in the earnings of the entity. For all periods presented the dilutive effect on average shares outstanding is the result of compensatory stock options outstanding. 

## New Accounting Pronouncements 

Effective January 1, 2003, the Corporation adopted FASB Statement No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” (“FAS No. 146”). FAS No. 146 replaced EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred In a Restructuring).” The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Statement No. 146 is applicable to exit or disposal activities initiated after December 31, 2002. Adoption of FAS No. 146 did not have a material impact on the Corporation’s financial condition or results of operations. 

In November, 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees of Indebtedness of Others.” The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002, and require disclosure of the nature of the guarantee, the maximum potential of future payments the guarantor could be required to make under the guarantee and the current amount of the liability, if any, for the guarantor’s obligation under the guarantee. The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified after December 31, 2002. This interpretation expands the disclosures to be made by a guarantor in its financial statements about its obligations under certain guarantees and requires the guarantor to recognize a liability for the fair value of an obligation assumed under a guarantee. 

FIN 45 clarifies the requirements of FASB Statement No. 5 (“FAS No. 5”) “Accounting for Contingencies,” relating to guarantees. In general, FIN 45 applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or equity security of the guaranteed party. Certain guarantee contracts are excluded from both the disclosure and recognition requirements of this interpretation, including, but not limited to, guarantees related to employee compensation, residual value guarantees under capital lease arrangements, commercial letters of credit, loan commitments, subordinated interests in Special Purpose Entities and guarantees of a company’s own future performance. Other guarantees are subject to the disclosure requirements of FIN 45 but not the recognition provisions and include, among others, a guarantee accounted for as a derivative instrument under FAS No. 133, a parent’s guarantee of debt owed to a third party by its subsidiary or vice versa and a guarantee which is 

## FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES 

## NOTESTO CONSOLIDATED FINANCIAL STATEMENTS (Dollar Amounts in Thousands) 

based on performance not price. Guarantees that have been entered into by the Corporation are disclosed in NOTE 13. The adoption of FIN 45 did not have a material impact on the Corporation’s financial condition or results of operations. 

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” As defined by FIN 46 a variable interest entity (“VIE”) is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. This interpretation also defines when the assets, liabilities, noncontrolling interest and results of operations of a VIE should be included in a company’s consolidated financial statements. Companies that hold variable interests in an entity will need to consolidate that entity if the company’s interest in the VIE is such that the company will obtain a majority of the entity’s expected residual returns, should such occur. FIN 46 applied immediately to variable interest entities created after January 31, 2003. The effective date of FIN 46 for pre- existing variable interest entities that are not special purpose entities has been deferred until the first quarter of 2004. 

Based on the criteria established in FIN 46 as interpreted by the Securities and Exchange Commission, the Corporation deconsolidated its investment in First Commonwealth Capital Trust I, a Delaware business trust (the “Trust”) during the fourth quarter of 2003. The Trust was established in 1999 to issue capital securities through a private offering to qualified investors and to issue common securities to the Corporation. 

The Trust used the proceeds from the sale of the capital securities to buy junior subordinated debentures from the Corporation with the same economic terms as the capital securities. The Trust distributes the cash payments it receives from the Corporation on the debentures to the holders of the capital securities and the common securities. The Trust will redeem all of the outstanding capital securities when the debentures are paid at maturity on September 1, 2029. The deconsolidation of the Trust resulted in an increase in long- term debt during the fourth quarter of 2003 of approximately $1,083 as a result of the subordinated debentures no longer being eliminated in consolidation and the capital securities no longer being included in the Consolidated Balance Sheet at December 31, 2003. The Consolidated Balance Sheet also reflects an increase in “Other Assets” in the same amount, which represents the Corporation’s investment in the Trust. 

Although net income has not changed as a result of the deconsolidation of the Trust, “Other Revenue” has increased by the income generated by the Trust, which represents the difference between the Trust’s interest income from the subordinated debentures and the Trust’s interest expense from the capital securities. The Consolidated Statement of Income also reflects an increase in “Interest Expense on Long-term Debt” of approximately $103 as a result of the 

