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 June 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 ofAugust 6, 2003, was 59,157,540.

     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.....................                                                    | 6            |
|            |                                                                                                                      |         |
|            |   Notes to Consolidated Financial  Statements................                                                   | 7            |
|            |                                                                                                                      |         |
| ITEM 2.         | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONS................................... | 14           |
|            |                                                                                                                      |         |
| ITEM 3.         | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK..                                                             | 35           |
|            |                                                                                                                      |         |
| ITEM 4.         | CONTROLS AND PROCEDURES.....................................                                                              | 35           |

 

PART II - OTHER INFORMATION

|  

Other Information...................................................... |  

36 |
|---------------------------------------------------------------------------------|------------|
|                                                                            |       |
| Signatures.............................................................         | 37         |
|                                                                            |       |
| Exhibits and Reports on Form 8K                                                 |       |

 

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

|                                                                                                                                                                                                                                                                  | June  30,2003 | December  31,2002         |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------|---------------------------|
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
| **ASSETS**                                                                                                                                                                                                                                                            |          |                      |   |   |
|   Cash and due  from banks on demand........................                                                                                                                                                                                                | $             | 91,218               |   $ | 81,114  |
|   Interest-bearing  bank deposits...........................                                                                                                                                                                                                |          | 1,237                |   | 1,973  |
|   Securities  available for sale, at market.................                                                                                                                                                                                                |          | 1,835,859            |   | 1,482,771  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|   Securities held  to maturity, at cost,(Market value $135,402 in      2003 and $204,887 in 2002).............................                                                                                                          |          | 127,765              |   | 197,838  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|   Loans....................................................                                                                                                                                                                                                 |          | 2,622,194            |   | 2,609,440  |
|     Unearned  income........................................                                                                                                                                                                                      |          | (625)                     |   | (806) |
|     Allowance  for credit losses............................                                                                                                                                                                                      |          |   (35,604)      |   |   (34,496) |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|         Net  loans..........................................                                                                                                                                                                  |          | 2,585,965            |   | 2,574,138  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|   Premises and  equipment...................................                                                                                                                                                                                                |          | 44,917               |   | 45,730  |
|   Other real  estate owned..................................                                                                                                                                                                                                |          | 1,714                |   | 1,651  |
|   Goodwill.................................................                                                                                                                                                                                                 |          | 8,131                |   | 8,131  |
|   Amortizing  intangibles, net..............................                                                                                                                                                                                                |          | 16                   |   | 29  |
|   Other assets.............................................                                                                                                                                                                                                 |          |   133,942  |   |   131,368  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|       Total  assets.........................................                                                                                                                                                                            | $             | 4,830,764            | $ | 4,524,743  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
| **LIABILITIES**                                                                                                                                                                                                                                                       |          |                      |   |   |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|   Deposits (all  domestic):                                                                                                                                                                                                                                 |          |                      |   |   |
|     Noninterest-bearing....................................                                                                                                                                                                                       | $             | 396,794              | $ | 377,466  |
|     Interest-bearing.......................................                                                                                                                                                                                       |          | 2,823,015            |   | 2,666,658  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|       Total  deposits.......................................                                                                                                                                                                            |          | 3,219,809            |   | 3,044,124  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|   Short-term  borrowings....................................                                                                                                                                                                                                |          | 594,210              |   | 469,065  |
|   Other  liabilities........................................                                                                                                                                                                                                |          | 26,875               |   | 30,230  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|   Company  obligated mandatorily redeemable capital securities of      subsidiary trust.......................................                                                                                                          |          | 35,000               |   | 35,000  |
