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

The increase in net income for 2001 resulted primarily from increases in net interest income, gains on sale of assets and insurance commissions of $4.4 million, $1.8 million and $1.2 million, respectively. Gains on sale of assets included securities gains of $3.3 million and $1.7 million in 2001 and 2000, respectively as well as a $999 thousand gain on the sale of a branch and block of mortgages in 2001. 

Diluted earnings per share was $0.74 for 2002 compared to $0.86 and $0.82 for 2001 and 2000 respectively. Return on average assets was 0.96% and return on equity was 11.09% during 2002 compared to 1.11% and 13.85%, respectively for 2001. Return on average assets was 1.10% during 2000 as return on average equity reached 15.65%. 

The following is an analysis of the impact of changes in net income on diluted earnings per share: 

<img src='content_image/106290.jpg'>

Core net income excluding nonrecurring charges as well as securities gains and any nonrecurring gains for 2002 was $52.3 million, an increase of $4.9 million or 10.4% over core net income of $47.4 million for 2001. Core diluted earnings per share was $0.89 per share, a rise of $0.07 or 8.5% compared to the $0.82 achieved in 2001. Core return on average assets for 2002 advanced to 1.15% compared to 1.05% for 2001 as core return on shareholders’ equity for 2002 also improved on a year to year basis. 

<img src='content_image/106291.jpg'>

Net interest income, the engine that powers revenue growth for the Corporation, is defined as the difference between income on earning assets and the cost of funds supporting those assets. Net interest income rose to $152.9 million in 2002 compared to $141.7 million in 2001 and $137.3 million in 2000. The following is an analysis of the average balance sheets and net interest income for each of the three years in the period ended December 31, 2002. 

## Reconciliation of Core Earnings (Dollar Amounts in Thousands, except per share data) 

