FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES MANAGEMENT’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table presents an analysis of the consolidated allowance for credit losses for the five years ended December 31, 2001 (Dollar Amounts in Thousands): Net securities gains increased $1.6 million during 2001 from $1.7 million reported in 2000 and compared to $565 thousand in 1999. 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. The securities gains during 2000 resulted primarily from the sale of Pennsylvania bank stocks with a book value of $19.9 million. The securities gains during 1999 resulted in part from the sales of fixed rate U.S. government agency securities and U.S. treasury securities classified as securities “ available for sale” having book values of $15.0 million and $21.9 million, respectively, which resulted in security gains of $167 and $317 thousand, respectively. Trust income was $5.0 million for 2001 compared to $5.6 million for 2000 and $5.5 million for 1999. Trust income for 2001 reflected decreases in income from personal trusts, estates and mutual fund fees as market values declined. Enhanced referral programs and integrated growth plans for financial affiliates have been initiated to help improve sales in various areas including trust assets managed. The Corporation’ s success in building relationships with commercial customers will also provide fee based affiliates with additional sales opportunities through the “ Total Solutions Financial Management”  process. This strategy marshals products, services and professional staff from the Corporation’ s trust, insurance and banking affiliates and unites them into a comprehensive financial services offering. Service charges on deposits increased $598 thousand for 2001 compared to 2000 and included increases in insufficient funds fees “ NSF”  and bank club fees. Standardization of service charge routines achieved during conversion of the Corporation’ s deposit system during 2001 also generated additional fee revenue. The new deposit processing system implemented during the third quarter of 2001 will also facilitate the offering of enhanced deposit products and 2001 2000 1999 1998 1997 Loans outstanding at end of year $ 2,567,934 $ 2,490,827 $ 2,500,059 $ 2,374,850 $ 2,436,337 Average loans outstanding $ 2,548,596 $ 2,503,036 $ 2,408,450 $ 2,439,436 $ 2,330,657 Allowance for credit losses: Balance, beginning of year $ 33,601 $ 33,539 $ 32,304 $ 25,932 $ 25,234 Loans charged off: Commercial, financial and agricultural 3,297 4,335 1,821 1,513 1,473 Loans to individuals 4,199 5,521 6,126 7,293 8,022 Real estate-construction -0- -0- -0- -0- -0- Real estate-commercial 2,300 130 427 812 664 Real estate-residential 1,818 874 1,035 690 819 Lease financing receivables  606 407 187 319 -0- Total loans charged off 12,220 11,267 9,596 10,627 10,978 Recoveries of loans previously charged off: Commercial, financial and agricultural 456 406 290 462 223 Loans to individuals 757 826 1,057 1,328 1,218 Real estate-construction -0- -0- -0- -0- -0- Real estate-commercial -0- -0- -0- 70 13 Real estate-residential 49 42 33 87 57 Lease financing receivables 19 25 1 3 13 Total recoveries 1,281 1,299 1,381 1,950 1,524 Net loans charged off 10,939 9,968 8,215 8,677 9,454 Provision charged to expense 11,495 10,030  9,450 15,049 10,152 Balance, end of year $ 34,157 $ 33,601 $ 33,539 $ 32,304 $ 25,932 Ratios: Net charge-offs as a percentage of average loans outstanding 0.43% 0.40% 0.34% 0.36% 0.41% Allowance for credit losses as a percentage of average loans outstanding 1.34% 1.34% 1.39% 1.32% 1.11% Summary of Loan Loss Experience 44