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

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## Noninterest Income 

Net securities gains increased $5.2 million during 2003 to $5.9 million from the $642 thousand reported in 2002 and compared to $3.3 million in 2001. The securities gains during the 2003 period resulted primarily from the sales of Pennsylvania bank stocks with book values of $7.6 million and fixed rate corporate bonds classified as securities “available for sale” with book values of $35 million. The corporate bonds sold during 2003 had an average remaining life of one year, and the proceeds were reinvested in adjustable rate trust preferred securities with maturities of 30 years and mortgage backed securities with an average life of 3.6 years. This reinvestment strategy was initiated to partially mitigate the Corporation’s exposure to low and declining interest rates. 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 sales 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. 

Trust income of $5.1 million for 2003 was relatively flat compared to 2002 and 2001 where the reported amount was $5.0 million for both years. Although fee revenue continues to be negatively impacted due to low market values, the market value of the assets managed has started to rebound during the fourth quarter of 2003. The enhanced referral programs and integrated growth plans for financial affiliates continue to help 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 noninterest income and increased $1.5 million for 2003 compared to 2002. Increases in nonsufficient funds fees (“NSF”) of $2.1 million helped to pace the year-to-year rise. NSF charges were partially offset by decreases in account maintenance fees on deposit accounts of $424 thousand compared to 2002 levels. Standardization of service fee 

