FORM 10-QSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.  20549

|  

(X) |  

QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934       |
|-------------|--------------------------------------------------------------------------------------------------------|
|        |                                                                                                   |
|        | For  the quarterly period ended September 30, 2003                                                     |
|        | OR                                                                                                     |
| ( )    | TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934              |
|        |                                                                                                   |
|        | For  the transition period from       to        |

Commission File Number   0-11242        First Commonwealth FinancialCorporation       (Exact name of registrant as specified in its charter)

|  

        Pennsylvania           |  

     25-1428528     |
|----------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------|
| (State or other jurisdiction of                                                                                                  | (I.R.S. Employer                                                         |
| incorporation or organization)                                                                                                   | Identification No.)                                                      |

 

|         22  North Sixth Street          | Indiana, PA  15701 |
|------------------------------------------------------------------------------------------------------------------------------|-------------------------|
| (Address of principal executive offices)                                                                                     | (Zip Code)              |

                    724-349-7220                   (Registrant's telephone number, including area code)                         N/A                          (Former name, former address and former fiscal year, if changed since last report)

Indicate a check mark whether the registrant (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.Yes    X     No      .Number of shares outstanding of issuer's common stock, $1.00 Par Value as ofOctober 31, 2003, was 59,377,083.

     FIRST COMMONWEALTH FINANCIAL CORPORATION ANDSUBSIDIARIESPART I - FINANCIAL INFORMATION

|  

ITEM 1. |  

FINANCIAL STATEMENTS                                                                                              |  

PAGE |
|-----------------|---------------------------------------------------------------------------------------------------------------------------|--------------|
|            |                                                                                                                      |         |
|            | Included in Part I of this report:                                                                                        |         |
|            |                                                                                                                      |         |
|            | First Commonwealth Financial Corporation and                                                                              |         |
|            |   Subsidiaries Consolidated Balance Sheets..................                                                    | 3            |
|            |   Consolidated Statements of Income.........................                                                    | 4            |
|            |   Consolidated Statements of Changes in                                                                         |         |
|            |     Shareholders' Equity....................................                                          | 5            |
|            |   Consolidated Statements of Cash Flows.....................                                                    | 7            |
|            |                                                                                                                      |         |
|            |   Notes to Consolidated Financial  Statements................                                                   | 8            |
|            |                                                                                                                      |         |
| ITEM 2.         | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS................................... | 16           |
|            |                                                                                                                      |         |
| ITEM 3.         | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK..                                                             | 37           |
|            |                                                                                                                      |         |
| ITEM 4.         | CONTROLS AND PROCEDURES.....................................                                                              | 37           |

 

PART II - OTHER INFORMATION

|  

Other Information...................................................... | 38     |
|---------------------------------------------------------------------------------|--------|
|                                                                            |   |
| Signatures.............................................................         | 39     |
|                                                                            |   |
| Exhibits and Reports on Form 8K                                                 |   |

 

FIRST COMMONWEALTH FINANCIALCORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (Unaudited)(Dollars in thousands)

|                                                                                                                                                                                                                                                                  | September  30,2003 | December  31,2002         |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|---------------------------|
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
| **ASSETS**                                                                                                                                                                                                                                                            |               |                      |   |   |
|   Cash and due  from banks on demand........................                                                                                                                                                                                                | $                  | 76,584               |   $ | 81,114  |
|   Interest-bearing  bank deposits...........................                                                                                                                                                                                                |               | 800                  |   | 1,973  |
|   Securities  available for sale, at market.................                                                                                                                                                                                                |               | 1,875,994            |   | 1,482,771  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|   Securities held  to maturity, at cost,(Market value $120,157 in      2003 and $204,887 in 2002).............................                                                                                                          |               | 114,267              |   | 197,838  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|   Loans....................................................                                                                                                                                                                                                 |               | 2,597,958            |   | 2,609,440  |
|     Unearned  income........................................                                                                                                                                                                                      |               | (515)                     |   | (806) |
|     Allowance  for credit losses............................                                                                                                                                                                                      |               |   (36,183)      |   |   (34,496) |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|         Net  loans..........................................                                                                                                                                                                  |               | 2,561,260            |   | 2,574,138  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|   Premises and  equipment...................................                                                                                                                                                                                                |               | 43,508               |   | 45,730  |
|   Other real  estate owned..................................                                                                                                                                                                                                |               | 1,698                |   | 1,651  |
|   Goodwill.................................................                                                                                                                                                                                                 |               | 8,131                |   | 8,131  |
|   Amortizing  intangibles, net..............................                                                                                                                                                                                                |               | 13                   |   | 29  |
|   Other assets.............................................                                                                                                                                                                                                 |               |   137,935  |   |   131,368  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|       Total  assets.........................................                                                                                                                                                                            | $                  | 4,820,190            | $ | 4,524,743  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
| **LIABILITIES**                                                                                                                                                                                                                                                       |               |                      |   |   |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|   Deposits (all  domestic):                                                                                                                                                                                                                                 |               |                      |   |   |
|     Noninterest-bearing....................................                                                                                                                                                                                       | $                  | 393,070              | $ | 377,466  |
|     Interest-bearing.......................................                                                                                                                                                                                       |               | 2,757,720            |   | 2,666,658  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|       Total  deposits.......................................                                                                                                                                                                            |               | 3,150,790            |   | 3,044,124  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|   Short-term  borrowings....................................                                                                                                                                                                                                |               | 655,357              |   | 469,065  |
|   Other  liabilities........................................                                                                                                                                                                                                |               | 26,472               |   | 30,230  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|   Company obligated  mandatorily redeemable capital securities of      subsidiary trust.......................................                                                                                                          |               | 35,000               |   | 35,000  |
|   Other long-term  debt.....................................                                                                                                                                                                                                |               |   542,578  |   |   544,934  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|       Total  long-term debt.................................                                                                                                                                                                            |               |   577,578  |   |   579,934  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|       Total  liabilities....................................                                                                                                                                                                            |               | 4,410,197            |   | 4,123,353  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
| **SHAREHOLDERS' EQUITY**                                                                                                                                                                                                                                              |               |                      |   |   |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|   Preferred  stock, $1 par value per share, 3,000,000 shares      authorized, none issued................................                                                                                                               |               | -0-                       |   | -0- |
|   Common stock $1  par value per share, 100,000,000 shares authorized,      62,525,408 shares issued; 59,290,575 and 58,962,543  shares outstanding at      September 30, 2003 and December 31, 2002 respectively.. |               | 62,525               |   | 62,525  |
|   Additional  paid-in capital...............................                                                                                                                                                                                                |               | 63,927               |   | 64,885  |
|   Retained  earnings........................................                                                                                                                                                                                                |               | 309,241              |   | 296,165  |
|   Accumulated  other comprehensive income...................                                                                                                                                                                                                |               | 17,391               |   | 25,851  |
|   Treasury stock  (3,234,833 shares at September 30, 2003 and 3,562,869 at      December 31, 2002, at cost)............................                                                                                                 |               | (40,840)                  |   | (44,981) |
|   Unearned ESOP  shares.....................................                                                                                                                                                                                                |               |    (2,251) |   |    (3,055) |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|       Total  shareholders' equity...........................                                                                                                                                                                            |               |   409,993  |   |   401,390  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |
|       Total  liabilities and shareholders' equity...........                                                                                                                                                                            | $                  | 4,820,190            | $ | 4,524,743  |
|                                                                                                                                                                                                                                                                  |               |                      |   |   |

  Theaccompanying notes are an integral part of these consolidated financialstatements.3

FIRST COMMONWEALTH FINANCIALCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME (Unaudited)(Dollars in thousands)

|                                                                                                                                                                                               | For  the Quarter Ended September 30, | For  the 9 MonthsEnded September 30,                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|---------------------------------------------------------|
|                                                                                                                                                                                               | 2003                                 | 2002                                                    | 2003 | 2002 |
| **Interest Income**                                                                                                                                                                                |                                 |                                                    |   |   |   |   |   |   |
|   Interest  and fees on loans......                                                                                                                                                      | $                                    | 40,089                                             | $ | 44,943  | $ | 123,641  | $ | 135,490  |
|   Interest  and dividends on investments:                                                                                                                                                |                                 |                                                    |   |   |   |   |   |   |
|     Taxable  interest .............                                                                                                                                            |                                 | 16,335                                             |   | 21,005  |   | 49,940  |   | 65,034  |
|     Interest  exempt from Federal       income taxes.................                                                                                 |                                 | 2,690                                              |   | 2,363  |   | 7,900  |   | 7,172  |
|     Dividends.....................                                                                                                                                             |                                 | 489                                                |   | 464  |   | 1,614  |   | 1,457  |
|   Interest  on Federal funds sold..                                                                                                                                                      |                                 | 1                                                  |   | 2  |   | 3  |   | 6  |
|   Interest  on bank deposits.......                                                                                                                                                      |                                 |         1  |   |         7  |   |         10  |   |       26  |
|                                                                                                                                                                                          |                                 |                                                    |   |   |   |   |   |   |
|     Total  interest income.........                                                                                                                                            |                                 | 59,605                                             |   | 68,784  |   | 183,108  |   | 209,185  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
| **Interest Expense**                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
|   Interest  on deposits............                                                                                                                                                      |                                 | 14,659                                             |   | 19,409  |   | 46,417  |   | 61,512  |
|   Interest  on short-term borrowings..................................                                                                                                                   |                                 | 1,708                                              |   | 1,305  |   | 4,858  |   | 4,572  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
|   Interest  on company obligated      mandatorily redeemable       capital securities of      subsidiary trust.............. |                                 | 832                                                |   | 832  |   | 2,494  |   | 2,494  |
|   Interest  on other long-term debt                                                                                                                                                      |                                 |     7,417                      |   |     8,911  |   |     22,063  |   |    26,305  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
|     Total  interest on long-term debt..............................                                                                                                            |                                 |     8,249                      |   |     9,743  |   |     24,557  |   |    28,799  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
|     Total  interest expense........                                                                                                                                            |                                 |    24,616                           |   |    30,457  |   |     75,832  |   |    94,883  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |     |
| **Net Interest Income...........**                                                                                                                                                                 |                                 | 34,989                                             |   | 38,327  |   | 107,276  |   | 114,302  |
|   Provision  for credit losses.....                                                                                                                                                      |                                 |     3,495                      |   |     3,103  |   |     10,420  |   |     9,028  |
| **Net interest income after  provision for     credit losses**                                                                                                                           |                                 | 31,494                                             |   | 35,224  |   | 96,856  |   | 105,274  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
| **Other Income**                                                                                                                                                                                   |                                 |                                                    |   |   |   |   |   |   |
|   Securities  gains................                                                                                                                                                      |                                 | 166                                                |   | 26  |   | 5,621  |   | 641  |
|   Trust  income....................                                                                                                                                                      |                                 | 1,342                                              |   | 1,227  |   | 3,811  |   | 3,782  |
|   Service  charges on deposit       accounts......................                                                                                                   |                                 | 3,447                                              |   | 3,010  |   | 9,551  |   | 8,449  |
|   Gain  on sale of branches........                                                                                                                                                      |                                 | 3,062                                              |   | -0-  |   | 3,062  |   | -0-  |
|   Insurance  commissions...........                                                                                                                                                      |                                 | 910                                                |   | 1,055  |   | 2,555  |   | 2,862  |
|   Income  from bank owned life      insurance.....................                                                                                                   |                                 | 1,136                                              |   | 1,186  |   | 3,234  |   | 3,428  |
|   Other  income....................                                                                                                                                                      |                                 |     3,794                      |   |     2,897  |   |     10,292  |   |     8,565  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
|     Total  other income............                                                                                                                                            |                                 |    13,857                           |   |     9,401  |   |     38,126  |   |    27,727  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
| **Other Expenses**                                                                                                                                                                                 |                                 |                                                    |   |   |   |   |   |   |
|   Salaries  and employee benefits..                                                                                                                                                      |                                 | 15,163                                             |   | 14,505  |   | 45,644  |   | 43,915  |
|   Net  occupancy expense...........                                                                                                                                                      |                                 | 2,023                                              |   | 1,668  |   | 5,768  |   | 4,967  |
|   Furniture  and equipment expense.                                                                                                                                                      |                                 | 2,522                                              |   | 2,391  |   | 7,618  |   | 7,357  |
|   Data  processing expense.........                                                                                                                                                      |                                 | 688                                                |   | 558  |   | 1,836  |   | 1,484  |
|   Pennsylvania  shares tax expense.                                                                                                                                                      |                                 | 1,075                                              |   | 969  |   | 3,216  |   | 2,960  |
|   Intangible  amortization.........                                                                                                                                                      |                                 | 3                                                  |   | 8  |   | 16  |   | 196  |
|   Litigation  settlement (recovery)                                                                                                                                                      |                                 | -0-                                                     |   | -0- |   | (610) |   | 8,000  |
|   Restructuring  charges...........                                                                                                                                                      |                                 | -0-                                                     |   | 2,473  |   | -0- |   | 5,589  |
|   Other  operating expenses........                                                                                                                                                      |                                 |     6,531                      |   |     6,919  |   |     20,671  |   |    22,081  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
|     Total  other expenses..........                                                                                                                                            |                                 |    28,005                           |   |    29,491  |   |     84,159  |   |    96,549  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
| **Income before income taxes....**                                                                                                                                                                 |                                 | 17,346                                             |   | 15,134  |   | 50,823  |   | 36,452  |
|   Applicable  income taxes.........                                                                                                                                                      |                                 |     3,511                      |   |     2,947  |   |     10,257  |   |     5,670  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
| **Net income....................**                                                                                                                                                                 | $                                    |    13,835                           | $ |    12,187  | $ |      40,566 | $ |    30,782  |
|                                                                                                                                                                                               |                                 |                                                    |   |   |   |   |   |   |
| Average  Shares Outstanding........                                                                                                                                                                |                                 | 58,950,258                                         |   | 58,521,562  |   | 58,808,464  |   | 58,342,470  |
| Average  Shares Outstanding Assuming Dilution                                                                                                                                                      |                                 | 59,376,716                                         |   | 58,862,215  |   | 59,139,101  |   | 58,734,144  |
| **Per Share Data:**                                                                                                                                                                                |                                 |                                                    |   |   |   |   |   |   |
|   Basic  earnings per share........                                                                                                                                                      | $                                    | 0.23                                               | $ | 0.21  | $ | 0.69  | $ | 0.53  |
|   Diluted  earnings per share......                                                                                                                                                      | $                                    | 0.23                                               | $ | 0.21  | $ | 0.69  | $ | 0.52  |
|   Cash  dividends per share........                                                                                                                                                      | $                                    | 0.155                                              | $ | 0.150  | $ | 0.465  | $ | 0.450  |

