and long-term debt at December 31, 2002 are shown in Table 10 below. The consolidated financial statements and related financial data presented herein have been prepared in accordance with generally accepted accounting principles, which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of the Company's assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Company's performance than does the effect of inflation. Although fluctuation in interest rates are neither completely predictable nor controllable, the Company regularly monitors its interest rate position and oversees its financial risk management by establishing policies and operating limits. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates. Although not as critical to the banking industry as to other industries, inflationary factors may have some impact on the Company’s growth, earnings, total assets and capital levels. Management does not expect inflation to be a significant factor in 2003. 32 IMPACT OF INFLATION AND CHANGING PRICES TABLE 10 - LONG-TERM LEASES AND LONG-TERM DEBT COMMITMENTS TABLE 9 - COMMERCIAL COMMITMENT EXPIRATION PER PERIOD Less Than 1 - 3 4 - 5 Over 5 (dollars in thousands) 1 Year Years Years Years Total Unused commercial lines of credit $ 91,376  $2,054  $ – $818  $ 94,248  Unused loan commitments 15,465  – – – 15,465  Standby letters of credit 1,500  3  – – 1,503  Total $108,341  $2,057  $ – $818  $111,216 OTHER OFF-BALANCE SHEET ACTIVITIES 2007 (dollars in thousands) 2003 2004 2005 2006 and After Total Operating leases $777  $645  $ 559  $ 387  $ 1,660  $ 4,028  Long-term debt – – 10,921  2,061  62,476  75,458  Total $777  $645  $11,480  $2,448  $64,136  $79,486 