FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS banking subsidiary is a member of the Federal Home Loan Bank and may borrow under overnight and term borrowing arrangements. The sale of earning assets may also provide an additional source of liquidity. In addition to the previously described funding sources, the Corporation also has the ability to access the capital markets. Liquidity risk stems from the possibility that the Corporation may not be able to meet current or future financial obligations, or the Corporation may become overly reliant on alternative funding sources. The Corporation maintains a liquidity risk management policy to manage this risk. This policy identifies the primary sources of liquidity, establishes procedures for monitoring and measuring liquidity and quantifies minimum liquidity requirements which comply with regulatory requirements. The policy also includes a liquidity contingency plan to address funding needs to maintain liquidity under a variety of business conditions. The Corporation’s liquidity position is monitored by the Asset/Liability Management Committee (“ALCO”). The Corporation’s long-term liquidity source is a large core deposit base and a strong capital position. Core deposits are the most stable source of liquidity a bank can have due to the long-term relationship with a deposit customer. Deposits decreased $49.0 million in 2002 and included decreases in noninterest-bearing deposits and time deposits which were partially offset by increases in savings deposits. Non-core deposits which are time deposits in denominations of $100 thousand or more represented 16.1% of total deposits at December 31, 2002. Non-core deposits decreased by $7.6 million in 2002 and rose $41.9 million in 2001 due in part to changes in public funds balances. The increase in non-core deposits during 2001 also included the issuance of brokered time deposits in the amount of $5.0 million. Although the Corporation’s primary source of funds remains traditional deposits from within the communities served by its banking subsidiary, future sources of deposits utilized could include the use of brokered time deposits offered outside the Corporation’s traditional market area. Time deposits of $100 thousand or more at December 31, 2002, 2001 and 2000 had remaining maturities as follows: Net loans increased $40.4 million during 2002 as commercial loans increased by $74.9 million and loans to individuals increased by $31.6 million compared to year-end 2001. The 2002 period reflected decreases of $110.8 million in residential real estate loans, due in part to the continued runoff of the existing portfolio and sale of new loan production as the Corporation continued to change the mix of its loans. Below is a schedule of loans by classification for the five years ended December 31, 2002: 48 Maturity Distribution of Large Certificates of Deposit Loans by Classification (Dollar Amounts in Thousands) (Dollar Amounts in Thousands) 2002 2001 2000 Amount Percent Amount  Percent Amount Percent Remaining Maturity: 3 months or less $ 97,862  20% $ 133,017  27% $ 358,112  79% Over 3 months through 6 months 54,758  11 57,222  11 36,941 8 Over 6 months through 12 months 114,596  24 89,436  18 19,241 4 Over 12 months 222,486  45  217,643  44 41,088 9 Total $ 489,702 100% $ 497,318 100% $ 455,382 100% 2002 2001 2000 1999 1998 Amount Percent  Amount  Percent Amount Percent Amount Percent Amount Percent Commercial,financial, agricultural and other $ 633,955 24% $ 529,300 21% $ 443,618 18% $ 417,300 16% $ 377,733 16% Real estate-construction  20,998 1  14,727 1 37,146 2 41,734 2 33,097 1 Real estate-commercial 663,220  26 638,576  25 560,066  22 495,789  20 387,166  16 Real estate-residential  739,018  28 849,787  33  932,915  37 980,506  39  1,009,903  42 Loans to individuals 505,139  19 473,515  18  450,154  18 502,465  20 517,907  22 Net leases 47,110 2 63,326 2 68,975 3 65,893 3 56,423 3 Gross loans and leases  2,609,440 100%  2,569,231 100% 2,492,874 100%  2,503,687 100% 2,382,229 100% Unearned income (806) (1,297) (2,047) (3,628) (7,379) Total loans, and leases net of unearned income $ 2,608,634 $2,567,934 $ 2,490,827 $2,500,059 $2,374,850