The accompanying notes are an integral part of theseconsolidated financial statements.4

FIRST COMMONWEALTH FINANCIALCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(Unaudited)(Dollars in thousands)

|                                                                                                                                          | CommonStock | Additional  Paid-inCapital  | RetainedEarnings | Accumulated  Other  ComprehensiveIncome | TreasuryStock | Unearned  ESOP Shares        | Total  Shareholders'Equity |
|-----------------------------------------------------------------------------------------------------------------------------------------------|-------------|-----------------------------|------------------|-----------------------------------------|---------------|-----------------------------------|----------------------------|
| Balance  December 31, 2001..........                                                                                                          | $           | 62,525                 |   $    | 66,176                             |   $ | 288,219                      |   $              | 8,703  |   $ | (51,431) |   $ | (4,126) |   $ | 370,066  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
|  Comprehensive  income                                                                                                                   |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
|   Net  income.......................                                                                                                |        | -0-                         |             | -0-                                     |          | 30,782                       |                       | -0- |   | -0- |   | -0- |   | 30,782  |
|   Other  comprehensive income, net of tax:                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
|     Unrealized  holding gains on securities       arising during the period.....                 |        | -0-                         |             | -0-                                     |          | -0-                               |                       | 20,490  |   | -0- |   | -0- |   | 20,490  |
|     Less:  reclassification adjustment for       gains on securities included in net income |        |     -0- |             |     -0-             |          |      -0- |                       |   (396) |   |      -0- |   |     -0- |   |    (396) |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
|   Total  other comprehensive income.                                                                                                |        |     -0- |             |     -0-             |          |      -0- |                       | 20,094  |   |      -0- |   |     -0- |   |  20,094  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Total  comprehensive income.........                                                                                                          |        | -0-                         |             | -0-                                     |          | 30,782                       |                       | 20,094  |   | -0- |   | -0- |   | 50,876  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Cash  dividends declared............                                                                                                          |        | -0-                         |             | -0-                                     |          | (26,441)                          |                       | -0- |   | -0- |   | -0- |   | (26,441) |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Decrease  in unearned ESOP shares...                                                                                                          |        | -0-                         |             | -0-                                     |          | -0-                               |                       | -0- |   | -0- |   | 804  |   | 804  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Discount  on dividend reinvestment plan purchases                                                                                             |        | -0-                         |             | (476)                                   |          | -0-                               |                       | -0- |   | -0- |   | -0- |   | (476) |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Treasury  stock reissued............                                                                                                          |        |     -0- |             |   (771)                       |          |      -0- |                       |     -0- |   |   5,002  |   |     -0- |   |   4,231  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Balance  at September 30, 2002......                                                                                                          | $           | 62,525                 | $                | 64,929                             | $             | 292,560                      | $                          | 28,797  | $ | (46,429) | $ | (3,322) | $ | 399,060  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |

5

FIRST COMMONWEALTH FINANCIALCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(Unaudited)(Dollars in thousands)

|                                                                                                                                                                                                                                  |   | CommonStock                 |   | Additional  Paid-inCapital  |   | RetainedEarnings                  |   | Accumulated  Other  ComprehensiveIncome |   | TreasuryStock                     |   | Unearned  ESOP Shares       |   | Total  Shareholders'Equity        |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|--------|-----------------------------|--------|-----------------------------------|--------|-----------------------------------------|--------|-----------------------------------|--------|-----------------------------|--------|-----------------------------------|
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
| Balance  December 31, 2002..........                                                                                                                                                                                                  | $      | 62,525                 | $      | 64,885                 | $      | 296,165                      | $      | 25,851                             | $      | (44,981)                          | $      | (3,055)                     | $      | 401,390                      |
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
|  Comprehensive  income                                                                                                                                                                                                           |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
|   Net  income.......................                                                                                                                                                                                        |   | -0-                         |   | -0-                         |   | 40,566                       |   | -0-                                     |   | -0-                               |   | -0-                         |   | 40,566                       |
|   Other  comprehensive income, net of tax:                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
|     Unrealized  holding gains (losses) on       securities arising during the period.............................                                                                        |   | -0-                         |   | -0-                         |   | -0-                               |   | (4,971)                                 |   | -0-                               |   | -0-                         |   | (4,971)                           |
|     Less:  reclassification adjustment for        gains on securities included in net income                                                                                        |   | -0-                         |   | -0-                         |   | -0-                               |   | (3,595)                                 |   | -0-                               |   | -0-                         |   | (3,595)                           |
|     Unrealized  holding gains (losses) on       derivatives used in cash flow hedging       relationship arising during the period............................. |   |     -0- |   |     -0- |   |     -0-       |   |     106        |   |      -0- |   |     -0- |   |     106  |
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
|   Total  other comprehensive income.                                                                                                                                                                                        |   |     -0- |   |     -0- |   |     -0-       |   |  (8,460)                           |   |      -0- |   |     -0- |   |  (8,460)                     |
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
| Total  comprehensive income.........                                                                                                                                                                                                  |   | -0-                         |   | -0-                         |   | 40,566                       |   | (8,460)                                 |   | -0-                               |   | -0-                         |   | 32,106                       |
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
| Cash  dividends declared............                                                                                                                                                                                                  |   | -0-                         |   | -0-                         |   | (27,490)                          |   | -0-                                     |   | -0-                               |   | -0-                         |   | (27,490)                          |
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
| Decrease  in unearned ESOP shares...                                                                                                                                                                                                  |   | -0-                         |   | -0-                         |   | -0-                               |   | -0-                                     |   | -0-                               |   | 804                    |   | 804                          |
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
| Discount  on dividend reinvestment plan purchases                                                                                                                                                                                     |   | -0-                         |   | (519)                       |   | -0-                               |   | -0-                                     |   | -0-                               |   | -0-                         |   | (519)                             |
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
| Treasury  stock reissued............                                                                                                                                                                                                  |   | -0-                         |   | (581)                       |   | -0-                               |   | -0-                                     |   | 4,141                        |   | -0-                         |   | 3,560                        |
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
| Tax  benefit of stock options.......                                                                                                                                                                                                  |   |     -0- |   |    142  |   |      -0- |   |     -0-             |   |      -0- |   |     -0- |   |     142  |
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |
| Balance  at September 30, 2003......                                                                                                                                                                                                  | $      | 62,525                 | $      | 63,927                 | $      | 309,241                      | $      | 17,391                             | $      | (40,840)                          | $      | (2,251)                     | $      | 409,993                      |
|                                                                                                                                                                                                                                  |   |                        |   |                        |   |                              |   |                                    |   |                              |   |                        |   |                              |

The accompanying notes are an integral part of these consolidated financialstatements.          

6

FIRST COMMONWEALTH FINANCIALCORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)(Dollars in thousands)

|                                                                                                                                                                |   | For  the 9 MonthsEnded September 30, |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|
|                                                                                                                                                                | 2003   | 2002                                 |
|                                                                                                                                                                |   |                                 |   |   |
| **Operating Activities**                                                                                                                                            |   |                                 |   |   |
|   Net income...............................................                                                                                               | $      | 40,566                          |   $ | 30,782  |
|   Adjustments to  reconcile net income to net cash provided by operating      activities:                                             |   |                                 |   |   |
|     Provision  for credit losses ...........................                                                                               |   | 10,420                          |   | 9,028  |
|     Depreciation  and amortization..........................                                                                                    |   | 5,651                           |   | 5,364  |
|     Net  losses (gains) on sales of assets..................                                                                                    |   | (6,115)                              |   | (680) |
|     Net  gains on sale of branches..........................                                                                                    |   | (3,051)                              |   | -0- |
|     Income  from increase in cash surrender value of bank owned life insurance                                                                  |   | (3,233)                              |   | (3,428) |
|     Decrease  in interest receivable........................                                                                                    |   | 2,536                           |   | 2,322  |
|     Decrease  in interest payable...........................                                                                                    |   | (2,570)                              |   | (3,124) |
|     Increase  (decrease) in income taxes payable............                                                                                    |   | 1,053                           |   | (2,705) |
|     Change  in deferred taxes...............................                                                                                    |   | (2,493)                              |   | (374) |
|     Other-net..............................................                                                                                     |   |  (1,013)                        |   |   3,597  |
|                                                                                                                                                                |   |                                 |   |   |
|       Net  cash provided (used) by operating activities.....                                                                          |   | 41,751                          |   | 40,782  |
|                                                                                                                                                                |   |                                 |   |   |
| **Investing Activities**                                                                                                                                            |   |                                 |   |   |
|   Transactions  with securities held to maturity:                                                                                                         |   |                                 |   |   |
|     Proceeds  from sales....................................                                                                                    |   | -0-                                  |   | -0- |
|     Proceeds  from maturities and redemptions...............                                                                                    |   | 83,671                          |   | 64,723  |
|     Purchases..............................................                                                                                     |   | -0-                                  |   | (15,241) |
|   Transactions  with securities available for sale:                                                                                                       |   |                                 |   |   |
|     Proceeds  from sales....................................                                                                                    |   | 50,634                          |   | 12,602  |
|     Proceeds  from maturities and redemptions...............                                                                                    |   | 811,639                         |   | 363,974  |
|     Purchases..............................................                                                                                     |   | (1,263,155)                          |   | (343,056) |
|   Proceeds from  sales of loans and other assets............                                                                                              |   | 108,738                         |   | 71,698  |
|   Acquisition of  affiliate, net of cash received...........                                                                                              |   | -0-                                  |   | (4) |
|   Investment in  bank owned life insurance..................                                                                                              |   | -0-                                  |   | (5,000) |
|   Net decrease  (increase) in time deposits with banks......                                                                                              |   | 1,172                           |   | 1,639  |
|   Net increase in  loans....................................                                                                                              |   | (109,867)                            |   | (129,917) |
|   Purchases of  premises and equipment......................                                                                                              |   |    (3,984)            |   |  (4,717) |
|                                                                                                                                                                |   |                                 |   |   |
|       Net  cash provided (used) by investing activities.....                                                                          |   | (321,152)                            |   | 16,701  |
|                                                                                                                                                                |   |                                 |   |   |
| **Financing Activities**                                                                                                                                            |   |                                 |   |   |
|                                                                                                                                                                |   |                                 |   |   |
|   Repayments of  other long-term debt.......................                                                                                              |   | (11,553)                             |   | (1,050) |
|   Proceeds from  issuance of other long-term debt...........                                                                                              |   | 10,000                          |   |  18,200  |
|   Proceeds from  issuance of company obligated mandatorily redeemable capital     securities of subsidiary trust.......................... |   | -0-                                  |   | -0- |
|   Discount on  dividend reinvestment plan purchases.........                                                                                              |   | (519)                                |   | (476) |
|   Dividends paid...........................................                                                                                               |   | (27,440)                             |   |  (26,381) |
|   Net increase  (decrease) in Federal funds purchased.......                                                                                              |   | 21,700                          |   | (30,525) |
|   Net increase  (decrease) in other short-term borrowings...                                                                                              |   | 164,592                         |   | (62,630) |
|   Sale of  branches, net of cash received...................                                                                                              |   | (21,329)                             |   | -0- |
|   Net increase in  deposits.................................                                                                                              |   | 135,920                         |   | 40,918  |
|   Stock option  tax benefit.................................                                                                                              |   | 142                             |   | -0- |
|   Proceeds from  sale of treasury stock.....................                                                                                              |   |    3,358         |   |   3,402  |
|                                                                                                                                                                |   |                                 |   |   |
|       Net  cash provided (used) by financing activities.....                                                                          |   |  274,871                   |   | (58,542) |
|                                                                                                                                                                |   |                                 |   |   |
|       Net  increase (decrease) in cash and cash equivalents.                                                                          |   | (4,530)                              |   | (1,059) |
|                                                                                                                                                                |   |                                 |   |   |
|   Cash and cash  equivalents at January 1...................                                                                                              |   |   81,114              |   |  98,130  |
|                                                                                                                                                                |   |                                 |   |   |
|   Cash and cash  equivalents at September 30................                                                                                              | $      |   76,584              | $ |  97,071  |
|                                                                                                                                                                |   |                                 |   |   |