|   Other long-term  debt.....................................                                                                                                                                                                                                |          |   543,408  |   |   544,934  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|       Total  long-term debt.................................                                                                                                                                                                            |          |   578,408  |   |   579,934  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|       Total  liabilities....................................                                                                                                                                                                            |          | 4,419,302            |   | 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; 59,071,871 and 58,962,543  shares outstanding at      June 30, 2003 and December 31, 2002 respectively....... |          | 62,525               |   | 62,525  |
|   Additional  paid-in capital...............................                                                                                                                                                                                                |          | 64,361               |   | 64,885  |
|   Retained  earnings........................................                                                                                                                                                                                                |          | 304,595              |   | 296,165  |
|   Accumulated  other comprehensive income...................                                                                                                                                                                                                |          | 26,101               |   | 25,851  |
|   Treasury stock  (3,453,537 shares at June 30, 2003 and 3,562,869 at      December 31, 2002, at cost)............................                                                                                                      |          | (43,601)                  |   | (44,981) |
|   Unearned ESOP  shares.....................................                                                                                                                                                                                                |          |    (2,519) |   |    (3,055) |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|       Total  shareholders' equity...........................                                                                                                                                                                            |          |   411,462  |   |   401,390  |
|                                                                                                                                                                                                                                                                  |          |                      |   |   |
|       Total  liabilities and shareholders' equity...........                                                                                                                                                                            | $             | 4,830,764            | $ | 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 June 30, | For  the 6 MonthsEnded June 30,                         |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|---------------------------------------------------------|
|                                                                                                                                                                                               | 2003                            | 2002                                                    | 2003 | 2002 |
| **Interest Income**                                                                                                                                                                                |                            |                                                    |   |   |   |   |   |   |
|   Interest  and fees on loans......                                                                                                                                                      | $                               | 41,523                                             | $ | 45,220  | $ | 83,552  | $ | 90,547  |
|   Interest  and dividends on investments:                                                                                                                                                |                            |                                                    |   |   |   |   |   |   |
|     Taxable  interest .............                                                                                                                                            |                            | 16,449                                             |   | 21,791  |   | 33,605  |   | 44,029  |
|     Interest  exempt from Federal       income taxes                                                                                                  |                            |     2,687                           |   | 2,417  |   |     5,210  |   | 4,809  |
|     Dividends.....................                                                                                                                                             |                            | 523                                                |   | 441  |   | 1,125  |   | 993  |
|   Interest  on Federal funds sold..                                                                                                                                                      |                            |       1                   |   | 1  |   |       2  |   | 4  |
|   Interest  on bank deposits.......                                                                                                                                                      |                            |         3  |   |        8  |   |           9  |   |       19  |
|                                                                                                                                                                                          |                            |                                                    |   |   |   |   |   |   |
|     Total  interest income.........                                                                                                                                            |                            |    61,186                                |   | 69,878  |   |   123,503  |   | 140,401  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
| **Interest Expense**                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
|   Interest  on deposits............                                                                                                                                                      |                            |  15,961                                       |   | 20,782  |   |  31,758  |   | 42,103  |
|   Interest  on short-term borrowings.                                                                                                                                                    |                            | 1,598                                              |   | 1,502  |   | 3,150  |   | 3,267  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
|   Interest  on company obligated      mandatorily redeemable       capital securities of      subsidiary trust.............. |                            |       831                 |   | 832  |   | 1,662  |   | 1,663  |
|   Interest  on other long-term debt                                                                                                                                                      |                            |      7,355                |   |     8,829  |   |     14,646  |   |    17,393  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
|     Total  interest on long-term debt                                                                                                                                          |                            |      8,186                |   |     9,661  |   |     16,308  |   |    19,056  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
|     Total  interest expense........                                                                                                                                            |                            |     25,745                     |   |    31,945  |   |     51,216  |   |    64,426  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |     |
| **Net Interest Income...........**                                                                                                                                                                 |                            |    35,441                                |   | 37,933  |   |    72,287  |   | 75,975  |
|   Provision  for credit losses.....                                                                                                                                                      |                            |      3,465                |   |     3,008  |   |      6,925  |   |     5,925  |
| **Net interest income after  provision for**

