FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS routines accomplished during conversion of the Corporation’s  deposit system during 2001 and added emphasis on collection  of fees had positive effects on fee revenue for 2003 and 2002.  Management strives to implement reasonable fees for services  and closely monitors collection of those fees. The 2003 period included a $3.0 million gain which occurred  when First Commonwealth Bank, a wholly-owned subsidiary  of the registrant, sold two of its branch offices. The sale  included $29.2 million in deposit liabilities and $4.4 million in  loans associated with the two offices. The 2001 period included  a $777 thousand gain on the sale of one branch. The sale  included $10.4 million in deposit liabilities. Insurance commissions decreased $326 thousand for 2003 after  increasing $439 thousand for 2002 from 2001 commissions of  $3.2 million. Decreases in 2003 were primarily due to decreases  in annuity commissions. Insurance commissions for 2002  included increases in personal lines, annuities and employee  benefit plans compared to 2001. As part of the previously  discussed TSFM process, the Corporation’s insurance subsidiary will continue to have expanded opportunities to  meet the insurance needs of commercial clients. In addition, the  Corporation has developed “FOCUS”, a financial planning tool  designed to help clients prioritize and assess their financial  needs. The “FOCUS” concept results in a systematic approach  covering a wide range of personal financial goals including  appropriate insurance coverage. This category should also be  favorably impacted by the integration of First Commonwealth  Financial Advisors into these advisory models. Income from bank owned life insurance was $4.3 million for 2003 compared to $4.7 million for 2002 and compared to $4.6 million for 2001. The 2002 period included an  additional investment in bank owned life insurance of $5.0  million and the 2001 period included an additional investment  of $15.0 million. Other income for 2003 was $10.2 million, representing a $1.2  million increase compared to 2002, which followed a $596  thousand decrease from the $9.6 million achieved in 2001. The  increase in other income for 2003 over 2002 levels includes  increases in STAR interchange fees and income from the  increase in cash surrender value of split dollar life insurance of  $629 thousand and $248 thousand, respectively. Other income  for 2002 included an increase in interchange income of $164  thousand. The 2001 period included a gain related to the sale of  a block of 30 year mortgages as well as a gain from the  termination of a subsidiary’s defined benefit pension plan. Total other expenses for 2003 decreased $13.6 million to  $112.7 million compared to $126.3 million in 2002. The 2002  amount represented an increase of $20.4 million compared to  $105.9 million reported in 2001. The decrease in other  expenses for 2003 and the increase in other expenses for 2002  were primarily the result of nonrecurring charges that were  Net occupancy expense increased $706 thousand during 2003  compared to expenses of $6.8 million during 2002 and $6.5  million for 2001. The 2003 period included increases in  building repairs and maintenance, net rental expense and  utilities compared to 2002 costs. Much of these increases were  due to increased utility costs and snow removal expenses  resulting from the harsh winter. The 2003 period also included  an increase in the amortization of the purchase accounting  adjustments related to premises of $328 thousand over the 2002  period. An adjustment of $291 thousand was taken during the  2003 period for the write-off of the remaining purchase  accounting adjustment for three branch offices that were closed  during 2003. These branch offices were closed and their clients  are served at nearby existing branch offices. The Corporation  continues to actively evaluate its branch delivery network to  optimize client service in existing branch offices and to  Employee costs were $61.1 million in 2003, representing  1.29% of average assets compared to $58.1 million and 1.28%  of average assets for 2002. Employee costs for 2001 were  $54.5 million and 1.21% of average assets. Salary costs for the  2003 period increased $1.6 million compared to 2002, while  salary costs for the 2002 period increased $2.2 million  compared to 2001 levels. Employee benefit costs rose $1.4  million for 2003 compared to 2002 and also rose $1.4 million  for 2002 compared to 2001. Hospitalization costs continue to  reflect the largest increases in employee benefit costs with  increases of $1.1 million or 23.1% in 2003 and $943 thousand  or 24.7% in 2002. The Corporation strives to provide quality  employee benefits while effectively managing costs. incurred during 2002 for the previously described litigation  settlement and corporate restructuring of $8.0 million and $6.1  million, respectively. These restructuring charges resulted from  the merger of the Corporation’s banking subsidiaries,  Southwest Bank and First Commonwealth Bank, which  occurred in October 2002. Because of this merger, there was a  consolidation of support functions with some staff positions  being eliminated. The personnel within the branches and  relationship managers in corporate services continued to serve  in the same capacity in order to ensure a smooth transition.  Also, related to the merger, the structures of all of the Boards of  Directors and Board committees for the Corporation were  realigned. As a result of these activities, restructuring charges  of $6.1 million are reported on the income statement for the  2002 period. Ongoing savings from the restructuring were  reflected in the 2003 period. Other charges incurred during  2002 as a part of the restructuring, related principally to writing  off obsolete signs and supplies due to the name change under  one charter and amounted to $420 thousand. Also impacting  other operating expense for the period were $1.8 million of  costs incurred principally in the fourth quarter of 2002  associated with development of the First Commonwealth  brand. Total noninterest expense as a percent of average assets  was 2.38% for 2003 compared to 2.76% for 2002 and 2.32%  for 2001.  49 Noninterest Expense