Theaccompanying notes are an integral part of these consolidated financialstatements.7

FIRST COMMONWEALTH FINANCIAL CORPORATIONAND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2003(Unaudited)

NOTE 1 Management RepresentationThe consolidated financial statements include the accounts of FirstCommonwealth Financial Corporation and its subsidiaries ("theCorporation").  All significantintercompany transactions and balances have been eliminated.  The accounting and reporting policies of theCorporation conform with accounting principles generally accepted in the UnitedStates of America.  The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates, assumptions and judgmentsthat affect the amounts reported in the financial statements and accompanyingnotes.  Actual realized amounts coulddiffer from those estimates.  In theopinion of management, the unaudited interim consolidated financial statementsinclude all adjustments (consisting of only normal recurring adjustments)necessary for a fair statement of financial position as of September 30, 2003and the results of operations for the three month and nine month periods endedSeptember 30, 2003 and 2002, and statements of cash flows and changes inshareholders' equity for the nine month periods ended September 30, 2003 and2002.  The results of operations for thethree month and nine month periods ended September 30, 2003 and 2002 are notnecessarily indicative of the results that may be expected for the full year orany other interim period.  These interimfinancial statements should be read in conjunction with the Corporation's 2002Annual Report on Form 10-K which is available on the Corporation's website athttp://www.fcbanking.com.  TheCorporation's website also provides additional information of interest toinvestors and clients, including other regulatory filings made to theSecurities and Exchange Commission, press releases, historical stock prices,dividend declarations and corporate governance, as well as information aboutproducts and services offered through the Corporation's banking, insurance,trust and financial management subsidiaries.NOTE 2 Cash Flow Disclosures (dollar amounts in thousands)

|                                                                                                                             | 2003   | 2002         |
|----------------------------------------------------------------------------------------------------------------------------------|--------|--------------|
|                                                                                                                             |   |         |   |   |
| Cash  paid during the first nine months of the year for:                                                                         |   |         |   |   |
|                                                                                                                             |   |         |   |   |
|   Interest                                                                                                             | $      | 78,402  |   $ | 98,007  |
|   Income  Taxes                                                                                                        | $      | 11,555  | $ | 9,010  |
|                                                                                                                             |   |         |   |   |
| Noncash  investing and financing activities:                                                                                     |   |         |   |   |
|                                                                                                                             |   |         |   |   |
|   ESOP  loan reductions                                                                                                | $      | 804     | $ | 804  |
|   Loans  transferred to other real estate owned and      repossessed assets                        | $      | 3,458   | $ | 4,568  |
|   Gross  increase (decrease) in market value      adjustment to securities available for sale | $      | (13,179)     | $ | 30,913  |
|   Gross  increase (decrease) in market value      adjustment of derivative instruments             | $      | 163     | $ | -0- |
|   Treasury  stock reissued for 2002 business      combination                                      | $      | 203     | $ | 830  |

8

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2003(Unaudited)

NOTE 3 Comprehensive Income DisclosuresThe following table identifies the related tax effects allocated to eachcomponent of other comprehensive income in the Statements of Changes inShareholder's Equity: (dollar amounts in thousands)

|                                                                                                     | September  30, 2003 | September  30, 2002               |
|----------------------------------------------------------------------------------------------------------|---------------------|-----------------------------------|
|                                                                                                     | Pre-taxAmount       | Tax  (Expense)  Benefit           | Net of  TaxAmount | Pre-taxAmount | Tax  (Expense)Benefit | Net of  TaxAmount |
|                                                                                                     |                |                              |   |   |   |   |   |   |   |   |   |   |
| Unrealized gains (losses) on securities:                                                                 |                |                              |   |   |   |   |   |   |   |   |   |   |
|  Unrealized holding gains    (losses) arising during     the period             | $                   | (7,648)                           |  $ | 2,677  |  $ | (4,971) |  $ | 31,523  |  $ | (11,033) |  $ | 20,490  |
|  Less: reclassification    adjustment for gains     realized in net income |                     | (5,531)                           |   |  1,936  |   | (3,595) |   | (610) |   |     214  |   | (396) |
|                                                                                                     |                |                              |   |   |   |   |   |   |   |   |   |   |
| Unrealized gains (losses) on derivatives used in  cash flow hedging relationships:                       |                |                              |   |   |   |   |   |   |   |   |   |   |
|  Unrealized holding gains    (losses) arising during    the period              |                |     163  |   |    (57) |   |    106  |   |     -0- |   |      -0- |   |     -0- |
| Total other comprehensive income                                                                         | $                   | (13,016)                          | $ |  4,556  | $ | (8,460) | $ | 30,913  | $ | (10,819) | $ | 20,094  |

NOTE 4 Accounting for Stock Options GrantedIn December 2002, the Financial Accounting Standards Board ("FASB")issued Statement No. 148, "Accounting for Stock-BasedCompensation-Transition and Disclosure" ("FAS No. 148").  FAS No. 148 amended FASB Statement No. 123"Accounting for Stock-Based Compensation" ("FAS No. 123")to provide alternative methods of a voluntary transition to FAS No. 123's fairvalue method of accounting for stock-based employee compensation.  FAS No. 148 also amended the disclosureprovisions of FAS No. 123 and APB Opinion No. 28, "Interim FinancialReporting" ("APB 28"), to require disclosure in the summary ofsignificant accounting policies the effects of the entity's accounting policywith respect to stock-based employee compensation on reported net income andearnings per share in annual and interim financial statements.  FAS No. 148 does not amend FAS No. 123 torequire companies to account for employee stock options using the fair valuemethod, but the disclosure provisions of the statement apply to all companieswith stock-based compensation, regardless of whether they account for thatcompensation using the fair value method of FAS No. 123 or the intrinsic valuemethod of APB Opinion No. 25 "Accounting for Stock Issued toEmployees" ("APB 25"). FAS No. 148 amendments to the transitional and annual disclosurerequirements of FAS No. 123 were effective for fiscal years ending afterDecember 15, 2002, while the interim disclosure provisions are effective forfinancial reports containing financial statements for interim periods beginningafter December 15, 2002.  Implementationof FAS No. 148 did not have a material impact on the Corporation's financialcondition or results of operations.9

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2003(Unaudited)

NOTE 4 Accounting for Stock Options Granted (continued)FAS No. 123 defines a method of measuring stock-based compensation, such asstock options granted, at an estimated fair value but also permits thecontinued measurement of stock based compensation under the provisions of APB25.  As permitted under FAS No. 123, theCorporation has elected to use the intrinsic value method to measure stockbased compensation under APB 25.  Nostock-based employee compensation expense is reflected in the Corporation's netincome as reported in the Consolidated Statements of Income because all stockoptions granted under the Corporation's plan had an exercise price equal to themarket value of the underlying common stock on the date of grant.The following table illustrates the effect on net income and earnings per shareif the Corporation had applied the fair value recognition provisions of FAS No.123 to stock-based employee compensation:

| (Dollar  amounts in thousands,    except per share data)                                                                                                          | Three months ended  September 30, |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|
|                                                                                                                                                                        | 2003                              | 2002 |
|                                                                                                                                                                        |                              |   |
| Net  Income, as reported                                                                                                                                                    |   $                     | 13,835  |   $ | 12,187  |
| Deduct:  Total stock-based employee compensation   expense determined under fair value based   method for all awards, net of related tax   effects |                                   |   (338) |  |   (570) |
| Pro  forma net income                                                                                                                                                       | $                                 | 13,497  | $ | 11,617  |
|                                                                                                                                                                        |                              |   |   |   |
| Earnings  per share:                                                                                                                                                        |                              |   |   |   |
|  Basic  - as reported                                                                                                                                                  | $                                 |   0.23  | $ |   0.21  |
|  Basic  - pro forma                                                                                                                                                    | $                                 |   0.23  | $ |   0.20  |
|  Diluted  - as reported                                                                                                                                                | $                                 |   0.23  | $ |   0.21  |
|  Diluted  - pro forma                                                                                                                                                  | $                                 |   0.23  | $ |   0.20  |
|                                                                                                                                                                        |                              |   |   |   |
| Average  Shares Outstanding                                                                                                                                                 | 58,950,258

59,376,716            |    58,521,562

58,862,215 |
| Average  Shares Outstanding Assuming Dilution                                                                                                                               |

 

| (Dollar  amounts in thousands,    except per share data)                                                                                                          | Nine months ended  September 30, |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
|                                                                                                                                                                        | 2003                             | 2002 |
|                                                                                                                                                                        |                             |   |
| Net  Income, as reported                                                                                                                                                    |   $                    | 40,566  |   $ | 30,782  |
| Deduct:  Total stock-based employee compensation   expense determined under fair value based   method for all awards, net of related tax   effects |                                  | (1,014) |  | (1,709) |
| Pro  forma net income                                                                                                                                                       | $                                | 39,552  | $ | 29,073  |
|                                                                                                                                                                        |                             |   |   |   |
| Earnings  per share:                                                                                                                                                        |                             |   |   |   |
|  Basic  - as reported                                                                                                                                                  | $                                |   0.69  | $ |   0.53  |
|  Basic  - pro forma                                                                                                                                                    | $                                |   0.67  | $ |   0.50  |
|  Diluted  - as reported                                                                                                                                                | $                                |   0.69  | $ |   0.52  |
|  Diluted  - pro forma                                                                                                                                                  | $                                |   0.67  | $ |   0.49  |
|                                                                                                                                                                        |                             |   |   |   |
| Average  Shares Outstanding                                                                                                                                                 | 58,808,464                       |    58,342,470 |
| Average  Shares Outstanding Assuming Dilution                                                                                                                               | 59,139,101                       | 58,734,144 |

 

10

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2003(Unaudited)

Note 5 Restructuring ChargesThe Corporation incurred restructuring charges of $6,140 thousand during thesecond, third and fourth quarters of 2002 in accordance with EITF 94-3.  These restructuring charges resulted fromthe merger of the charters of the Corporation's two commercial banks (FirstCommonwealth Bank and Southwest Bank) and the adoption of a new common brandand identity for all financial services subsidiaries.  The largest component of these charges was $4,652 thousand ofemployee separation costs consisting of severance packages for 95 employeesfrom various affiliates of the Corporation including all levels of staff fromthe executive management level to back office support staff.  Restructuring charges during 2002 alsoincluded $1,068 thousand related to realignment of the various Boards ofDirectors and Board committees and $420 thousand primarily related to thewrite-off of obsolete signage and supplies. These amounts were included as restructuring charges, a component ofOther Expenses on the Consolidated Statements of Income during 2002.During 2002 actual termination benefits paid and charged against the totalseverance liability were $1,263 thousand, leaving a remaining unpaid liabilityfor severance costs of $3,389 thousand at December 31, 2002.  During the first nine months of 2003,monthly severance payments totaling $2,424 thousand were made, reducing theoutstanding severance liability to $965 thousand at September 30, 2003.  No additional severance accruals oradjustments were recorded during the first nine months of 2003 related to the2002 restructuring. NOTE 6 New Accounting PronouncementsIn July 2002, the FASB issued statement No. 146, "Accounting for CostsAssociated with Exit or Disposal Activities" ("FAS No.146").  FAS No. 146 replaced EITFIssue No. 94-3, "Liability Recognition for Certain Employee TerminationBenefits and Other Costs to Exit an Activity (including Certain Costs Incurredin a Restructuring)."  The standardrequires companies to recognize costs associated with exit or disposalactivities when they are incurred rather than at the date of a commitment to anexit or disposal plan.  Statement 146 isto be applied to exit or disposal activities initiated after December 31,2002.  Adoption of FAS No. 146 did nothave a material impact on the Corporation's financial condition or results ofoperations. In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN45"), "Guarantor's Accounting and Disclosure Requirements forGuarantees of Indebtedness of Others". The disclosure requirements of FIN 45 are effective for financialstatements of interim or annual periods ending after December 15, 2002, andrequire disclosure of the nature of the guarantee, the maximum potential offuture payments the guarantor could be required to make under the guarantee,and the current amount of the liability, if any, for the guarantor's obligationunder the guarantee.  The recognitionrequirements of FIN 45 are to be applied prospectively to guarantees issued ormodified after December 31, 2002.  Thisinterpretation expands the disclosures to be made by the guarantor in itsfinancial11

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2003(Unaudited)