**  credit losses**                                                                                                                        |                            |   31,976                                 |   | 34,925  |   |     65,362  |   |   70,050  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
| **Other Income**                                                                                                                                                                                   |                            |                                                    |   |   |   |   |   |   |
|   Securities  gains................                                                                                                                                                      |                            | 3,221                                              |   | 576  |   | 5,455  |   | 615  |
|   Trust  income....................                                                                                                                                                      |                            |   1,284                                       |   | 1,342  |   |   2,469  |   | 2,555  |
|   Service  charges on deposit       accounts......................                                                                                                   |                            |  3,255                                        |   | 2,746  |   |  6,104  |   | 5,439  |
|   Insurance  commissions...........                                                                                                                                                      |                            | 848                                                |   | 951  |   | 1,645  |   | 1,807  |
|   Income  from bank owned life      insurance.....................                                                                                                   |                            | 1,052                                              |   | 1,173  |   | 2,098  |   | 2,242  |
|   Other  income....................                                                                                                                                                      |                            |      3,538                |   |     3,149  |   |      6,498  |   |     5,668  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
|     Total  other income............                                                                                                                                            |                            |     13,198                     |   |     9,937  |   |     24,269  |   |    18,326  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
| **Other Expenses**                                                                                                                                                                                 |                            |                                                    |   |   |   |   |   |   |
|   Salaries  and employee benefits..                                                                                                                                                      |                            | 15,146                                             |   | 14,767  |   | 30,481  |   | 29,410  |
|   Net  occupancy expense...........                                                                                                                                                      |                            | 1,771                                              |   | 1,613  |   | 3,745  |   | 3,299  |
|   Furniture  and equipment expense.                                                                                                                                                      |                            |  2,544                                        |   | 2,568  |   |  5,096  |   | 4,966  |
|   Data  processing expense.........                                                                                                                                                      |                            |    621                                   |   | 484  |   |  1,148  |   | 926  |
|   Pennsylvania  shares tax expense.                                                                                                                                                      |                            |   1,081                                       |   | 996  |   |   2,141  |   | 1,991  |
|   Intangible  amortization.........                                                                                                                                                      |                            |      6                         |   | 68  |   |     13  |   | 188  |
|   Litigation  settlement (recovery)                                                                                                                                                      |                            |    -0-                                        |   | -0- |   |    (610) |   | 8,000  |
|   Restructuring charges...........                                                                                                                                                            |                            |       -0-                      |   | 3,116  |   | -0- |   | 3,116  |
|   Other  operating expenses........                                                                                                                                                      |                            |      7,213                |   |     8,003  |   |     14,140  |   |    15,162  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
|     Total  other expenses..........                                                                                                                                            |                            |     28,382                     |   |    31,615  |   |     56,154  |   |    67,058  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
| **Income before income taxes....**                                                                                                                                                                 |                            | 16,792                                             |   | 13,247  |   |    33,477  |   | 21,318  |
|   Applicable  income taxes.........                                                                                                                                                      |                            |      3,365                |   |     2,290  |   |      6,746  |   |     2,723  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
| **Net income....................**                                                                                                                                                                 | $                               |     13,427                     | $ |    10,957  | $ |     26,731  | $ |    18,595  |
|                                                                                                                                                                                               |                            |                                                    |   |   |   |   |   |   |
| Average  Shares Outstanding........                                                                                                                                                                |                            | 58,769,160                                         |   | 58,359,322  |   | 58,736,392  |   | 58,251,440  |
| Average  Shares Outstanding Assuming Dilution                                                                                                                                                      |                            | 59,101,475                                         |   | 58,851,264  |   | 59,018,324  |   | 58,669,047  |
| **Per Share Data:**                                                                                                                                                                                |                            |                                                    |   |   |   |   |   |   |
|   Basic  earnings per share........                                                                                                                                                      | $                               | 0.23                                               | $ | 0.19  | $ | 0.46  | $ | 0.32  |
|   Diluted  earnings per share......                                                                                                                                                      | $                               | 0.23                                               | $ | 0.19  | $ | 0.45  | $ | 0.32  |
|   Cash  dividends per share........                                                                                                                                                      | $                               | 0.155                                              | $ | 0.150  | $ | 0.310  | $ | 0.300  |

