FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Noninterest Income 48 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.  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  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. Summary of Loan Loss Experience  (Dollar Amounts in Thousands) 2003 2002  2001  2000  1999 Loans outstanding at end of year $ 2,824,882  $ 2,608,634  $ 2,567,934  $ 2,490,827  $ 2,500,059 Average loans outstanding $ 2,640,935  $ 2,597,862  $ 2,548,596  $ 2,503,036  $ 2,408,450 Allowance for credit losses: Balance, beginning of year $  34,496  $  34,157  $  33,601  $  33,539  $  32,304 Addition as a result of acquisition 3,109  - 0-  -0-  -0-  -0- Loans charged off: Commercial, financial and agricultural 6,424  6,085  3,297  4,335  1,821 Loans to individuals 3,288  4,040  4,199  5,521  6,126 Real estate-construction 384  3  -0-  -0-  -0- Real estate-commercial 1,111  1,315  2,300  130  427 Real estate-residential 3,172  2,065  1,818  874  1,035 Lease financing receivables 316  424  606  407  187 Total loans charged off 14,695  13,932  12,220  11,267  9,596 Recoveries of loans previously charged off: Commercial, financial and agricultural 1,047  1,287  456  406  290 Loans to individuals 641  710  757  826  1,057 Real estate-construction -0-  -0-  -0-  -0-  -0- Real estate-commercial Real estate-residential 17  46  49  42  33 Lease financing receivables -0-  5  19  25  1 Total recoveries 1,705  2,048  1,281  1,299  1,381 Net loans charged off 12,990  11,884  10,939  9,968  8,215 Provision charged to expense 12,770  12,223  11,495  10,030  9,450 Balance, end of year  $  37,385 $  34,496  $  34,157  $  33,601  $  33,539 Ratios: Net charge-offs as a percentage of average loans outstanding 0.49%  0.46%  0.43%  0.40%  0.34% Allowance for credit losses as a percentage of average loans outstanding 1.42%  1.33%  1.34%  1.34%  1.39%