NOTE6 New Accounting Pronouncements (continued)

statements about its obligation under certain guarantees and requires theguarantor to recognize a liability for the fair value of an obligation assumedunder a guarantee.  FIN 45 clarifies therequirements of FASB Statement No. 5 ("FAS No. 5") "Accountingfor Contingencies", relating to guarantees.  In general, FIN 45 applies to contracts or indemnificationagreements that contingently require the guarantor to make payments to theguaranteed 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 excludedfrom 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 lettersof credit, loan commitments, subordinated interests in special purpose entitiesand guarantees of a company's own future performance.  Other guarantees are subject to the disclosure requirements ofFIN 45 but not the recognition provisions and include, among others, aguarantee accounted for as a derivative instrument under FAS No. 133, aparent's guarantee of debt owed to a third party by its subsidiary or viceversa and a guarantee which is based on performance not price.  Guarantees subject to this pronouncementthat have been entered into by the Corporation are disclosed in NOTE 7.  The adoption of FIN 45 did not have amaterial impact on the Corporation's financial condition or results ofoperations.In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN46"), "Consolidation of Variable Interest Entities".  As defined by FIN 46 a variable interestentity ("VIE") is a corporation, partnership, trust or any otherlegal structure used for business purposes that either (a) does not have equityinvestors with voting rights or (b) has equity investors that do not providesufficient financial resources for the entity to support its activities.  This interpretation also defines when theassets, liabilities, noncontrolling interest and results of operations of a VIEshould be included in a company's consolidated financial statements.  Companies that hold variable interests in anentity will need to consolidate that entity if the company's interest in theVIE is such that the company will obtain a majority of the entity's expectedresidual returns, should such occur. FIN 46 applied immediately to variable interest entities created afterJanuary 31, 2003.  The effective date ofFIN 46 for variable interest entities created before February 1, 2003 has beendeferred until the end of the first interim or annual period ending after December15, 2003.  The Corporation is in theprocess of reviewing its current business interests in order to determine theimpact of FIN 46 and whether any additional business interests requireconsolidation in the Corporation's financial statements.  The adoption of FIN 46 is not expected tohave a material impact on the Corporation's financial condition or results ofoperations.In April 2003, the FASB issued Statement No. 149 "Amendment of Statement133 on Derivative Instruments and Hedging Activities" ("FAS No.149").  FAS No. 149 amends and clarifiesaccounting for derivative instruments, including certain derivative instrumentsembedded in other contracts, and for hedging activities under Statement133.  In particular, FAS No. 149clarifies under what circumstances a contract with an initial net investmentmeets the characteristic of a derivative and when a derivative12

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2003(Unaudited)

NOTE 6 New Accounting Pronouncements (continued)contains a financing component that warrants special reporting in the statementof cash flows.  This statement iseffective for contracts entered into or modified after June 30, 2003 and forhedging relationships designated after June 30, 2003.  The adoption of FAS No. 149 did not have a material impact on theCorporation's financial condition or results of operations.In May 2003, the FASB issued Statement No. 150 "Accounting for CertainFinancial Instruments with Characteristics of both Liabilities andEquity"("FAS No. 150"). FAS No. 150 represents the first phase of the FASB's broader project on(1) distinguishing between liability and equity instruments and (2) accountingfor instruments that have characteristics of both liabilities and equity.  This statement requires issuers to classifyas liabilities the following three types of freestanding financial instruments:(1) mandatorily redeemable financial instruments, (2) obligations to repurchasethe issuer's equity shares by transferring assets and (3) certain obligationsto issue a variable number of shares.  Afreestanding financial instrument is one that is entered into separately andapart from any of the entity's other financial instruments or equitytransactions or is entered in conjunction with some other transaction but canbe legally detached and exercised on a separate basis.  FAS No. 150 is relatively narrow in scope asit specifies only that certain instruments must be classified as liabilitiesbut does not include additional guidance on the concept of what constituteseither a "liability" or "equity".    Entities will continue to apply existing guidance ondetermining the balance sheet classification of instruments that do notspecifically fall within the scope of FAS No. 150.  FAS No. 150 applied immediately to financial instruments enteredinto or modified after May 31, 2003. For all other instruments that exist, this statement went into effect atthe beginning of the first interim period beginning after June 15, 2003.  Adoption of FAS No. 150 did not have amaterial impact on the Corporation's financial condition or results ofoperations.As of September 30, 2003, the Corporation had automobile leases with a netbalance of $32.7 million outstanding, a majority of which did not haveindividually insured residual values. On May 15, 2003 the Securities and Exchange Commission issued StaffInterpretation Topic D-107, which indicated that, unless lease residuals wereindividually insured, no related amount should be considered in minimum leasepayments. Consequently, a majority of automobile leases outstanding atSeptember 30, 2003 may not qualify as financing leases, and previously issuedfinancial statements would need to be restated, if material.  The guidance will be effective no later thanfor reports issued after the first fiscal quarter beginning after December 15,2003.  While the Corporation is in theprocess of analyzing the impact of this Staff Interpretation, it could cause arestatement of previously issued financial statements.  Although net income over the life of a leasetreated as a financing lease will be the same as net income over the life of alease treated as an operating lease, because of the nature of the timing oflease income under the two methods, if restatement is required, earlier yearswould tend to contain negative adjustments to net income, while later years, asa lease matures, will tend to produce positive adjustments to net income.   13

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2003(Unaudited)

NOTE 7 Guarantees

Standby letters of credit are conditional commitments issued by the Corporationto guarantee the performance of a customer to a third party.  The contract or notional amount of theseinstruments reflects the maximum amount of future payments that could be lostunder the guarantees if there were a total default by the guaranteed partieswithout consideration of possible recoveries under recourse provisions or fromcollateral held orpledged.  Inaddition, many of these commitments are expected to expire without being drawnupon, therefore the total commitment amounts do not necessarily representfuture cash requirements.  The tablebelow identifies the notional amounts of these guarantees at September 30,2003:  (Dollar amounts in thousands)

| Financial  standby letters of credit   |   $ | 22,913 |
|----------------------------------------|---------------|--------|
| Performance  standby letters of credit |   $ | 6,289  |

 

Thecurrent notional amounts outstanding above include financial standby letters ofcredit of $8,501 thousand and performance standby letters of credit of $895thousand issued during the first nine months of 2003.  There is currently no liability recorded on the Corporation'sbalance sheet related to the above letters of credit.NOTE 8 Branch SaleIn September 2003, First Commonwealth Bank, a wholly-owned subsidiary of theregistrant sold two of its branch offices. Under the terms of the purchase and assumption agreement, FirstCommonwealth Bank branches at 15 South Main Street in Chambersburg, PA and 1720Lincoln Highway East in Guilford Township, PA were sold.  The acquiring bank assumed approximately$29.3 million of deposit liabilities and purchased approximately $4.4 millionin loans associated with the two offices. The transaction generated a pre-tax gain of approximately $3.1 millionwhich is included in the registrant's consolidated income statement for thethird quarter of 2003.Note 9 Pending Business CombinationOn August 8, the registrant entered into a definitive agreement to acquirePittsburgh Financial Corp. ("PFC") a financial holding companyheadquartered near Pittsburgh, in Wexford Pennsylvania.  Pittsburgh Financial Corp. is the parentcompany of BankPittsburgh with total assets of $372 million, deposits of $181million and equity of nearly $21 million at September 30, 2003.  BankPittsburgh is a state chartered stocksavings bank headquartered in Pittsburgh, Pennsylvania which conducts businessfrom seven offices in Allegheny (6) and Butler (1) counties and one loanproduction office in downtown Pittsburgh. PFC also offers residential and commercial mortgage settlement servicesthrough Pinnacle Settlement Group LLC, an 80% owned subsidiary.  Pittsburgh Financial Corp. shares are tradedon the NASDAQ National Market System under the symbol "PHFC".14

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSeptember 30, 2003(Unaudited)

Note 9 Pending Business Combination (continued)Under terms of the agreement, the shareholders of Pittsburgh Financial Corp.can elect to receive $20.00 in cash or an equivalent value of the registrant'scommon stock for each PFC share owned, subject to proration as provided in thedefinitive agreement to ensure that 40% of the aggregate merger considerationwill be paid in cash and 60% in First Commonwealth common stock.  The definitive agreement was unanimouslyapproved by the Boards of Directors of both organizations.  The Corporation has received requiredregulatory approvals.  In addition, themerger is subject to approval of PFC shareholders at a special meetingscheduled for December 5, 2003.  Thetransaction has a current market value of $28.4 million. On a pro-forma basis, as of September 30, 2003, the registrant would haveassets of approximately $5.2 billion and total equity of $427 million.Note 10 Derivative InstrumentsDuring the third quarter of 2003 the Corporation entered into an interestrate swap with a notional amount of $25 million which was initiated to hedgeexposure to the variability in the future cash flows derived from adjustablerate loans.  The interest rate swap willconvert the interest receivables generated by the first $25 million ofprincipal outstandings of three month LIBOR based adjustable commercial loansfrom an adjustable rate to a fixed rate. The swap is a traditional pay-floating and receive-fixed interest rateswap with a three year term.  Thetransaction is classified as a cash flow hedge whereby the fair value of theswap is recorded as an asset or liability and changes in the fair value arerecorded as "other comprehensive income" a component of shareholders'equity. 15

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS**First Nine Months of 2003 as Compared to theFirst Nine Months of 2002**This discussion and the related financial data are presented to assist in theunderstanding and evaluation of the consolidated financial condition andresults of operations of First Commonwealth Financial Corporation including itssubsidiaries (the "Corporation"). In addition to historical information, this discussion and analysiscontains forward-looking statements (as defined in the Private SecuritiesLitigation Reform Act of 1995), which reflect management's beliefs andexpectations based on information currently available and may contain the words"expect," "estimate," "project,""anticipate," "should," "intend,""probability," "risk," "target," and similarexpressions.  These forward-lookingstatements are inherently subject to significant risks and uncertainties,including but not limited to:  changesin general economic and financial market conditions, the Corporation's abilityto effectively carry out its business plans, changes in regulatory orlegislative requirements, changes in competitive conditions and continuingconsolidation of the financial services industry.  Although management believes the expectations reflected in suchforward-looking statements are reasonable, actual results could differmaterially.  Readers are cautioned notto place undue reliance on these forward-looking statements, which reflect management'sanalysis only as of the date hereof. The Corporation undertakes no obligation to publicly revise or updatethese forward-looking statements to reflect events or circumstances that ariseafter the date hereof.Net income for the first nine months of 2003 was $40.6 million reflecting anincrease of $9.8 million compared to 2002 results of $30.8 million.  The change in net income for the 2003 periodreflected decreases in non-interest expenses primarily related to nonrecurringexpenses included in the 2002 period, an increase in security gains for the2003 period compared to the corresponding period of 2002 and a gain on the saleof two branches in the 2003 period.  Netincome for the 2002 period included an $8.0 million litigation settlement ($5.2million net of tax) while the 2003 period included a partial recovery frominsurance for that claim in the amount of $610 thousand ($397 thousand net oftax).  This settlement related to alender liability action filed in 1994 against one of the Corporation'ssubsidiary banks and followed an adverse pre-trial judgment by the trial judgeon procedural grounds.  The 2002 periodalso included $5.6 million ($3.6 million after-tax) of nonrecurringrestructuring charges associated with the merger of the charters of theCorporation's two commercial banks (First Commonwealth Bank and Southwest Bank)and the adoption of a new common brand and identity for all financial servicessubsidiaries.  These restructuringcharges included $4.2 million related to separation pay for those employeeswhose positions were eliminated or chose not to relocate as a result of themerger of the two banks, which was completed in the fourth quarter of2002.  The first nine months of 2003included securities gains of $5.6 million ($3.6 million net of tax) compared tosecurities gains of $641 thousand ($417 thousand net of tax) for the first ninemonths of 2002.  In addition, the firstnine months of 2003 included a gain on the sale of two branches in the amountof $3.1 million ($2.0 million net of taxes).16

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**First NineMonths of 2003 as Compared to the First Nine Months of 2002**(continued)The first nine months of 2003 also included decreases in net interest income,which continues to be impacted by low interest rates.  During this unparalleled period of low interest rates theCorporation, as well as the financial services industry in general, has beenchallenged by margin compression, as the cost of funds has not declined in thesame magnitude or at the same pace as asset yields.The decrease in net interest income was partially offset by increases innon-interest income for the first nine months of 2003 compared to the firstnine months of 2002.  Diluted earningsper share was $0.69 for the first nine months of 2003 compared to $0.52 for thefirst nine months of 2002.  The following is an analysis of the impact of changes in net income on dilutedearnings per share:

| Net  income per share, prior year     |    $ | 0.52        |
|---------------------------------------|---------------------|------------------|
|                                  |                |             |
| Increase  (decrease) from changes in: |                |             |
|  Net  interest income            |                | (0.13)           |
|  Provision  for credit losses    |                | (0.02)           |
|  Security  transactions          |                | 0.08        |
|  Service  charges on deposits    |                | 0.02        |
|  Gain  on sale of branches       |                | 0.05        |
|  Insurance  commissions          |                | (0.01)           |
|  Other  income                   |                | 0.03        |
|  Salaries  and employee benefits |                | (0.02)           |
|  Net  occupancy expense          |                | (0.01)           |
|  Data  processing expense        |                | (0.01)           |
|  Litigation  settlement          |                | 0.15        |
|  Restructuring  charges          |                | 0.10        |
|  Other  operating expenses       |                | 0.02        |
|  Applicable  income taxes        |                | (0.08)           |
|                                  |                |             |
| Net  income per share                 | $                   |  0.69  |

