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## NOTE 10— Allowance for Credit Losses 

Description of changes: 

<img src='content_image/68382.jpg'>

Relationship to impaired loans: 

<img src='content_image/68383.jpg'>

## NOTE 11— Financial Instruments with Off-Balance-Sheet Risk 

The Corporation is a party to financial instruments with off- balance-sheet risk in the normal course of business to meet the financial needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amount of those instruments reflects the extent of involvement the Corporation has in particular classes of financial instruments. 

As of December 31, 2002 and 2001, the Corporation did not own or trade any other financial instruments with significant off-balance-sheet risk including derivatives such as futures, forwards, interest rate swaps, option contracts and the like, although such instruments may be appropriate to use in the future to manage interest rate risk. 

The Corporation’s exposure to credit loss in the event of nonperformance by the other party of the financial instrument for commitments to extend credit, standby letters of credit and commercial letters of credit written is represented by the contract or notional amount of those instruments. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. The following table 

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

identifies the notional amount of those instruments at December 31, 2002 and 2001: 

<img src='content_image/68385.jpg'>

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the counter-party. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, residential and income-producing commercial properties. 

Standby letters of credit and commercial letters of credit written are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. 

## NOTE 12— Premises and Equipment 

Premises and equipment are described as follows: 

<img src='content_image/68384.jpg'>

Depreciation and amortization related to premises and equipment was $6,840 in 2002, $6,153 and $5,996 in 2001 and 2000, respectively. 

(Dollar Amounts in Thousands) 

