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technology platform and information systems processes. In accordance with the Bank Secrecy Act and Patriot Act promulgated during 2002, we have stepped up our security, expanded our “know your client” initiatives and improved other operating processes. We initiated implementation of a new information technology infrastructure, including new servers and desktop stations. New communications systems were installed during the year. Upgrades and operating enhancements were made to our mainframe and subsystems, along with the introduction of a new comprehensive financial forecasting and reporting system. These efforts will enhance the accuracy of operating information, dramatically improve our responsiveness to clients, and provide significant internal efficiencies that will lead to future cost reductions. 

## STABILITY 

Our national economy is experiencing a period of significant upheaval. The national economic slowdown has resulted in higher unemployment, reduced corporate earnings, record bankruptcy filings, plummeting equity prices and falling consumer confidence. 

To stave off some of the economic challenges in 2001 and 2002, the Federal Reserve Board cut short-term interest rates drastically. Since January 1, 2001, the Federal 

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Reserve Board reduced interest rates 12 times by a total of 525 basis points. For many banks, this significant change in rates had a negative impact on bank net interest margins. As interest rates declined during the year, our net interest margin and net interest income increased. A significant portion of the benefit we experienced was the result of improved asset mix and lowering of deposit rates in excess of the decrease in interest income on our earning assets. Our interest rate risk modeling indicates that our interest rate risk exposure is fairly nominal compared to many other financial institutions. At December 31, 2002, our interest rate risk modeling projected a 100 basis point decrease in interest rates would negatively impact our projected net interest income over the next 12 months by 3.4%. Conversely, a 100 basis point increase in interest rates would benefit our 12-month net interest income projection by 4.4%. Relative to many other financial institutions, these results are indicative of a fairly well balanced institution. 

Overall, the markets we serve continue to perform well, particularly in relation to the challenges facing our national economy. While the national rate of unemployment escalated from 5.7% in December 2001 to 6.0% in December 2002, the unemployment picture in Louisiana, and in particular, in our local markets, was much more favorable. The unemployment rate generally declined in our markets during this period. 