Return on average assets was 1.16% and return on average equity was 13.26% forthe first nine months of 2003 compared to 0.90% and 10.58%, respectively, forthe first nine months of 2002.Net interest income, the most significant component of earnings, is the amountby which interest income generated from earning assets exceeds interest expenseon liabilities.  Net interest incomedeclined $7.0 million for the first nine months of 2003 compared to the firstnine months of 2002, primarily as earning asset yields declined faster thanfunding costs.  Net interest margin (netinterest income, on a tax-equivalent basis, as a percentage of average earningassets) was 3.52% for the nine months of 2003 compared to 3.79% for the ninemonths of 2002.  Continued low ordeclining interest rates would tend to further strain net interest income dueto low reinvestment rates and accelerated prepayments of certain loans andinvestments.17

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**First Nine Months of 2003 as Compared to theFirst Nine Months of 2002**(continued)The following table shows the effect of changes in volumes and rates oninterest income and interest expense:

| Analysis  of Changes in Net Interest Income  (dollar amounts in thousands) |
|----------------------------------------------------------------------------|
|                                                                       | 2003 Change From 2002 |
|                                                                       | TotalChange | Change Due  To Volume | Change DueTo Rate |
| Interest-earning  assets:                                                  |   |   |   |   |   |   |
|   Time  deposits with banks                                      |   $ | (16) |    $ | (12) |    $ | (4) |
|   Securities                                                     |   | (14,209) |   | 2,682  |   | (16,891) |
|   Federal  funds sold                                            |   | (3) |   | -0- |   | (3) |
|   Loans                                                          |   | (11,849) |   |   (153) |   | (11,696) |
|     Total  interest income                             |   | (26,077) |   |  2,517  |   | (28,594) |
| Interest-bearing  liabilities:                                             |   |   |   |   |   |   |
|   Deposits                                                       |   | (15,095) |   | 156  |   | (15,251) |
|   Short-term  borrowings                                         |   | 286  |   | 2,461  |   | (2,175) |
|   Long-term  debt                                                |   |  (4,242) |   | (4,188) |   |    (54) |
|     Total  interest expense                            |   | (19,051) |   | (1,571) |   | (17,480) |
|       Net  interest income                   | $ |  (7,026) | $ |  4,088  | $ | (11,114) |
|                                                                       |   |   |   |   |   |   |

 

Interestand fees on loans declined $11.8 million for the first nine months of 2003compared to 2002 levels as loan yields declined in the lower interest rateenvironment.  $11.7 million of thedecline in interest and fees on loans was due to declining yields.  The total tax-equivalent yield on loans forthe first nine months of 2003 was 6.52%, 7.17% for the first nine months of2002.  The largest decreases in interestincome due to rate changes were noted in commercial loans and installmentloans.  Average loans for the first ninemonths of 2003 rose $33.9 million compared to averages for the first ninemonths of 2002 as increases in commercial loans, municipal loans andinstallment loans were partially offset by decreases in average mortgage loansand leases.  The Corporation hascontinued to capitalize on lending opportunities with small to mid-sizedcommercial borrowers, including loans generated through its preferred SmallBusiness Administration ("SBA") lender status.  The Corporation was one of the top smallbusiness lenders in Pennsylvania during the past two years.  The Corporation continues to take advantageof the lower interest rate cycle to change the mix of its loan portfolio.  Average mortgage loans declined during 2003as consumers refinanced their loans at near record levels.  The Corporation continued to offercompetitive mortgage loans but generally sold them immediately afterorigination along with the related servicing rights.  The Corporation has begun to retain fixed rate mortgages withmaturities of 15 years or less and all adjustable rate mortgages.18

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**First Nine Months of 2003 as Compared to theFirst Nine Months of 2002**(continued)Interest income on investments declined $14.2 million for the first nine monthsof 2003 compared to the first nine months of 2002 reflecting decreases due tointerest rates of $16.9 million which were partially offset by increases due toinvestment volumes of $2.7 million.  Thetotal tax-equivalent yield on investments was 4.77% for the first nine monthsof 2003 compared to 6.06% for the same period of 2002.  Declines in investment interest income dueto rate were largely comprised of decreases due to U.S. government agency securitiesof $15.0 million and decreases due to corporate bonds of $1.2 million.  Yields on U.S. government agency securitiesdecreased 166 basis points (1.66%) for the 2003 period compared to thecorresponding period of 2002, while yields on corporate bonds decreased 64basis points (0.64%) over the same time periods.  Increases in investment interest income due to volume werecomprised of increases due to U.S. government agency securities of $5.2 millionwhich were partially offset by decreases due to asset backed securities of $3.4million.  Average investment securitiesfor the first nine months of 2003 included increases in U.S. governmentagencies of $117.0 million and decreases in average asset backed securities of$73.8 million compared to 2002 averages over the same period.Interest expense on deposits dropped $15.1 million for the first nine months of2003 compared to the same period of 2002 due primarily to decreases in interestrates.  Deposit costs were 1.97% for thefirst nine months of 2003 compared to 2.63% for the first nine months of2002.  The rate on savings deposits fell47 basis points (0.47%) resulting in a decrease to interest expense of $4.2million for the first nine months of 2003 compared to the first nine months of2002.  The rate on time deposits for2003 also declined, down 82 basis points (0.82%) compared to 2002 levels,resulting in a decrease to interest expense of $11.1 million for the first ninemonths of 2003.  The Corporation's depositmix also changed for the first nine months of 2003 as clients registered apreference for savings deposits during continuing economic uncertainties.  Average savings deposits increased $87.2million for 2003 compared to 2002 averages while average time deposits dropped$59.6 million over the same time frame. During its management of deposit levels and mix, the Corporationcontinues to evaluate the cost of time deposits compared to alternative fundingsources as it balances its goals of providing clients with the competitiverates they are looking for while also minimizing the Corporation's cost offunds.Interest expense on short-term borrowings increased $286 thousand for the firstnine months of 2003 compared to the same period in 2002 as decreases ininterest expense due to rate of $2.2 million were, for the most part, offset byincreases in interest expense due to volume of $2.5 million compared to 2002levels.  The cost of short-termborrowings for the 2003 period decreased by 58 basis points (0.58%) compared to2002 costs of 1.84%. The average balance of short-term borrowings increased by$182.5 million for the first nine months of 2003 over averages for the sameperiod in 2002.  The increase inshort-term borrowings is due in part to $100 million of long-term debt thatmatured during the fourth quarter of 2002 19

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**First Nine Months of 2003 as Compared to theFirst Nine Months of 2002**(continued)and was replaced with short-term borrowings. In addition, the increase in short-term borrowings can be attributed tothe pre-investment strategy implemented during the second quarter of 2003,which is described in the "Interest Sensitivity" section of thisreport.Interest expense on long-term debt decreased $4.2 million for the first ninemonths of 2003 compared to the corresponding period of 2002, primarily as aresult of volume decreases.  Averagelong-term debt for the nine months of 2003 decreased by $98.6 million comparedto 2002 averages.The provision for credit losses is an amount added to the allowance againstwhich credit losses are charged.  Theamount of the provision is determined by management based upon its assessmentof the size and quality of the loan portfolio and the adequacy of the allowancein relation to the risks inherent within the loan portfolio.  The provision for credit losses was $10.4 millionfor the nine months of 2003 compared to $9.0 million for the nine months of2002.  Net charge-offs against theallowance for credit losses were $8.7 million for the first nine months of 2003compared to $8.4 million for the same period of 2002.  Net charge-offs as a percent of average loans outstanding were0.33% for the first nine months of 2003 and 0.32% for the first nine months of2002.  The provision for credit lossesas a percent of net charge-offs was 119.32% at September 30, 2003 compared to 107.59%at September 30, 2002.  Managementcontinues to gather additional data related to its loan portfolio to make surematerial trends and factors are considered in management's evaluation of theadequacy of the allowance for credit losses. See the "Credit Review" section for any analysis of thequality of the loan portfolio.20

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**First Nine Months of 2003 as Compared to theFirst Nine Months of 2002**(continued)Below is an analysis of the consolidated allowance for credit losses for thenine month periods ended September 30, 2003 and 2002:

|                                                | 2003                   | 2002                            |
|-----------------------------------------------------|------------------------|---------------------------------|
|                                                | (amounts in thousands) |
|                                                |                   |                            |   |   |
| Balance  January 1,                                 | $                      | 34,496                          |   $ | 34,157 |
| Loans  charged off:                                 |                   |                            |   |   |
|   Commercial,  financial and agricultural |                   | 3,307                           |   | 4,633 |
|   Real  estate-construction               |                   | 384                             |   | 3 |
|   Real  estate-commercial                 |                   | 978                             |   | 349 |
|   Real  estate-residential                |                   | 2,688                           |   | 1,627 |
|   Loans  to individuals                   |                   | 2,548                           |   | 3,081 |
|   Lease  financing receivables            |                   |    260           |   |    307 |
|                                                |                   |                            |   |   |
|     Total  loans charged off    |                   | 10,165                          |   | 10,000 |
|                                                |                   |                            |   |   |
| Recoveries  of previously charged off loans:        |                   |                            |   |   |
|   Commercial,  financial and agricultural |                   | 925                             |   | 1,086 |
|   Real  estate-construction               |                   | 0                               |   | 0 |
|   Real  estate-commercial                 |                   | 0                               |   | 0 |
|   Real  estate-residential                |                   | 16                              |   | 16 |
|   Loans  to individuals                   |                   | 491                             |   | 502 |
|   Lease  financing receivables            |                   |      0 |   |      5 |
|                                                |                   |                            |   |   |
|     Total  recoveries           |                   |  1,432                     |   |  1,609 |
|                                                |                   |                            |   |   |
|     Net  charge offs            |                   |  8,733                     |   |  8,391 |
|                                                |                   |                            |   |   |
| Provision  charged to operations                    |                   | 10,420                          |   |  9,028 |
|                                                |                   |                            |   |   |
| Balance  September 30,                              | $                      | 36,183                          | $ | 34,794 |

 

Netsecurities gains were $5.6 million during the first nine months of 2003compared to $641 thousand for the first nine months of 2002.  Securities gains during the 2003 periodresulted primarily from the sale of Pennsylvania bank stocks with book valuesof $7.3 million and fixed rate corporate bonds classified as securities"available for sale" with book values of $34.5 million.  The corporate bonds sold during 2003 had anaverage remaining life of one year and the proceeds were reinvested inadjustable rate trust preferred securities with maturities of 30 years andmortgage backed securities with an average life of 3.6 years.  This reinvestment strategy was initiated to partiallymitigate the Corporation's exposure to low and declining interest rates.  Securities gains during the 2002 periodresulted primarily from the sale of Pennsylvania bank stocks, U.S. treasurysecurities and fixed rate corporate bonds classified as securities"available for sale".  21

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**First Nine Months of 2003 as Compared to theFirst Nine Months of 2002**(continued)Trust income was relatively stable for the first nine months of 2003 comparedto the first nine months of 2002. Although fee revenue continues to be negatively impacted by low marketvalues, the enhanced referral programs and integrated growth plans forfinancial affiliates that have been initiated have helped to offset thistrend.  The Corporation's continuedsuccess in building relationships with commercial clients provides fee basedaffiliates with additional sales opportunities through the "TotalSolutions Financial Management" ("TSFM") process.  This strategy combines products, servicesand professional staff from the Corporation's trust, insurance, financialadvisory and banking affiliates and partners them in providing comprehensivefinancial services offerings.Service charges on deposits are the Corporation's most significant component ofnon-interest income and increased $1.1 million for the first nine months of2003 compared to the corresponding period of 2002.  Increases in insufficient funds fees "NSF" of $1.6million for the first nine months of 2003 were partially offset by decreases inmaintenance fees on deposit accounts of $321 thousand compared to 2002levels.  Management strives to implementreasonable fees for services and closely monitors collection of those fees.The 2003 period included a $3.1 million gain on the sale of two branches.  The gain occurred in the third quarter of2003 as First Commonwealth Bank, a wholly-owned subsidiary of the registrantsold two of its branch offices.  Thebranches were located at 15 South Main Street in Chambersburg, PA and 1720Lincoln Highway East in Guilford Township, PA. The sale included $29.2 million in deposit liabilities and $4.4 millionin loans associated with the two offices.Insurance commissions fell $307 thousand for the 2003 period as decreases inannuity commissions were larger than the increases that were generated in allother insurance categories.  As part ofthe previously discussed TSFM process, the Corporation's insurance subsidiarywill continue to have expanded opportunities to meet the insurance needs ofcommercial clients.  In addition, theCorporation has developed "FOCUS" a financial planning tool designedto help clients prioritize and assess their financial needs.  The "FOCUS" concept results in asystematic approach covering a wide range of personal financial goals includingappropriate insurance coverage.Other income for the first nine months of 2003 rose $1.7 million from the $8.6million reported in the first nine months of 2002.  Other income for the first nine months of 2003 included increasesin STAR interchange fees and merchant discount income of $671 thousand and $670thousand, respectively, versus 2002 results. Gains on the sale of residential mortgage loans including the sale ofthe related servicing rights increased by $467 thousand for the first ninemonths of 2003 versus 2002.  Theincreases in other income for the 2003 period compared to 2002 were partiallyoffset by decreases in debit card interchange fees and gains on sale offoreclosed property.22

 FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATEDSUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**First Nine Months of 2003 as Compared to theFirst Nine Months of 2002**(continued)Noninterest expense was $84.2 million for the first nine months of 2003reflecting a decrease of $12.3 million from the 2002 level of $96.5 million,primarily reflecting the effects of the previously mentioned litigationsettlement and restructuring charges included in 2002 costs.  The 2002 period included the $8.0 millionlitigation charge while the 2003 period included a $610 thousand recovery frominsurance coverage related to the settlement. The 2002 period also included a $5.6 million restructuring chargerelated to employee separation pay and costs related to merging the Corporation'stwo subsidiary banks into one charter. Employee costs were $45.6 million for the first nine months of 2003,representing an increase of $1.7 million over 2002 levels.  Salary costs for the first nine months of2003 increased $693 thousand or 2.04% compared to 2002 levels of $34.0 million.  Salary costs for 2003 include on-goingsavings resulting from the merger of the Corporation's banking subsidiariesunder one charter and the consolidation of support functions which caused somestaff positions to be eliminated during 2002. These staffing reductions were part of the corporate restructuringinitiative that also provided severance benefits to affected employees.  Severance costs were expensed as incurredduring 2002 while monthly cash payments for some individuals continue during2003.  Employee benefit costs rose $1.0million or 10.5% for the first nine months of 2003 with the largest increasebeing hospitalization costs, which were up $822 thousand or 23.0%.  The Corporation continues to evaluate itscurrent menu of employee benefits to provide a competitive benefits packagewhile also managing costs. Net occupancy expense increased $801 thousand for the first nine months of 2003and included increases in building repairs and maintenance, net rental expenseand utilities compared to 2002 costs. Much of these increases were due to increased utility costs and snowremoval expenses resulting from the harsh winter.  The 2003 period also included an increase in the amortization ofthe purchase accounting adjustments related to premises of $340 thousand overthe 2002 period.  An adjustment of $291thousand was taken during the 2003 period for the write off of the remainingpurchase accounting adjustment for three branch offices that were closed duringthe third quarter.  These branch officeswere closed and their clients are served at nearby existing branchoffices.  The Corporation continues toactively evaluate its branch delivery network to optimize client service inexisting branch offices and to continue expansion into growth markets.  The execution of these initiatives maycontinue to impact occupancy and other expenses in future periods.  Amortization of core deposit intangibles declined by $180 thousand for thefirst nine months of 2003 compared to 2002 amortization as amounts related tocertain acquisitions became fully amortized during 2002.  23

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**First Nine Months of 2003 as Compared to theFirst Nine Months of 2002**(continued)Other operating expenses for the 2003 period were $20.7 million reflecting adecrease of $1.4 million (6.4%) from the 2002 amount of $22.1 million.  The first nine months of 2003 includeddecreases in loss on sale of assets (primarily leased vehicles), otherprofessional fees and telephone expenses of $278 thousand, $1.3 million and$387 thousand, respectively compared to 2002 costs.  Directors' fees for the 2003 period reflected decreases of $379thousand resulting from the restructuring of the Corporation's Boards ofDirectors and committees during 2002. Legal fees were also $281 thousand lowerin the first nine months of 2003 compared to the first nine months of 2002.  The first nine months of 2003 included anincrease in charge card interchange charges of $576 thousand compared to thefirst nine months of 2002.    Income tax expense increased $4.6 million for the first nine months of 2003compared to the first nine months of 2002. The 2002 period included a $2.8 million tax effect related to the $8.0million litigation settlement recorded during 2002 as well as a $2.8 milliontax effect related to the 2002 restructuring charges.  The Corporation's effective tax rate was 20.2% for the first ninemonths of 2003 compared to 15.6% for the corresponding period of 2002.**Three Months Ended September 30, 2003 asCompared to the Three Months EndedSeptember****30, 2002**Net income was $13.8 million for the third quarter of 2003 reflecting anincrease of $1.6 million compared to 2002 results of $12.2 million. The changein net income for the 2003 period reflected decreases in non-interest expensesprimarily related to nonrecurring expenses included in the 2002 period and again on the sale of two branches in the 2003 period.  Restructuring charges of $2.5 million ($1.6 million net of tax)were included in results of operations for the third quarter of 2002.  The 2003 period included a gain of $3.1million ($2.0 million net of taxes) related to the sale of two branches.  Net interest income for the third quarter of 2003 reflected a decrease comparedto the amount reported for the corresponding period of 2002. The decrease innet interest income was partially offset by increases in non-interest incomefor the 2003 quarter compared to the 2002 quarter.  Basic and diluted earnings per share were $0.23 for the thirdquarter of 2003 compared to $0.21 for the third quarter of 2002.  Return on average assets was 1.14% andreturn on average equity was 13.63% for the third quarter of 2003 compared to1.06% and 12.11%, respectively, for the third quarter of 2002.24

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**Three Months Ended September 30, 2003 asCompared to the Three Months EndedSeptember****30, 2002**(continued)****Net interest income for the third quarter of 2003 of $35.0 million representeda decrease of $3.3 million compared to the third quarter of 2002.  Net interest margin (net interest income, ona tax-equivalent basis, as a percentage of average earning assets) for the 2003period was 3.31% reflecting a decrease of 47 basis points (0.47%) from 3.78%reported in 2002 as asset yields declined more than the cost of funds. Interest and fees on loans for the three months ended September 30, 2003decreased $4.9 million compared to the three months ended September 30, 2002,primarily as a result of rate decreases, most notably for variable ratecommercial loans.  The totaltax-equivalent yield on loans for the third quarter of 2003 was 6.35%representing a decrease of 70 basis points (0.70%)compared to yields for thethird quarter of 2002.  Average loansfor the third quarter of 2003 decreased $7.9 million compared to averages forthe third quarter of 2002 and included deceases in average residential mortgageloans and leases which were partially offset by increases in commercial loans,municipal loans, installment loans and home equity loans. Interest income on investments for the three months ended September 30, 2003was $19.5 million, reflecting a decrease of $4.3 million compared to the threemonths ended September 30, 2002.  Thetotal tax equivalent yield on investments was 4.33% for the third quarter of2003 compared to 5.94% for the third quarter of 2002.  Changes in investment income due to rate totaled $7.6 million forthe 2003 period as overall interest rates were lower than in the prioryear.  Rate decreases during 2003 wereslightly offset by volume increases, most notably, volume increases for U.S.government agency securities and municipal investments. Average investmentsincreased by $248.7 million for the third quarter of 2003 compared to averagesfor the third quarter of 2002.  Interest on deposits dropped $4.8 million for the three months ended September30, 2003 compared to the three months ended September 30, 2002 as both ratesand volumes declined for the 2003 period. Interest expense on savings reflected decreases due to rate of $1.5million for the 2003 period as savings costs fell from 1.05% in 2002 to 0.58%in 2003.  Interest on time depositsreflected decreases due to rate of $1.6 million and decreases due to volume of$1.9 million for the third quarter of 2003 compared to the third quarter of2002.  The cost of time deposits was3.32% for 2003 compared to 4.02% for 2002. Average time deposits were $1,527.8 million for 2003 compared to$1,607.6 million for the corresponding period of 2002, reflecting a decrease of$79.8 million. 25

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**Three Months Ended September 30, 2003 asCompared to the Three Months EndedSeptember****30, 2002**(continued)**** Interest expense on short-term borrowings rose for the third quarter of 2003compared to the third quarter of 2002 as increases in interest expense due tovolume were partially offset by decreases in interest expense due to rate.  Average short-term borrowings increased$326.7 million for the third quarter of 2003 compared to 2002 averages for thesame period, due in part to $100 million of long-term debt maturing in thefourth quarter of 2002 that was rolled into short-term borrowings.  The largest portion of the additionalincrease in short-term borrowings can primarily be attributed to the pre-investmentstrategy implemented during the second quarter of 2003, which is described inthe "Interest Sensitivity" section of this report.  Interest expense on long-term debt for thethree months ended September 30, 2003 fell $1.5 million from $9.7 millionreported for the three months ended September 30, 2002 primarily as a result ofvolume decreases.  Average long-termdebt was $102.9 million lower in the third quarter of 2003 compared to averagesfor the third quarter of 2002.    The provision for credit losses was $3.5 million for the three months endedSeptember 30, 2003 compared to $3.1 million for the three months endedSeptember 30, 2002.  Net charge-offs forthe third quarter of 2003 were $2.9 million, an increase of $305 thousand fromnet charge-offs for the third quarter of 2002. Net securities gains were $166 thousand for the third quarter of 2003 comparedto securities gains of $26 thousand for the third quarter of 2002.  The 2003 period included gains that wereprimarily from the sale of Pennsylvania bank stocks and municipal securitieswith book values of $615 thousand and $6.1 million, respectively.  The 2002 period included gains from the callof municipal securities classified as "held to maturity" with bookvalues of $3.4 million. Service charges on deposits increased by $437 thousand for the three monthsended September 30, 2003 compared to the three months ended September 30,2002.  This increase is due in part toincreases in insufficient funds fees "NSF" for the third quarter of2003 compared to 2002 levels.  Other income for the third quarter of 2003 rose $897 thousand from the $2.9million reported for the third quarter of 2002.  Other income for the 2003 period included increases in merchantdiscount income of $240 thousand versus 2002 results.  This increase for the 2003 period was partially offset bydecreases in ATM surcharges and sold mortgage servicing fees.26

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (continued)**Three Months Ended September 30, 2003 asCompared to the Three Months EndedSeptember****30, 2002**(continued)**** Total noninterest expense for the three months ended September 30, 2003 was$28.0 million reflecting a decrease of $1.5 million from the $29.5 million thatwas reported for the corresponding period of 2002.  The decrease in 2003 resulted primarily from the previouslydiscussed restructuring charges of $2.5 million that were included in the 2002period.  Employee costs were $15.2million for the third quarter of 2003, representing an increase of $658thousand over 2002 levels.  Salary costsfor the three months of 2003 increased by 3.1% compared to 2002 levels.  Salary costs for 2003 include on-goingsavings resulting from the merger of the Corporation's banking subsidiariesunder one charter and the consolidation of support functions which caused somestaff positions to be eliminated during 2002. Employee benefit costs rose $305 thousand or 9.7% for the third quarterof 2003 with the largest increase being hospitalization costs, which were up$280 thousand or 23.4% compared to 2002 levels.Net occupancy expense increased $355 thousand for the three months endedSeptember 30, 2003 compared to the three months ended September 30, 2002.  The increases in 2003 were primarily due toincreases in building repairs and maintenance of $57 thousand and increases inthe amortization of the purchase accounting adjustments related to premises of$290 thousand over the 2002 period.  Anadjustment of $291 thousand was taken during the 2003 period for the write offof the remaining purchase accounting adjustment for three branches that wereclosed during the third quarter.  Other operating expenses for the third quarter of 2003 were $6.5 millionreflecting a decrease of $388 thousand from the 2002 amount of $6.9million.  The most notable decreases inother operating expenses for the third quarter of 2003 compared to the thirdquarter of 2002 occurred in other professional fees, fees related to collectionand repossession activities and loss on sale of assets which decreased by $478thousand, $116 thousand and $107 thousand, respectively.  Other operating expenses for the third quarterof 2003 were also positively impacted by reductions in telephone costs due inpart to active management of both voice and data line expenses by theCorporation's data processing and technology affiliate.  The three months ended September 30, 2003included increases in charge card interchange costs and PA sales tax comparedto the three months ended September 30, 2002. In addition, increases of $235 thousand were reflected in contributionexpenses in the 2003 period compared to 2002. The increase was due to the contribution of three consolidated branchbuildings in the 2003 period to local municipalities.  The customer service of these three branch offices wasconsolidated into nearby existing branch offices during the third quarter of2003.Income tax expense increased $564 thousand for the third quarter of 2003compared to the third quarter of 2002 primarily as a result of increases inincome before taxes of $2.2 million over 2002 levels.  Tax expense for 2002 included the $866 thousand tax effect relatedto the 2002 restructuring charges.  Taxexpense for the third quarter of 2003 was positively impacted by an increase intax-free municipal income compared to 2002 levels.  The Corporation's effective tax rate was 20.2% for the thirdquarter of 2003 compared to 19.5% for the corresponding period of 2002.27

FIRST COMMONWEALTHFINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

LIQUIDITY

Liquidity is a measure of the Corporation's ability to efficiently meet normalcash flow requirements of both borrowers and depositors.  In the ordinary course of business, fundsare generated from the banking subsidiary's core deposit base and the maturityor repayment of earning assets such as securities and loans.  As an additional secondary source,short-term liquidity needs may be provided through the use of overnight Federalfunds purchased, borrowings through use of lines available for repurchaseagreements, and borrowings from the Federal Reserve Bank.  Additionally, the banking subsidiary is amember of the Federal Home Loan Bank and may borrow under overnight and termborrowing arrangements.  The sale ofearning assets may also provide an additional source of liquidity.  In addition to the previously describedfunding sources, the Corporation also has the ability to access the capitalmarkets.Liquidity risk stems from the possibility that the Corporation may not be ableto meet current or future financial obligations, or the Corporation may becomeoverly reliant on alternative funding sources. The Corporation maintains a liquidity management policy to manage thisrisk.  This policy identifies theprimary sources of liquidity, establishes procedures for monitoring andmeasuring liquidity and quantifies minimum liquidity requirements which complywith regulatory requirements.  Thepolicy also includes a liquidity contingency plan to address funding needs tomaintain liquidity under a variety of business conditions.  The Corporation's liquidity position ismonitored by the Asset/Liability Management Committee ("ALCO").At September 30, 2003 total earning assets were $4,588.5 million, up from the$4,291.2 million recorded at December 31, 2002.  Net loans decreased $12.9 million for the first nine months of2003.  The 2003 period includedincreases in commercial loans, municipal loans and loans to individuals of$38.5 million, $11.7 million and $22.1 million, respectively, over 2002year-end levels.  These increases wereoffset by decreases of $63.5 million in residential real estate loans, due inpart to the continued run-off of the existing portfolio and sale of new loanproduction as the Corporation continues to change its loan mix, and decreasesof $14.4 million in the Corporation's auto lease portfolio as the Corporationhas discontinued its automobile leasing activities.  The 2003 period also reflected decreases in construction loans of$8.6 million over year-end 2002 levels. Investment securities increased $309.7 million for the first nine monthsof 2003 due in part to a $150 million pre-investment strategy that is describedin the "Interest Sensitivity" section of this report. 28

