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

## NOTE 5— Business Combination 

Effective December 5, 2003, the Corporation acquired 100% of the outstanding shares of Pittsburgh Financial Corp. (“PFC”), a financial holding company, which was headquartered in Wexford, Pennsylvania. PFC was the parent company of Pittsburgh Savings Bank (d/b/a BankPittsburgh). As a result of the merger, PFC merged into First Commonwealth Financial Corporation and BankPittsburgh merged into First Commonwealth Bank. 

The acquisition of PFC is a significant step for the Corporation to implement its strategy for expansion into the Pittsburgh, Pennsylvania market. The acquisition of BankPittsburgh adds a new customer base, which presents the opportunity for First Commonwealth Bank to offer insurance, trust and financial planning services to a larger base of customers. 

Shareholders of PFC elected to receive $20.00 in cash or an equivalent of First Commonwealth common stock for each PFC share owned. The aggregate purchase price of the transaction was $28,589, which included $11,587 in cash and common stock valued at $17,002. The value of the 1,179,037 issued shares of First Commonwealth common stock was based on the average market price of First Commonwealth’s common stock over the ten-day period ending three trading days prior to consummation of the acquisition. As of December 31, 2003, the Corporation had recorded a liability for the cash settlement of the transaction in the amount of $11,587. 

The merger was accounted for as a purchase transaction whereby the identifiable tangible and intangible assets and liabilities of PFC have been recorded at their fair values as of the acquisition date. Purchase accounting valuation adjustments, which represent the difference between the carrying value and the fair value of identifiable tangible and intangible assets and liabilities were recorded in the Consolidated Balance Sheet as of December 31, 2003. Preliminary goodwill in the amount of $21,723 was recorded as a result of the transaction. As prescribed under the purchase method of accounting, the results of PFC’s operations have been included in the consolidated financial statements since the acquisition date. 

The customer deposit base of $3,270 was the only amortizing intangible that was recorded with the transaction. An average annual amorization expense in the amount of $289.5 will be recorded in the Consolidated Income Statement over the average useful life. The weighted-average useful life of the customer deposit base intangible is 12 years. The goodwill that was recorded with the transaction is not deductible for tax purposes. 

Effective March 1, 2002, the Corporation acquired all of the outstanding shares of Strategic Capital Concepts, Inc. (“SCC”) and Strategic Financial Advisors, Inc. (“SFA”), 

each a Pennsylvania corporation headquartered in Allison Park, Pennsylvania. As a registered investment advisor, SCC provided financial planning, asset management and consulting services to individuals, businesses, retirement plans, trusts and estates. SFA offered investment and insurance products as well as employee benefit services. Each of the outstanding shares of SCC and SFA were exchanged for shares of the Corporation’s common stock. In addition, the shareholders of SCC and SFA are entitled to receive additional shares of the Corporation’s common stock for each of the years 2002 through 2005 based on a formula defined in the merger agreement which takes into consideration the financial performance of SCC and SFA after the merger date. The merger was accounted for as a purchase transaction whereby the identifiable tangible and intangible assets and liabilities of SCC and SFA have been recorded at their fair values at the acquisition date. Goodwill in the amount of $1,656 was recorded as a result of the transaction. As prescribed under the purchase method of accounting, the results of operations of SCC and SFA from the date of acquisition are included in the Corporation’s financial statements for 2002. 

In October 2002, SFA was merged into SCC and the name was changed to First Commonwealth Financial Advisors, Inc. This acquisition should expand the Corporation’s product offerings and positively impact fee based revenue, which is a continuing priority. 

## NOTE 6— Cash and Due From Banks on Demand 

Regulations of the Board of Governors of the Federal Reserve System impose uniform reserve requirements on all depository institutions with transaction accounts (checking accounts, NOW accounts, etc.). Reserves are maintained in the form of vault cash or a noninterest-bearing balance held with the Federal Reserve Bank. The subsidiary bank maintained with the Federal Reserve Bank average balances of $844 during 2003 and $1,896 during 2002. 

## NOTE 7— Derivative Instruments 

During the third quarter of 2003 the Corporation entered into an interest rate swap with a notional amount of $25,000 which was initiated to hedge exposure to the variability in the future cash flows derived from adjustable rate loans. The interest rate swap will convert the interest receivables generated by the first $25,000 of principal outstandings of three month LIBOR based adjustable commercial loans from an adjustable rate to a fixed rate. The swap is a traditional pay-floating and receive-fixed interest rate swap with a three year term. The transaction is classified as a cash flow hedge whereby the fair value of the swap is recorded as an asset or liability and changes in the fair value are recorded as “Other Comprehensive Income” a component of shareholders’ equity. During 2003, the hedge transaction had no ineffectiveness. 

