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

Since all identified losses are immediately charged off, no portion of the allowance for credit losses is restricted to any individual credit or groups of credits, and the entire allowance is available to absorb any and all credit losses. However, for analytical purposes, the following table sets forth an allocation of the allowance for credit losses at December 31 according to the categories indicated: 

## Allocation of the Allowance for Credit Losses 

(Dollar Amounts in Thousands) 

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Other than those described below, there are no material credits that management has serious doubts as to the borrower’ s ability to comply with the present loan repayment terms. The following table identifies nonperforming loans at December 31. A loan is placed in a nonaccrual status at the time when ultimate collectibility of principal or interest, wholly or partially, is in doubt. Past due loans are those 

loans which were contractually past due 90 days or more as to interest or principal payments but are well secured and in the process of collection. Renegotiated loans are those loans which terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deteriorating financial position of the borrower. 

## Nonperforming and Impaired Assets and Effect on Interest Income Due to Nonaccrual 

(Dollar Amounts in Thousands) 

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The reduction of income due to renegotiated loans was less than $50 thousand in any year presented. 

The level of nonperforming loans at year-end 2001 increased by $6.5 million over 2000 levels as increases in nonaccrual loans were only partially offset by decreases in past due loans and renegotiated loans. The increase in nonaccrual loans since year-end 2000 is primarily related to two loans. One is a $6.7 million credit that is not past due and carries an 80% guaranty 

of a U.S. government agency but is experiencing cash flow difficulties and has therefore been placed in nonaccrual status. A resolution of this credit is expected by the end of the second quarter 2002. The second credit is in the amount of $5.9 million and the Corporation is in the process of liquidating the collateral. The Corporation anticipates a final resolution of this credit in the first quarter of 2002 without a significant loss. 