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

LIQUIDITY (continued)Total deposits increased $106.7 million for the first nine months of 2003.  This included increases in total savingsdeposits of $119.6 million and demand deposits of $15.6 million compared toyear-end 2002.  These increases werepartially offset by decreases in time deposits of $28.6 million.  Included in time deposits for the first ninemonths of 2003 were $100 million of brokered deposits with a weighted averageterm of 27 months.  Proceeds from theissuance of brokered deposits were utilized to pay down short-term borrowingsduring the first quarter of 2003. Short-term borrowings increased $186.3 million during the 2003 period to$655.4 million compared to $469.1 million at December 31, 2002.  Short-term borrowings of $150 million wereused to fund the previously mentioned pre-investment strategy.Marketable securities that the Corporation holds in its investment portfolioare an additional source of liquidity. These securities are classified as "securities available forsale" and while the Corporation does not have specific intentions to sellthese securities, they have been designated as "available for sale"because they may be sold for the purpose of obtaining future liquidity, formanagement of interest rate risk or as part of the implementation of taxmanagement strategies.  As of September30, 2003, securities available for sale had an amortized cost of $1,849.4million and an approximate fair value of $1,876.0 million.**Interest Sensitivity**Market risk is the risk of loss arising from adverse changes in the fair valueof financial instruments due to changes in interest rates, currency exchangerates or equity prices.  TheCorporation's market risk is composed primarily of interest rate risk.  Interest rate risk results principally fromtiming differences in the repricing of assets and liabilities, changes in therelationship of rate indices and the potential exercise of free standing orembedded options.The objective of interest rate sensitivity management is to maintain anappropriate balance between the stable growth of income and the risksassociated with maximizing income through interest sensitivity imbalances.  While no single number can accuratelydescribe the impact of changes in interest rates on net interest income,interest rate sensitivity positions, or "gaps", when measured over avariety of time periods, may be helpful.An asset or liability is considered to be interest-sensitive if the rate ityields or bears is subject to change within a predetermined time period.  If interest-sensitive assets("ISA") exceed interest-sensitive liabilities ("ISL")during the prescribed time period, a positive gap results.  Conversely, when ISL exceed ISA during atime period, a negative gap results.29

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

**Interest Sensitivity** (continued)The cumulative gap at the 365-day repricing period was negative in the amountof $729.9 million or 15.14% of total assets at September 30, 2003.  A positive gap tends to indicate thatearnings will be impacted favorably if interest rates rise during the periodand negatively when interest rates fall during the time period.  A negative gap tends to indicate thatearnings will be affected inversely to interest rate changes.  In other words, as interest rates fall, anegative gap should tend to produce a positive effect on earnings, and wheninterest rates rise, a negative gap should tend to affect earnings negatively.The primary components of ISA include adjustable rate loans and investments,loan repayments, investment maturities and money market investments.  The primary components of ISL include maturingcertificates of deposit, money market deposits, savings deposits, NOW accountsand short-term borrowings.The following table lists the amounts and ratios of assets and liabilities withrates or yields subject to change within the periods indicated as of September30, 2003, and December 31, 2002 (dollar amounts in thousands):

|                                             | September  30, 2003              |
|--------------------------------------------------|----------------------------------|
|                                             | 0-90  Days   | 91-180  Days   | 181-365  Days   | Cumulative0-365 Days |
| Loans                                            | $                                | 1,010,976  | $ | 171,061  | $ | 297,170  | $ | 1,479,207  |
| Investments                                      |                             | 226,555  |   | 174,837  |   | 224,378  |   | 625,770  |
| Other interest-earning assets                    |                             |       800  |   |       0  |   |       0  |   |       800  |
|                                             |                             |   |   |   |   |   |   |   |
|   Total interest-sensitive assets      |                             | 1,238,331  |   | 345,898  |   | 521,548  |   | 2,105,777  |
|                                             |                             |   |   |   |   |   |   |   |
| Certificates of deposit                          |                             | 269,702  |   | 247,054  |   | 368,993  |   | 885,749  |
| Other deposits                                   |                             | 1,292,168  |   | 0  |   | 0  |   | 1,292,168  |
| Borrowings                                       |                             |   655,324  |   |   1,102  |   |   1,355  |   |   657,781  |
|                                             |                             |   |   |   |   |   |   |   |
|   Total interest-sensitive liabilities |                             | 2,217,194  |   | 248,156  |   | 370,348  |   | 2,835,698  |
|                                             |                             |   |   |   |   |   |   |   |
| Gap                                              | $                                |  (978,863) | $ |  97,742  | $ | 151,200  | $ |  (729,921) |
|                                             |                             |   |   |   |   |   |   |   |
| ISA/ISL                                          |                             | 0.56  |   | 1.39  |   | 1.41  |   | 0.74  |
| Gap/Total assets                                 |                             | 20.31% |   | 2.03% |   | 3.14% |   | 15.14% |
|                                             |                             |   |   |   |   |   |   |   |

30

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

**Interest Sensitivity** (continued)

|                                                  | December  31, 2002               |
|--------------------------------------------------|----------------------------------|
|                                             | 0-90  Days   | 91-180  Days   | 181-365  Days   | Cumulative0-365 Days |
| Loans                                            | $                                | 962,398  |  $ | 157,172  |  $ | 295,273  |  $ | 1,414,843  |
| Investments                                      |                             | 292,206  |   | 162,578  |   | 262,287  |   | 717,071  |
| Other interest-earning assets                    |                             |     1,973  |   |       0  |   |       0  |   |     1,973  |
|                                             |                             |   |   |   |   |   |   |   |
|   Total interest-sensitive assets      |                             | 1,256,577  |   | 319,750  |   | 557,560  |   | 2,133,887  |
|                                             |                             |   |   |   |   |   |   |   |
| Certificates of deposits                         |                             | 354,625  |   | 170,687  |   | 263,882  |   | 789,194  |
| Other deposits                                   |                             | 1,172,538  |   | 0  |   | 0  |   | 1,172,538  |
| Borrowings                                       |                             |   469,735  |   |     905  |   |   1,483  |   |   472,123  |
|                                             |                             |   |   |   |   |   |   |   |
|   Total interest-sensitive liabilities |                             | 1,996,898  |   | 171,592  |   | 265,365  |   | 2,433,855  |
|                                             |                             |   |   |   |   |   |   |   |
| Gap                                              | $                                |  (740,321) | $ | 148,158  | $ | 292,195  | $ |  (299,968) |
|                                             |                             |   |   |   |   |   |   |   |
| ISA/ISL                                          |                             | 0.63  |   | 1.86  |   | 2.10  |   | 0.88  |
| Gap/Total assets                                 |                             | 16.36% |   | 3.27% |   | 6.46% |   | 6.63% |

Although the periodic gap analysis provides management with a method ofmeasuring current interest rate risk, it only measures rate sensitivity at a specificpoint in time, and as a result may not accurately predict the impact of changesin general levels of interest rates or net interest income.  This is exemplified as the gap analysisshows the Corporation's earnings to be negatively impacted by rising rates, butcomputer modeling indicates that rising rates would have a favorable impact onearnings.  Therefore, to more preciselymeasure the impact of interest rate changes on the Corporation's net interestincome, management simulates the potential effects of changing interest ratesthrough computer modeling.  The incomesimulation model used by the Corporation captures all assets, liabilities, andoff-balance sheet financial instruments, accounting for significant variablesthat are believed to be affected by interest rates.  These variables include prepayment speeds on mortgage loans andmortgage backed securities, cash flows from loans, deposits and investments andbalance sheet growth assumptions.  Themodel also captures embedded options, such as interest rate caps/floors or calloptions, and accounts for changes in rate relationships as various rate indiceslead or lag changes in market rates. The Corporation is then better able to implement strategies that wouldinclude an acceleration of a deposit rate reduction or lag in a deposit rateincrease.  The repricing strategies forloans would be inversely related.31

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

**Interest Sensitivity** (continued)The Corporation's asset/liability management policy guidelines limit interestrate risk exposure for the succeeding twelve-month period.  Simulations are prepared under the base casewhere interest rates remain flat and most likely case where interest rates aredefined using projections of economic factors. Additional simulations are produced estimating the impact on netinterest income of a 200 basis point (2.00%) movement upward or downward whichcannot result in more than a 5.0% change in either direction in net interestincome when compared to the base case. The analysis at September 30, 2003 indicated that a 200 basis point(2.00%) increase in interest rates would increase net interest income 271 basispoints (2.71%) above the base case scenario and a 200 basis point (2.00%)decline in interest rates would decrease net interest income by 546 basispoints (5.46%) below the base case scenario, over the next twelve months.  While the 200 basis points (2.00%) decliningrate scenario currently exceeds the -5.00% policy limit by 46 basis points(0.46%), it is recognized by the corporation that this declining rate scenariois unrealistic in the current rate environment with the federal funds rate atonly 1.00%.The Corporation's "Asset/Liability Management Committee"("ALCO") is responsible for the identification, assessment andmanagement of interest rate risk exposure, liquidity, capital adequacy andinvestment portfolio position.  Theprimary objective of the ALCO process is to ensure that the Corporation'sbalance sheet structure maintains prudent levels of risk within the context ofcurrently known and forecasted economic conditions and to establish strategieswhich provide the Corporation with appropriate compensation for the assumptionof those risks.  The ALCO attempts tomitigate interest rate risk through the use of strategies such as asset sales,asset and liability pricing and matched maturity funding.  The Corporation's senior managementestablishes ALCO strategies.  The Corporation entered into an interest rate swap transaction during the thirdquarter of 2003.  The swap has athree-year maturity and involves hedging adjustable LIBOR based commercialloans with a receive-fixed interest rate swap of $25 million notionalamount.  The ALCO continues to evaluatethe use of additional derivative instruments to protect against the risk ofadverse price or interest rate movements on the values of certain assets andliabilities.  To minimize its exposure to falling interest rates, the Corporation implementeda pre-investment strategy during the second quarter of 2003 whereby a portionof the cash flows from securities expected to mature or repay within four tosix months were reinvested before their maturity or repayment dates byutilizing $150 million of short-term borrowings as an interim fundingsource.  This strategy was implementedto lock in current reinvestment rates to prevent further yield decreases asinterest rates continue to fall and should have an overall positive impact oninvestment yields.32

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

 

CREDITREVIEW

The following table identifies amounts of loan losses and nonperformingloans.  Past due loans are those whichwere contractually past due 90 days or more as to interest or principalpayments but are well secured and in the process of collection.  Renegotiated loans are those loans whichterms have been renegotiated to provide a reduction or deferral of principal orinterest as a result of the deteriorating financial position of the borrowerand are in compliance with the restructured terms.