  Theaccompanying notes are an integral part of these consolidated financialstatements.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-                                |          | 18,595                       |                       | -0-  |   | -0-  |   | -0-  |   | 18,595  |
|   Other  comprehensive income, net of tax:                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
|     Unrealized  holding gains on securities       arising during the period.....                 |        | -0-                    |             | -0-                                |          | -0-                          |                       | 13,108  |   | -0-  |   | -0-  |   | 13,108  |
|     Less:  reclassification adjustment for       gains on securities included in net income |        |    -0-  |             |    -0-              |          |    -0-        |                       |   (397) |   |     -0-  |   |    -0-  |   |    (397) |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
|   Total  other comprehensive income.                                                                                                |        |    -0-  |             |    -0-              |          |    -0-        |                       | 12,711  |   |     -0-  |   |    -0-  |   |  12,711  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Total  comprehensive income.........                                                                                                          |        | ‑0-              |             | -0-                                |          | 18,595                       |                       | 12,711  |   | -0-  |   | -0-  |   | 31,306  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Cash  dividends declared............                                                                                                          |        | -0-                    |             | -0-                                |          | (17,612)                          |                       | -0-  |   | -0-  |   | -0-  |   | (17,612) |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Decrease  in unearned ESOP shares...                                                                                                          |        | -0-                    |             | -0-                                |          | -0-                          |                       | -0-  |   | -0-  |   | 536  |   | 536  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Discount  on dividend reinvestment plan purchases                                                                                             |        | -0-                    |             | (316)                                   |          | -0-                          |                       | -0-  |   | -0-  |   | -0-  |   | (316) |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Treasury  stock reissued............                                                                                                          |        |    -0-  |             |   (607)                       |          |     -0-  |                       |    -0-  |   |   4,145  |   |    -0-  |   |   3,538  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Balance  at June 30, 2002...........                                                                                                          | $           | 62,525                 | $                | 65,253                             | $             | 289,202                      | $                          | 21,414  | $ | (47,286) | $ | (3,590) | $ | 387,518  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Balance  December 31, 2002..........                                                                                                          | $           | 62,525                 | $                | 64,885                             | $             | 296,165                      | $                          | 25,851  | $ | (44,981) | $ | (3,055) | $ | 401,390  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
|  Comprehensive  income                                                                                                                   |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
|   Net  income.......................                                                                                                |        | -0-                    |             | -0-                                |          | 26,731                       |                       | -0-  |   | -0-  |   | -0-  |   | 26,731  |
|   Other  comprehensive income, net of tax:                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
|     Unrealized  holding gains on securities       arising during the period.....                 |        | -0-                    |             | -0-                                |          | -0-                          |                       | 3,772  |   | -0-  |   | -0-  |   |  3,772  |
|     Less:  reclassification adjustment for       gains on securities included in net income |        |    -0-  |             |    -0-              |          |    -0-        |                       | (3,522) |   |     -0-  |   |    -0-  |   |  (3,522) |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
|   Total  other comprehensive income.                                                                                                |        |    -0-  |             |    -0-              |          |    -0-        |                       |    250  |   |     -0-  |   |    -0-  |   |     250  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Total  comprehensive income.........                                                                                                          |        | ‑0-              |             | -0-                                |          | 26,731                       |                       | 250  |   | -0-  |   | -0-  |   | 26,981  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Cash  dividends declared............                                                                                                          |        | -0-                    |             | -0-                                |          | (18,301)                          |                       | -0-  |   | -0-  |   | -0-  |   | (18,301) |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Decrease  in unearned ESOP shares...                                                                                                          |        | -0-                    |             | -0-                                |          | -0-                          |                       | -0-  |   | -0-  |   | 536  |   | 536  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Discount  on dividend reinvestment plan purchases                                                                                             |        | -0-                    |             | (334)                                   |          | -0-                          |                       | -0-  |   | -0-  |   | -0-  |   | (334) |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Treasury  stock reissued............                                                                                                          |        |    -0-  |             |   (190)                       |          |     -0-  |                       |    -0-  |   |   1,380  |   |    -0-  |   |   1,190  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |
| Balance  at June 30, 2003...........                                                                                                          | $           | 62,525                 | $                | 64,361                             | $             | 304,595                      | $                          | 26,101  | $ | (43,601) | $ | (2,519) | $ | 411,462  |
|                                                                                                                                          |        |                        |             |                                    |          |                              |                       |   |   |   |   |   |   |   |

Theaccompanying notes are an integral part of these consolidated financialstatements.          

