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

The following table presents an analysis of the consolidated allowance for credit losses for the five years ended December 31, 2002 (Dollar Amounts in Thousands): 

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Net securities gains declined $2.7 million during 2002 from the $3.3 million reported in 2001 and compared to $1.7 million in 2000. The securities gains during 2002 resulted primarily from the sales of Pennsylvania bank stocks, U.S. Treasury securities and fixed rate corporate bonds classified as securities “available for sale” with book values of $1.1 million, $1.5 million and $3.0 million, respectively. The securities gains during 2001 resulted primarily from the sale of fixed rate corporate bonds classified as “available for sale” and Pennsylvania bank stocks with book values of $37.4 million and $12.7 million respectively. The securities gains recognized during 2000 were principally related to the sale of Pennsylvania bank stocks with a book value of $19.9 million. 

Trust income of $5.0 million for 2002 was flat compared to 2001 following a $560 thousand decline from 2000. Although fee revenue continues to be negatively impacted due to low market values, the enhanced referral programs and integrated growth plans for financial affiliates that have 

been initiated have helped to offset this trend. The Corporation’s continued success in building relationships with commercial clients provides fee based affiliates with additional sales opportunities through the Total Solutions Financial Management (“TSFM”) process. This strategy combines products, services and professional staff from the Corporation’s trust, insurance, financial advisory and banking affiliates and partners them in providing comprehensive financial services offerings. 

Service charges on deposits are the most significant component of non-interest income and increased $378 thousand for 2002 compared to 2001. Increases in insufficient funds fees “NSF”, bank club and account analysis fees helped pace the year to year rise. Standardization of service fee routines accomplished during conversion of the Corporation’s deposit system during 2001, and added emphasis on collection of fees had a positive effect on fee revenue for 2002. Service charges on deposits increased $598 thousand for 2001 compared to 2000 