 

|                                                                         | At September 30,       |
|------------------------------------------------------------------------------|------------------------|
|                                                                         | 2003                   | 2002 |
|                                                                         | (amounts in thousands) |
| Nonperforming  Loans:                                                        |                   |   |   |   |
|                                                                         |                   |   |   |   |
|   Loans  on nonaccrual basis                                       | $                      | 18,430  |   $ | 24,463  |
|   Past  due loans                                                  |                   | 13,949  |   | 14,385  |
|   Renegotiated  loans                                              |                   |       198  |   |       209  |
|                                                                         |                   |   |   |   |
|     Total  nonperforming loans                           | $                      |    32,577  | $ |    39,057  |
|                                                                         |                   |   |   |   |
| Other  real estate owned                                                     | $                      | 1,698  | $ | 1,662  |
|                                                                         |                   |   |   |   |
| Loans  outstanding at end of period                                          | $                      | 2,597,443  | $ | 2,617,465  |
|                                                                         |                   |   |   |   |
| Average  loans outstanding (year-to-date)                                    | $                      | 2,630,009  | $ | 2,596,081  |
|                                                                         |                   |   |   |   |
| Nonperforming  loans as percent of total loans                               |                   | 1.25% |   | 1.49% |
|                                                                         |                   |   |   |   |
| Provision  for credit losses                                                 | $                      | 10,420  | $ | 9,028  |
|                                                                         |                   |   |   |   |
| Net  charge-offs                                                             | $                      | 8,733  | $ | 8,391  |
|                                                                         |                   |   |   |   |
| Net  charge-offs as a percent of average loans outstanding                   |                   | 0.33% |   | 0.32% |
|                                                                         |                   |   |   |   |
| Provision  for credit losses as a percent of net charge-offs                 |                   | 119.32% |   | 107.59% |
|                                                                         |                   |   |   |   |
| Allowance  for credit losses as a percent of average loans outstanding       |                   | 1.38% |   | 1.34% |
|                                                                         |                   |   |   |   |
| Allowance  for credit losses as a percent of end-of-period loans outstanding |                   | 1.39% |   | 1.33% |
|                                                                         |                   |   |   |   |
| Allowance  for credit losses as a percent of nonperforming loans             |                   | 111.07% |   | 89.09% |

33

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

CREDIT REVIEW (continued)

The Corporation considers a loan to be impaired when, based on currentinformation and events, it is probable that the Corporation will be unable tocollect principal or interest due according to the contractual terms of theloan.  Loan impairment is measured basedon the present value of expected cash flows discounted at the loan's effectiveinterest rate or, as a practical expedient, at the loan's observable marketprice or the fair value of the collateral if the loan is collateral dependent.  Payments received on impaired loans areapplied against the recorded investment in the loan.  For loans other than those that the Corporation expects repaymentthrough liquidation of the collateral, when the remaining recorded investmentin the impaired loan is less than or equal to the present value of the expectedcash flows, income is recorded on a cash basis.  Impaired loans include loans on a nonaccrual basis andrenegotiated loans.The following table identifies impaired loans, and information regarding therelationship of impaired loans to the reserve for credit losses at September30, 2003 and September 30, 2002:

|                                                                              | 2003                   | 2002   |
|-----------------------------------------------------------------------------------|------------------------|--------|
|                                                                              | (amounts in thousands) |
|                                                                              |                   |   |   |   |
| Recorded  investment in impaired loans at end    of period                   |  $                | 18,628 |   $ | 24,672 |
|                                                                              |                   |   |   |   |
| Year  to date average balance of impaired loans                                   | $                      | 21,511 | $ | 25,009 |
|                                                                              |                   |   |   |   |
| Allowance  for credit losses related to    impaired loans                    | $                      | 5,209  | $ | 6,113 |
|                                                                              |                   |   |   |   |
| Impaired  loans with an allocation of the   allowance for credit losses      | $                      | 14,453 | $ | 15,640 |
|                                                                              |                   |   |   |   |
| Impaired  loans with no allocation of the allowance   for credit losses | $                      | 4,175  | $ | 9,032 |
|                                                                              |                   |   |   |   |
| Year  to date income recorded on impaired loans    on a cash basis           | $                      | 487    | $ | 220 |

Other than those described above, there are no material credits that managementhas serious doubts as to the borrower's ability to comply with the present loanrepayment terms.  Additionally, theportfolio is well diversified and as of September 30, 2003, there were nosignificant concentrations of credit.Nonperforming loans at September 30, 2003 decreased $6.5 million compared to2002 levels as nonaccrual loans, past due loans and renegotiated loansdecreased compared to September 30, 2002. The decrease in nonaccrual loan levels of $6.0 million was primarily dueto decreases in nonaccrual commercial loans. Nonaccrual loans include two significant credits in both periods.  The largest credit ($6.1 million as ofSeptember 30, 2003) carries an 80% guaranty of a U.S. government agency.  While a sale of the underlying assets ispending through bankruptcy court, delays with the 34

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

CREDIT REVIEW (continued)bankruptcy process would result in a delay of the final sale and resolution ofthe remaining balance.  The secondcredit, which was $3.0 million at September 30, 2003, continues to be resolvedthrough the liquidation of collateral and exercising other remedies.  While the timing of final resolution of thiscredit is uncertain, management's estimate of the potential loss on this creditis reserved.Past due loans for the 2003 period remained relatively stable to thecorresponding period of 2002 and included decreases in loans secured by 1-4family residential real estate, which were offset by loans secured bycommercial real estate.  Nonperformingloans as a percent of total loans was 1.25% at September 30, 2003 compared to1.47% at December 31, 2002, and 1.49% at September 30, 2002, while theallowance for credit losses as a percent of nonperforming loans was 111.07%,89.76% and 89.09%, respectively for the same periods.The Corporation's loan portfolio continues to be monitored by senior managementto identify potential portfolio risks and detect potential credit deteriorationin the early stages.  This processincludes close monitoring of watchlist credits for progress or deterioration,as well as evaluating the status of significant nonperforming credits and loanloss adequacy.  Credit risk is mitigatedduring the loan origination process through the use of sound underwritingpolicies and collateral requirements.The Corporation maintains an allowance for credit losses at a level deemedsufficient to absorb losses, which are inherent in the loan and lease portfoliosat each balance sheet date.  Managementreviews the adequacy of the allowance on a quarterly basis to ensure that theprovision for credit losses has been charged against earnings in an amountnecessary to maintain the allowance at a level that is appropriate based onmanagement's assessment of probable estimated losses.  The Corporation's methodology for assessing the appropriatenessof the allowance for credit losses consists of several key elements.  These elements include a specific allowancefor primary watch list classified loans, a formula allowance based onhistorical trends, an additional allowance for special circumstances and anunallocated allowance.While the Corporation consistently applies a comprehensive methodology andprocedure, allowance for credit loss methodologies incorporate management'scurrent judgments about the credit quality of the loan portfolio, as well ascollection probabilities for problem credits. Although management considers the allowance for credit losses to be adequatebased on information currently available, additional allowance for credit lossprovisions may be necessary due to changes in management estimates andassumptions about asset impairment, information about borrowers that indicatechanges in the expected future cash flows or changes in economicconditions.  The allowance for creditlosses and the provision for credit losses are significant elements of theCorporation's financial statements, therefore management periodically reviewsthe processes and procedures utilized in determining the allowance for creditlosses to identify35

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

CREDIT REVIEW (continued)potential enhancements to these processes, including development of additionalmanagement information systems to ensure that all relevant factors areappropriately considered in the allowance analysis.  In addition, the Corporation maintains a system of internalcontrols that are independently monitored and tested by internal audit and loanreview staff to ensure that the loss estimation model is maintained inaccordance with internal policies and procedures, as well as generally acceptedaccounting principles. CAPITAL RESOURCESEquity capital was at $410.0 million at September 30, 2003, an increase of $8.6million compared to December 31, 2002. Dividends declared reduced equity by $27.5 million during the first ninemonths of 2003.  The retained net incomeof $13.1 million remained in permanent capital to fund future growth andexpansion.  Payment by the Corporation'sEmployee Stock Ownership Plan ("ESOP") to reduce debt it incurred toacquire the Corporation's common stock for future distributions as employeecompensation, net of fair value adjustments to unearned ESOP shares, increasedequity by $804 thousand.  Amounts paidto fund the discount on reinvested dividends reduced equity by $519 thousand duringthe first nine months of 2003.  Themarket value adjustment to securities available for sale decreased equity by$8.6 million for the period, while the market value adjustment to the interestrate swap increased equity by $106 thousand. Proceeds from the reissuance of treasury shares to fund stock optionsexercised increased equity by $3.4 million during 2003, while the tax benefitrelated to the stock options, increased equity by $142 thousand.  Equity capital was also impacted during 2003by an increase of $203 thousand from the reissuance of treasury shares to fundcontingent payments related to the acquisition of First Commonwealth FinancialAdvisors, which occurred during the first quarter of 2002.  This contingent payment of the Corporation'scommon stock was the first of four scheduled annual installments.A strong capital base provides the Corporation with a foundation to expandlending, to protect depositors and to provide for growth while protectingagainst future uncertainties.  Theevaluation of capital adequacy depends on a variety of factors, including assetquality, liquidity, earnings history and prospects, internal controls andmanagement ability.  In consideration ofthese factors, management's primary emphasis with respect to the Corporation'scapital position is to maintain an adequate and stable ratio of equity toassets.The Federal Reserve Board has issued risk-based capital adequacy guidelinesthat are designed principally as a measure of credit risk.  These guidelines require:  (1) at least 50% of a banking organization'stotal capital be common and other "core" equity capital ("Tier ICapital"); (2) assets and off-balance-sheet items be weighted according torisk; (3) the total capital to risk-weighted assets ratio be at least 8%; and(4) a minimum leverage ratio of Tier I capital to average total assets.The minimum leverage ratio is not specifically defined, but is generallyexpected to be 3-5 percent for all but the most highly rated banks, asdetermined by a regulatory rating system.36

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

CAPITAL RESOURCES (continued)

The table below presents the Corporation's capital position at September 30,2003:

 

|                          | Amount(in thousands) |                     | Percent ofAdjusted Assets |
|-------------------------------|----------------------|--------------------------|---------------------------|
| Tier  I Capital               | $  419,450 |      | 13.1%                     |
| Risk-Based  Requirement       | 127,674              |                     | 4.0                  |
|                          |                 |                     |                      |
| Total  Capital                | 455,633              |                     | 14.3                 |
| Risk-Based  Requirement       | 255,349              |                     | 8.0                  |
|                          |                 |                     |                      |
| Minimum  Leverage Capital     | 419,450              |                     | 8.7                  |
| Minimum  Leverage Requirement | 144,119              |                     | 3.0                  |

For an institution to qualify as well capitalized under regulatory guidelines,Tier I, Total and Leverage Capital ratios must be at least 6.0%, 10.0%, and5.0%, respectively.  At September 30,2003, the Corporation's banking and trust subsidiaries exceeded thoserequirements.ITEM 3.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISKInformation appearing in Item 2 of this report under the caption "InterestSensitivity" is incorporated herein by reference in response to this item.ITEM 4. CONTROLS AND PROCEDURES(a) Disclosure controls and procedures. Within 90 days before filing this report, we evaluated the effectivenessof the design and operation of our disclosure controls and procedures.  Our disclosure controls and procedures arethe controls and other procedures that we designed to ensure that we record,process, summarize and report in a timely manner the information we mustdisclose in reports that we file with or submit to the SEC.  Joseph E. O'Dell, our President and ChiefExecutive Officer, and John J. Dolan, our Executive Vice President and ChiefFinancial Officer, reviewed and participated in this evaluation.  Based on this evaluation, Messrs. O'Dell andDolan concluded that, as of the date of their evaluation, our disclosurecontrols were effective.(b) Internal controls.  Since the dateof evaluation described above, there have not been any significant changes inour internal accounting controls or in other factors that could significantlyaffect those controls.37

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESPART II - OTHER INFORMATION

 

| ITEM  1. | LEGAL  PROCEEDINGS                                                                                                                                                                                                                                                                                                                                                                                  |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | There  were no material legal proceedings to which the Corporation or its  subsidiaries are a party, or of which any of their property is the subject,  except proceedings which arise in the normal course of business and, in the  opinion of management, will not have a material adverse effect on the  consolidated operations or financial position of the Corporation and its  subsidiaries. |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
| ITEM  2. | CHANGES  IN SECURITIES                                                                                                                                                                                                                                                                                                                                                                              |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | Not  applicable                                                                                                                                                                                                                                                                                                                                                                                     |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
| ITEM  3. | DEFAULTS  UPON SENIOR SECURITIES                                                                                                                                                                                                                                                                                                                                                                    |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | Not  applicable                                                                                                                                                                                                                                                                                                                                                                                     |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
| ITEM  4. | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                                                                                                                                                                                                                                                                |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | Not  applicable                                                                                                                                                                                                                                                                                                                                                                                     |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
| ITEM  5. | OTHER  INFORMATION                                                                                                                                                                                                                                                                                                                                                                                  |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | Not  applicable                                                                                                                                                                                                                                                                                                                                                                                     |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
| ITEM  6. | EXHIBITS  AND REPORTS ON FORM 8-K                                                                                                                                                                                                                                                                                                                                                                   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | (a)  Exhibits                                                                                                                                                                                                                                                                                                                                                                                       |
|     |     Exhibit  10.1 Supplemental Executive Retirement Plan                                                                                                                                                                                                                                                                                                                        |
|     |     Exhibit  31.1 Chief Executive Officer Certification pursuant        to Section 302 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                         |
|     |     Exhibit  31.2 Chief Financial Officer Certification pursuant        to Section 302 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                         |
|     |     Exhibit  32.1 Chief Executive Officer Certification pursuant        to Section 906 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                         |
|     |     Exhibit  32.2 Chief Financial Officer Certification pursuant        to Section 906 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                         |
|     | (b)  Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                            |
|     |     Form  8-K dated July 17, 2003 reporting the Corporation's         press release announcing its earnings for  the three and        six month periods ended June 30, 2003                                                                                                                                         |
|     |     Form  8-K dated July 29, 2003 reporting that the         Corporation's subsidiary, First  Commonwealth Bank, agreed        to sell two branch offices to Waypoint  Bank                                                                                                                                         |
|     |     Form  8-K dated August 12, 2003 reporting that the        Corporation entered into a definitive  agreement to acquire        Pittsburgh Financial Corp.                                                                                                                                                         |

38

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

FIRST COMMONWEALTH FINANCIALCORPORATION(Registrant)

| DATED:  November 10, 2003 | /s/Joseph  E.  O'Dell                                    |
|--------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           | Joseph  E. O'Dell, President and Chief Executive Officer                                                                                                     |
|                           |                                                                                                                                                         |
|                           |                                                                                                                                                         |
|                           |                                                                                                                                                         |
| DATED:  November 10, 2003 | /s/John  J.  Dolan                        |
|                           | John  J. Dolan, Executive Vice President and Chief Financial Officer                                                                                         |

39