5 

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

|                                                                                                                    |   | For  the 6 MonthsEnded June 30,   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|
|                                                                                                                    | 2003   | 2002                              |
|                                                                                                                    |   |                              |   |   |
| **Operating Activities**                                                                                                |   |                              |   |   |
|   Net income...............................................                                                   | $      | 26,731                       |   $ | 18,595  |
|   Adjustments to  reconcile net income to net cash provided by operating      activities: |   |                              |   |   |
|     Provision  for credit losses ...........................                                   |   | 6,925                        |   | 5,925  |
|     Depreciation  and amortization..........................                                        |   | 3,632                        |   | 3,759  |
|     Net  losses (gains) on sales of assets..................                                        |   | (5,543)                           |   | (663) |
|     Income  from increase in cash surrender value of bank owned life insurance                      |   | (2,098)                           |   | (2,242) |
|     Decrease  in interest receivable........................                                        |   | 730                          |   | 654  |
|     Decrease  in interest payable...........................                                        |   | (922)                             |   | (2,066) |
|     Increase  (decrease) in income taxes payable............                                        |   | 841                          |   | (1,869) |
|     Change  in deferred taxes...............................                                        |   | (2,325)                           |   | (663) |
|     Other-net..............................................                                         |   |  (2,124)                     |   |   728  |
|                                                                                                                    |   |                              |   |   |
|       Net  cash provided (used) by operating activities.....                              |   | 25,847                       |   | 22,158  |
|                                                                                                                    |   |                              |   |   |
| **Investing Activities**                                                                                                |   |                              |   |   |
|   Transactions  with securities held to maturity:                                                             |   |                              |   |   |
|     Proceeds  from sales....................................                                        |   | -0-                               |   | -0- |
|     Proceeds  from maturities and redemptions...............                                        |   | 70,117                       |   | 43,977  |
|     Purchases..............................................                                         |   | -0-                               |   | (15,241) |
|   Transactions  with securities available for sale:                                                           |   |                              |   |   |
|     Proceeds  from sales....................................                                        |   | 49,913                       |   | 10,237  |
|     Proceeds  from maturities and redemptions...............                                        |   | 510,136                      |   | 215,851  |
|     Purchases..............................................                                         |   | (907,343)                         |   | (206,211) |
|   Proceeds from  sales of loans and other assets............                                                  |   | 65,964                       |   | 48,401  |
|   Acquisition of  affiliate, net of cash received...........                                                  |   | -0-                               |   | (4) |
|   Investment in  bank owned life insurance..................                                                  |   | -0-                               |   | (5,000) |
|   Net decrease in  time deposits with banks.................                                                  |   | 736                          |   | 3,506  |
|   Net increase in  loans....................................                                                  |   | (84,781)                          |   | (99,506) |
|   Purchases of  premises and equipment......................                                                  |   |    (2,693)         |   |  (3,300) |
|                                                                                                                    |   |                              |   |   |
|       Net  cash provided (used) by investing activities.....                              |   | (297,951)                         |   | (7,290) |
|                                                                                                                    |   |                              |   |   |
| **Financing Activities**                                                                                                |   |                              |   |   |
|                                                                                                                    |   |                              |   |   |
|   Repayments of  other long-term debt.......................                                                  |   | (10,991)                          |   |  (681) |
|   Proceeds from  issuance of other long-term debt...........                                                  |   | 10,000                       |   |  18,200  |
|   Discount on  dividend reinvestment plan purchases.........                                                  |   | (334)                             |   | (316) |
|   Dividends paid...........................................                                                   |   | (18,284)                          |   |  (17,564) |
|   Net increase  (decrease) in Federal funds purchased.......                                                  |   | (9,800)                           |   | (81,900) |
|   Net increase  (decrease) in other short-term borrowings...                                                  |   | 134,944                      |   | (40,188) |
|   Net increase in  deposits.................................                                                  |   | 175,685                      |   | 90,484  |
|   Proceeds from  sale of treasury stock.....................                                                  |   |     988  |   |   2,726  |
|                                                                                                                    |   |                              |   |   |
|       Net  cash provided (used) by financing activities.....                              |   |  282,208                |   | (29,239) |
|                                                                                                                    |   |                              |   |   |
|       Net  increase (decrease) in cash and cash equivalents.                              |   | 10,104                       |   | (14,371) |
|                                                                                                                    |   |                              |   |   |
|   Cash and cash  equivalents at January 1...................                                                  |   |  81,114                 |   |  98,130  |
|                                                                                                                    |   |                              |   |   |
|   Cash and cash  equivalents at June 30.....................                                                  | $      |  91,218                 | $ |  83,759  |
|                                                                                                                    |   |                              |   |   |

