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(a) Yields on interest-earning assets have been computed on a tax equivalent basis using the 35% Federal income tax statutory rate. 

(b) Income on nonaccrual loans is accounted for on the cash basis, and the loan balances are included in interest-earning assets. 

(c) Loan income includes net loan fees. 

(d) Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits which were made for regulatory purposes. 

Earning assets yields, on a tax-equivalent basis, declined 95 basis points (0.95%) during 2003 to 5.71% from 6.66% registered in 2002, after decreasing from 7.43% in 2001. The cost of funds for 2003 dropped 72 basis points (0.72%) below 2002 costs of 3.27%, after decreasing 117 basis points (1.17%) from 2001 costs of 4.44%. Average earning assets were $4,474.6 million and average interest-bearing liabilities were $3,923.6 million for 2003, compared to $4,294.5 million and $3,746.9 million, respectively in 2002. 2002 averages were basically flat when compared to 2001 averages in both components. 

Interest and fees on loans declined $15.5 million for 2003 com- pared to 2002 after declining $22.3 million for 2002 compared to 2001 levels. The decreases are primarily the result of declin- ing yields in a lower interest rate environment. Tax-equivalent 

loan yields fell 67 basis points (0.67%) during 2003 to 6.46% from 7.13% after a decline of 98 basis points (0.98%) during 2002 from the 2001 levels. Installment loan yields fell 92 basis points (0.92%) and the yields on home equity lines of credit declined 81 basis points (0.81%) compared to the prior year. 

The increase in average loan volumes was not enough to offset the reduced interest income caused by declining yields. During 2003, the Corporation took advantage of the lower interest rate cycle and continued to change the mix of the loan portfolio. Average mortgage loans declined during 2003 as consumers refinanced their loans at near record levels. The Corporation continued to offer competitive mortgage loans but generally sold them immediately after origination along with the related servicing rights. The Corporation has recently started to retain fixed rate mortgages with maturities of 15 

