FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar Amounts in Thousands, except per share data) (“ ESOP” ) on the same terms. The combined balances of the ESOP related loans were $4,126 at December 31, 2001 and $5,287 at December 31, 2000. The loans have been recorded as long-term debt on the Corporation’ s Consolidated Balance Sheets. A like amount of unearned ESOP shares was recorded as a reduction of common shareholders’  equity. Unearned ESOP shares, included as a component of shareholders’  equity, represents the Corporation’ s prepayment of future compensation expense. The shares acquired by the ESOP are held in a suspense account and will be released to the ESOP for allocation to the plan participants as the loan is reduced. Repayment of the loans are scheduled to occur over a five year period from contributions to the ESOP by the Corporation and dividends on unallocated ESOP shares. The following is an analysis of ESOP shares held in suspense: The fair value of each option granted is estimated on the date of the grant using the Black-Scholes options pricing model with the following weighted average assumptions used: A summary of the status of the Corporation’ s outstanding stock options as of December 31, 2001, 2000 and 1999 and changes for the years ending on those dates is presented below: The fair market value of the new shares remaining in suspense was approximately $3,241 and $3,727 at December 31, 2001 and 2000, respectively. Interest on ESOP loans was $263 in 2001, $446 in 2000 and $460 in 1999. During 2001, 2000 and 1999, dividends on unallocated shares in the amount of $301, $354 and $369 respectively were used for debt service while all dividends on allocated shares were allocated or paid to the participants. At December 31, 2001, the Corporation had a stock-based compensation plan, which is described below. All of the exercise prices and related number of shares have been restated to reflect the previously described stock split. The plan permits the executive compensation committee to grant options for up to 4.5 million shares of the Corporation’ s common stock through October 15, 2005. Although the vesting requirements and terms of future options granted are at the discretion of the executive compensation committee, all options granted during the years 1997, 1998, 1999, 2000 (See NOTE 1 for the definition of “ old shares”  and “ new shares” ) Old New Total Shares Shares Shares in suspense December 31, 1999 598,687 146,578 452,109 Shares allocated during 2000 (105,166) (25,748) (79,418) Shares in suspense December 31, 2000 493,521 120,830 372,691 Shares allocated during 2001 (120,961) (29,616) (91,345) Shares in suspense December 31, 2001 372,560 91,214 281,346 2001 2000 1999 Dividend yield 5.59% per annum 5.65% per annum 4.29% per annum Expected volatility 55.1% 61.7% 31.4% Risk-free interest rate 5.1% 5.3% 6.3% Expected option life 10.0 years 9.1 years 9.1 years NOTE 22— Stock Option Plan and 2001 were exercisable by December 31 of each year, respectively, and expire ten years from the grant date. The Corporation has elected, as permitted by FAS No. 123, to apply APB Opinion 25 and related Interpretations in accounting for its plan. Accordingly, no compensation cost has been recognized for its stock options outstanding. Had compensation cost for the Corporation’ s stock option plan been determined based upon the fair value at the grant dates for awards under the plan consistent with the method of FASB Statement 123, the Corporation’ s net income and earnings per share would have been reduced to the pro forma amounts shown below: 2001 2000 1999 As Pro As Pro As Pro Reported Forma Reported Forma Reported Forma Net Income $ 50,189 $48,211 $ 47,246 $ 47,130 $53,030 $ 52,197 Basic earnings per share $ 0.87 $ 0.83 $ 0.82 $ 0.82 $ 0.88 $ 0.87 Diluted earnings per share $ 0.86 $  0.83 $ 0.82 $ 0.82 $ 0.88 $  0.86 2001 2000 1999 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year 2,210,651 $ 11.12 1,680,178 $11.07 1,306,346 $10.53 Granted 796,743 $ 10.75 705,429 $11.06 610,416 $11.56 Exercised (256,174) $ 9.76 (41,240) $ 7.93 (188,570) $ 8.66 Forfeited (63,333) $ 11.89 (133,716) $11.63 (48,014) $12.08 Outstanding at end of year 2,687,887 $ 11.13 2,210,651 $11.12 1,680,178 $11.07 Exercisable at end of year 2,687,887 $ 11.13 2,210,651 $11.12 1,680,178 $11.07 33