 

 

 

 Theaccompanying notes are an integral part of these consolidated financialstatements.6

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune 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 June 30, 2003 andthe results of operations for the three month and six month periods ended June30, 2003 and 2002, and statements of cash flows and changes in shareholders'equity for the six month periods ended June 30, 2003 and 2002.  The results of operations for the threemonth and six month periods ended June 30, 2003 and 2002 are not necessarilyindicative of the results that may be expected for the full year or any otherinterim period.  These interim financialstatements should be read in conjunction with the Corporation's 2002 AnnualReport 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 six months of the year for:                                                               |   |         |   |   |
|                                                                                                                  |   |         |   |   |
|   Interest                                                                                                  | $      | 52,138  |   $ | 66,491  |
|   Income  Taxes                                                                                             | $      | 8,230   | $ | 5,260  |
|                                                                                                                  |   |         |   |   |
| Noncash  investing and financing activities:                                                                          |   |         |   |   |
|                                                                                                                  |   |         |   |   |
|   ESOP  loan reductions                                                                                     | $      | 536     | $ | 536  |
|   Loans  transferred to other real estate owned and      repossessed assets             | $      | 2,210   | $ | 3,599  |
|   Gross  increase in market value adjustment to      securities available for sale | $      | 385     | $ | 19,556  |
|   Treasury  stock reissued for business combination                                                         | $      | -0-     | $ | 812  |

7

FIRST COMMONWEALTH FINANCIALCORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune 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)

|                                                                                                             | June 30,  2003 | June 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                      | $              | 5,803                  |  $ | (2,031) |  $ | 3,772  |  $ | 20,166  |  $ | (7,058) |  $ | 13,108  |
|  Less: reclassification    adjustment for gains     realized    in net income |                | (5,418)                     |   |  1,896  |   | (3,522) |   |   (610) |   |     213  |   |   (397) |
|  Net unrealized gains (losses)                                                                              |           |    385  |   |   (135) |   |    250  |   | 19,556  |   | (6,845) |   | 12,711  |
| Other comprehensive income                                                                                       | $              |    385  | $ |   (135) | $ |    250  | $ | 19,556  | $ | (6,845) | $ | 12,711  |

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.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.8

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

NOTE 4 Accounting for Stock Options Granted (continued)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  June 30, |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------|
|                                                                                                                                                            | 2003                         | 2002 |
|                                                                                                                                                            |                         |   |
| Net  Income, as reported                                                                                                                                        |   $                | 13,427  |   $ | 10,957  |
| Deduct:  Total stock-based employee compensation   expense determined under fair value based method   for all awards, net of related tax effects |                              |   (338) |  |   (569) |
| Pro  forma net income                                                                                                                                           | $                            | 13,089  | $ | 10,388  |
|                                                                                                                                                            |                         |   |   |   |
| Earnings  per share:                                                                                                                                            |                         |   |   |   |
|  Basic  - as reported                                                                                                                                      | $                            |   0.23  | $ |   0.19  |
|  Basic  - pro forma                                                                                                                                        | $                            |   0.22  | $ |   0.18  |
|  Diluted  - as reported                                                                                                                                    | $                            |   0.23  | $ |   0.19  |
|  Diluted  - pro forma                                                                                                                                      | $                            |   0.22  | $ |   0.18  |

