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## MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

noninterest-bearing demand deposits, which were partially offset by decreases in time deposits. Noncore deposits, which are time deposits in denominations of $100 thousand or more, represented 12.1% of total deposits at December 31, 2003. Noncore deposits decreased by $91.0 million in 2003 and $7.6 million in 2002 due in part to changes in public funds balances. 

Although the Corporation’s primary source of funds remains traditional deposits from within the communities served by its banking subsidiary, future sources of deposits utilized could include the use of brokered time deposits offered outside the Corporation’s traditional market area. Time deposits of $100 thousand or more at December 31, 2003, 2002 and 2001 had remaining maturities as follows: 

## Maturity Distribution of Large Certificates of Deposit 

(Dollar Amounts in Thousands) 

<img src='content_image/79528.jpg'>

Loans, net of unearned income and the allowance for credit losses, increased $213.4 million during 2003 as increases were noted in all categories with the exception of leases. Most notable were increases in commercial loans secured by real estate of $108.6 million and increases in residential loans 

secured by real estate of $82.1 million compared to year-end 2002. Net loans in the amount of $245.8 million were acquired with the BankPittsburgh acquisition. 

Below is a schedule of loans by classification for the five years ended December 31, 2003: 

## Loans by Classification 

(Dollar Amounts in Thousands) 

<img src='content_image/79529.jpg'>

An additional source of liquidity is marketable securities that the Corporation holds in its investment portfolio. These securities are classified as “securities available for sale.” While the Corporation does not have specific intentions to sell these securities, they have been designated as “available for sale” because they may be sold for the purpose of obtaining future liquidity, for management of interest rate risk or as part of the implementation of tax management strategies. As of December 31, 2003, securities available for sale had an amortized cost of $1,946 million and an approximate fair value of $1,969 million. Gross unrealized gains were $32.9 million and gross unrealized losses were $9.6 million. 

Based upon the Corporation’s historical ability to fund liquidity needs from other sources, the current available for sale portfolio is deemed more than adequate, as the Corporation does not anticipate a need to liquidate the investments until maturity. A schedule of the contractual maturity distribution of securities held to maturity and securities available for sale at December 31, 2003, follows: 

