FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Dollar Amounts in Thousands, except per share data) Goodwill and Other Intangible Assets Cash and Cash Equivalents Employee Stock Ownership Plan Accounting for the Impairment of Long-Lived Assets Income Taxes Comprehensive Income Disclosures Employee Stock Option Plan 21 Current accounting guidelines permit two alternate methods  of accounting for stock-based compensation, the intrinsic  value method of APB Opinion No. 25 “Accounting for Stock  Issued to Employees” (“APB 25”) and the fair value method  of FASB Statement No. 123 “Accounting for Stock-Based  Compensation” (“FAS No. 123”). In December 2002, the  FASB issued Statement No. 148, “Accounting for Stock- Based Compensation-Transition and Disclosure” (“FAS  No. 148”). FAS No. 148 did not amend FAS No. 123 to  require companies to account for employee stock options  using the fair value method but required all companies with  stock-based compensation to provide additional disclosures,  regardless of whether they account for that compensation  using the fair value method of FAS No. 123 or the intrinsic  value method of APB No. 25. As permitted under FAS  “Other Comprehensive Income” (comprehensive income,  excluding net income) for the 2003 period includes two  components, the change in unrealized holding gains and losses  on available for sale securities and the change in unrealized  gains and losses on derivatives used in cashflow hedging  relationships. Both components of other comprehensive  income are reported net of related tax effects in the statement  of changes in shareholders’ equity. Prior to 2003 other  comprehensive income includes only one component, which is  the change in unrealized holding gains and losses on available  for sale securities, net of related tax effects. The Corporation records taxes in accordance with the asset  and liability method utilized by FASB Statement No. 109  (“FAS No. 109”), whereby deferred tax assets and liabilities  are recognized for the future tax consequences attributable to  differences between the financial statement carrying amount  of existing assets and liabilities and their respective tax bases  given the provisions of the enacted tax laws. Deferred tax assets  are reduced, if necessary, by the amount of such benefits that  are not expected to be realized based upon available evidence. Dividends on both old and new unallocated ESOP shares are  used for debt service and are reported as a reduction of debt  and accrued interest payable. Dividends on allocated ESOP  shares are charged to retained earnings and allocated or paid  to the plan participants. The average number of common  shares outstanding used in calculating earnings per share  excludes all unallocated ESOP shares. ESOP shares purchased subject to debt guaranteed by  the Corporation are recorded as a reduction of common  shareholders’ equity by charging unearned ESOP shares.  As shares are committed to be released to the ESOP trust  for allocation to plan participants, unearned ESOP shares  is credited for the average cost of the shares to the ESOP.  Compensation cost recognized for new shares in accordance  with the provisions of SOP 93-6 is based upon the fair market  value of the shares committed to be released. Additional paid- in capital is charged or credited for the difference between the  fair value of the shares committed to be released and the cost  of those shares to the ESOP. Compensation cost recognized  for old shares committed to be released is recorded at the cost  of those shares to the ESOP. The Corporation reviews long-lived assets, such as premises  and equipment and intangibles for impairment whenever events  or changes in circumstances, such as a significant decrease  in the market value of an asset or the extent or manner in  which an asset is used, indicate that the carrying amount of an  asset may not be recoverable. If there is an indication that the  carrying amount of an asset may not be recoverable, future  undiscounted cash flows expected to result from the use of the  asset are estimated. If the sum of the expected cash flows is  less than the carrying value of the asset, a loss is recognized  for the difference between the carrying value and fair market  value of the asset. Long-lived assets classified as held for sale  are measured at the lower of their carrying amount or fair value  less cost to sell. Depreciation or amortization is discontinued  on long-lived assets classified as held for sale. Goodwill and other intangible assets with indefinite useful  lives are tested for impairment at least annually and written  down and charged to results of operations in periods in which  their recorded value is more than their estimated fair value. No  impairment of goodwill or other intangibles has been identified  since the adoption of FASB Statement No. 142, “Goodwill and  Other Intangible Assets” (“FAS No. 142”) on January 1, 2002.  Prior to the adoption of FAS No. 142, goodwill was amortized  on a straight-line basis over a period of 15-25 years. Goodwill  amortization expense was $920 for 2001 representing basic  and diluted earnings per share of $0.016. For purposes of reporting cash flows, cash and cash  equivalents include cash on hand, amounts due from banks  and Federal funds sold. Generally, Federal funds are sold for  one-day periods. Accounting treatment for the Corporation’s Employee Stock  Ownership Plan (“ESOP”) described in NOTE 21 follows  Statement of Position 93-6 (“SOP 93-6”) “Employers  Accounting for Employee Stock Ownership Plans” for ESOP  shares acquired after December 31, 1992 (“new shares”). The  Corporation has elected, as permitted under SOP 93-6, not to  adopt this statement for ESOP shares acquired on or before  December 31, 1992 (“old shares”).