| (Dollar  amounts in thousands,    except per share data)                                                                                              | Six months ended  June 30, |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------|
|                                                                                                                                                            | 2003                       | 2002 |
|                                                                                                                                                            |                       |   |
| Net  Income, as reported                                                                                                                                        |   $              | 26,731  |   $ | 18,595  |
| Deduct:  Total stock-based employee compensation   expense determined under fair value based method   for all awards, net of related tax effects |                            |   (676) |  | (1,139) |
| Pro  forma net income                                                                                                                                           | $                          | 26,055  | $ | 17,456  |
|                                                                                                                                                            |                       |   |   |   |
| Earnings  per share:                                                                                                                                            |                       |   |   |   |
|  Basic  - as reported                                                                                                                                      | $                          |   0.46  | $ |   0.32  |
|  Basic  - pro forma                                                                                                                                        | $                          |   0.44  | $ |   0.30  |
|  Diluted  - as reported                                                                                                                                    | $                          |   0.45  | $ |   0.32  |
|  Diluted  - pro forma                                                                                                                                      | $                          |   0.44  | $ |   0.30  |

Note 5 Restructuring ChargesThe Corporation incurred restructuring charges of $6,140 thousand during the second,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 2002.9

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

Note 5 Restructuring Charges (continued)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 half of 2003, monthlyseverance payments totaling $1,786 thousand were made, reducing the outstandingseverance liability to $1,603 thousand at June 30, 2003.  No additional severance accruals oradjustments were recorded during the first half of 2003 related to the 2002restructuring. 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 itsfinancial statements about its obligation under certain guarantees and requiresthe guarantor to recognize a liability for the fair value of an obligationassumed under a guarantee.  FIN 45clarifies the requirements of FASB Statement No. 5 ("FAS No. 5")"Accounting for Contingencies", relating to guarantees.  In general, FIN 45 applies to contracts orindemnification agreements that contingently require the guarantor to makepayments to the guaranteed party based on changes in an underlying that isrelated 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

10

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

NOTE 6 New Accounting Pronouncements (continued)based on performance not price. Guarantees that have been entered into by the Corporation are disclosedin NOTE 7.  The adoption of FIN 45 didnot have a material impact on the Corporation's financial condition or resultsof operations.In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN46"), "Consolidation of Variable Interest Entities", theprovisions of which became effective upon issuance.  As defined by FIN 46 a variable interest entity ("VIE")is a corporation, partnership, trust or any other legal structure used forbusiness purposes that either (a) does not have equity

investorswith voting rights or (b) has equity investors that do not provide sufficientfinancial 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. The Corporation has reviewed its current business interests in order todetermine the impact of FIN 46 and has determined that no additional businessinterests require consolidation in the Corporation's financial statements.  The adoption of FIN 46, therefore, did nothave any 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 andclarifies accounting for derivative instruments, including certain derivativeinstruments embedded in other contracts, and for hedging activities underStatement 133.  In particular, FAS No.149 clarifies under what circumstances a contract with an initial netinvestment meets the characteristic of a derivative and when a derivativecontains 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 is not expected to have a materialimpact on the Corporation's financial condition or results of operations.

InMay 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 guidance11

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

NOTE 6 New Accounting Pronouncements (continued)

onthe concept of what constitutes either a "liability" or"equity".    Entities willcontinue to apply existing guidance on determining the balance sheetclassification of instruments that do not specifically fall within the scope ofFAS No. 150.  FAS No. 150 must beapplied immediately to financial instruments entered into or modified after May31, 2003.  For all other instrumentsthat exist, this statement goes into effect at the beginning of the firstinterim period beginning after June 15, 2003. Application to pre-existing instruments should be recognized as thecumulative effect of a change in accounting principle.  FAS No. 150 prohibits entities fromrestating financial statements for earlier years presented.  This statement generally does not requiresubstantial 

additionaldisclosures in the notes to the financial statements beyond those required byexisting accounting standards.  Adoptionof FAS No. 150 is not expected to have a material impact on the Corporation'sfinancial condition or results of operations. 

