continue expansion into growth markets. The execution of these initiatives may continue to impact occupancy and other expenses in future periods. Increases in building insurance, building rental costs and building repairs and maintenance in 2002 were only partially offset by declines in most other building expense categories. 

Furniture and equipment expenses increased $126 thousand to $10.1 million in 2003. Increases were largely due to continued increases in depreciation expense. Furniture and equipment expenses of $10.0 million for 2002 reflected increases of $920 thousand over 2001 levels resulting primarily from increases in depreciation on computer software and software maintenance offset in part by reduced equipment lease expense. The 2002 period was also impacted by a full year of depreciation as well as maintenance charges on systems that were placed in service during the later part of 2001. The systems were replacements of software that is utilized by the Corporation’s data processing subsidiary to process loan and deposit accounts. The new application software has enabled the Corporation’s banking subsidiary to provide enhanced products and services, including internet banking. Technology advances continue to drive the ability of financial services companies to provide expanded services through traditional channels as well as nontraditional and emerging delivery systems to meet the changing needs of our clients. 

Outside data processing expense increased $396 thousand for the 2003 period to $2.5 million compared to $2.1 million for the 2002 period and $3.3 million for 2001. This category was positively impacted in 2002 by the conversion of Southwest Bank from outsourced processing to that provided by a subsidiary of the Corporation. This category will be unfavorably impacted by the acquisition of PFC until the systems, which are processed through an outsourced processing vendor, are converted to the systems that are provided by a subsidiary of the Corporation. These conversions are scheduled to be completed by the end of the second quarter of 2004. Outside data processing costs are managed by the Corporation’s data processing subsidiary. Its needs are evaluated based on technology, efficiency and cost considerations. 

Other operating expenses decreased $3.4 million to $27.7 million for 2003. Other operating expenses for 2002 increased $2.9 million compared to $28.2 million for 2001. The 2003 period included decreases in other professional fees and services, advertising, expenses related to training and seminars, telephone and loss on the sale of other assets (primarily 

vehicles previously leased) in the amounts of $1.4 million, $637 thousand, $428 thousand, $420 thousand and $402 thousand, respectively, compared to 2002 costs. Directors’ fees for the 2003 period reflected decreases of $349 thousand resulting from the restructuring of the Corporation’s Boards of Directors and committees during 2002. 

The 2002 period includes increased losses on sale of assets of $472 thousand, due primarily to the loss on sale of vehicles previously leased, compared to 2001. Other professional fees in 2002 rose by $822 thousand over 2001 and included consulting fees related to implementation of the Corporation’s “Balanced Scorecard” performance measurement system, enhancements to product and customer profitability systems, corporate restructuring and common branding and identity. Consultants were also utilized to assist in the ongoing efforts to develop a world class sales culture and to generate new deposit dollars and relationships. Corporate restructuring and movement toward a sales culture also impacted the decision to have employee benefit plans reviewed by outside specialists during 2002. Advertising and promotion expenses rose a combined $2.3 million for the 2002 period due partially to expenditures related to the $1.8 million launch of the new corporate brand and identity. This exciting campaign was designed to educate and build enthusiasm among current as well as potential clients and the communities we serve. Also impacting these categories were expenses incurred in the successful marketing campaign for free checking products introduced during 2002. These products are expected to have a favorable impact on deposit growth, interest expense and service charge revenue in future periods as well as providing potential add-on sales of other financial products and services. 

Income tax expense was $13.3 million during 2003 representing an increase of $4.4 million above the 2002 amount of $8.9 and compared to $15.3 million in 2001. The Corporation’s effective tax rate was 19.9% for 2003 compared to 17.0% for 2002 and 23.3% for 2001. Although the 2003 effective tax rate was an increase over the 2002 rate, it was still favorable to the statutory tax rate and the 2001 effective rate. The Corporation’s 2003 effective tax rate continues to be favorably impacted by tax-free municipal income. Pretax income in the 2002 period was reduced by the $8.0 million litigation settlement as well as the $6.1 million restructuring charges. The decline in pretax income from the 2001 period allowed the effect of nontaxable income to have a greater impact on the effective tax rate in 2002 than in 2001. 

