NOTESTO CONSOLIDATED FINANCIAL STATEMENTS FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES (Dollar Amounts in Thousands) NOTE 1— Statement of Accounting Policies (continued) New Accounting Pronouncements  (continued) interest expense on the subordinated debentures no longer  being eliminated in consolidation and the interest expense  on the capital securities no longer being included in the  Consolidated Statement of Income. As part of its community reinvestment initiatives, the  Corporation invests in qualified affordable housing  projects as a limited partner. The Corporation receives  federal affordable housing tax credits for these limited  partnership investments. The Corporation’s maximum  potential exposure to these partnerships is $3,556, consisting  of the limited partnership investments plus unfunded  commitments as of December 31, 2003. The Corporation’s  preliminary determination is that these investments will  not be consolidated but continue to be accounted for under  the equity method whereby the Corporation’s portion of  partnership losses are recognized as incurred. The adoption  of FIN 46 is not expected to have a material impact on the  Corporation’s financial condition or results of operations. In April 2003, the FASB issued Statement No. 149  “Amendment of Statement 133 on Derivative Instruments  and Hedging Activities” (“FAS No. 149”). FAS No. 149  amends and clarifies accounting for derivative instruments,  including certain derivative instruments embedded in other  contracts, and for hedging activities under FAS No. 133. In  particular, FAS No. 149 clarifies under what circumstances a  contract with an initial net investment meets the characteristic  of a derivative and when a derivative contains a financing  component that warrants special reporting in the statement  of cash flows. This statement is effective for contracts  entered into or modified after June 30, 2003 and for hedging  relationships designated after June 30, 2003. The adoption  of FAS No. 149 did not have a material impact on the  Corporation’s financial condition or results of operations. In May 2003, the FASB issued Statement No. 150  “Accounting for Certain Financial Instruments with  Characteristics of both Liabilities and Equity” (“FAS No.  150”). FAS No. 150 represents the first phase of the FASB’s  broader project on (1) distinguishing between liability  and equity instruments and (2) accounting for instruments  that have characteristics of both liabilities and equity.  This statement requires issuers to classify as liabilities the  following three types of freestanding financial instruments:  (1) mandatorily redeemable financial instruments,  (2) obligations to repurchase the issuer’s equity shares by  transferring assets and (3) certain obligations to issue a  variable number of shares. A freestanding financial instrument  is one that is entered into separately and apart from any of  the entity’s other financial instruments or equity transactions  or is entered in conjunction with some other transaction but  can be legally detached and exercised on a separate basis.  FAS No. 150 is relatively narrow in scope as it specifies  only that certain instruments must be classified as liabilities  but does not include additional guidance on the concept  of what constitutes either a “liability” or “equity.” Entities  will continue to apply existing guidance on determining  the balance sheet classification of instruments that do not  specifically fall within the scope of FAS No. 150. FAS No.  150 applied immediately to financial instruments entered into  or modified after May 31, 2003. For all other instruments that  exist, this statement went into effect at the beginning of the  first interim period beginning after June 15, 2003. Adoption  of FAS No. 150 did not have a material impact on the  Corporation’s financial condition or results of operations. On May 15, 2003, the Securities and Exchange Commission  issued Staff Interpretation Topic D-107, which indicated that  unless lease residuals were individually insured, no related  amount should be considered in minimum lease payments.  This interpretation is more restrictive than criteria previously  utilized by many financial services companies in determining  whether leases qualified for financing lease treatment. A  majority of the Corporation’s automobile leases have residual  insurance coverage that includes a deductible and/or cap  on maximum coverage for each year of lease originations.  Interpretations of Topic D-107 have concluded that residual  insurance policies with deductibles and caps calculated on  a group basis do not meet the definition of “individually  insured” even though: (1) individual lease losses are covered  after consideration of the deductible in place and (2) the caps  on loss coverage included in the policies are unlikely to be  exceeded. Consequently, a majority of the Corporation’s  automobile leases outstanding at December 31, 2003 would  not qualify as financing leases. Management has determined  that the impact of changing from financing lease treatment to  operating lease treatment is not material to the Corporation’s  financial condition or results of operations and is not  anticipated to be material to future results of operations or  financial condition; therefore, no restatement of previously  issued financial statements is required. The Corporation had  discontinued automobile leasing in April of 2003.  24