NOTE7 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 or pledged.  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 June 30,2003:  (Dollar amounts in thousands)

| Financial  standby letters of credit   |   $ | 23,870 |
|----------------------------------------|---------------|--------|
| Performance  standby letters of credit |   $ | 6,474  |

The current notional amounts outstanding above include financial standbyletters of credit of $6,087 thousand and performance standby letters of creditof $458 thousand issued during the first half of 2003.  There is currently no liability recorded onthe Corporation's balance sheet related to the above letters of credit.12

 

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

NOTE 8 Subsequent Event-Branch SaleOn July 17, 2003 First Commonwealth Bank, a wholly-owned subsidiary of theregistrant agreed to sell two of its branch offices to Waypoint Bank.  Waypoint Bank is a $5.6 billion federallychartered thrift with 59 branches located throughout Pennsylvania and Maryland.  Under the terms of the purchase andassumption agreement, Waypoint will acquire First Commonwealth Bank branches at15 South Main Street in Chambersburg, PA and 1720 Lincoln Highway East inGuilford Township, PA.  Waypoint willassume approximately $30 million of deposit liabilities and purchase $5 millionin loans associated with the two offices. The transaction is subject to the approval of the Office of ThriftSupervision and is expected to settle in the third quarter of 2003.  The transaction is expected to generate apre-tax gain of approximately $3.0 million which will be included in theregistrant's financial results for the third quarter of 2003.Note 9 Subsequent Event-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 $376 million, deposits of $182million and equity of nearly $23 million at June 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".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 transaction is subject to all requiredregulatory approvals and the approval of PFC shareholders.  The definitive agreement was unanimouslyapproved by the Boards of Directors of both organizations.  The transaction has a current market valueof $28.4 million and is expected to be completed by the end of 2003.On a pro-forma basis, as of June 30, 2003, the registrant would have assets ofapproximately $5.2 billion, total equity of $424 million and marketcapitalization of $765 million. 13

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

RESULTS OF OPERATIONS**First Six Months of 2003 as Compared to theFirst Six 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 similar expressions.  These forward-looking statements areinherently subject to significant risks and uncertainties, including but notlimited to:  changes in general economicand financial market conditions, the Corporation's ability to effectively carryout its business plans, changes in regulatory or legislative requirements,changes in competitive conditions and continuing consolidation of the financialservices industry.  Although managementbelieves the expectations reflected in such forward-looking statements arereasonable, actual results could differ materially.  Readers are cautioned not to place undue reliance on theseforward-looking statements, which reflect management's analysis only as of thedate hereof.  The Corporation undertakesno obligation to publicly revise or update these forward-looking statements toreflect events or circumstances that arise after the date hereof.

Net income for the first six months of 2003 was $26.7 million reflecting anincrease of $8.1 million compared to 2002 results of $18.6 million.  The change in net income for the 2003 periodreflected decreases in non-interest expenses primarily related to nonrecurringexpenses included in the 2002 period and an increase in security gains for the2003 period compared to the corresponding period of 2002.  Net income for the 2002 period included an$8.0 million litigation settlement ($5.2 million net of tax) while the 2003period includes a partial recovery from insurance for that claim in the amountof $610 thousand ($397 thousand net of tax). This settlement related to a lender liability action filed in 1994against one of the Corporation's subsidiary banks and followed an adversepre-trial judgment by the trial judge on procedural grounds.  The 2002 period also included $3.1 million($2.0 million after-tax) of nonrecurring restructuring charges associated withthe 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.  These restructuring charges included $2.8 million related toseparation pay for those employees whose positions were eliminated or chose notto relocate as a result of the merger of the two banks which was completed inthe fourth quarter of 2002.  The firsthalf of 2003 includes securities gains of $5.5 million ($3.5 million net oftax) compared to securities gains of $615 thousand ($400 thousand net of tax)for the first half of 2002.  The firstsix months of 2003 also includes decreases in net interest income whichcontinues 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.   

14

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

 

RESULTSOF OPERATIONS (continued)**First Six Months of 2003 as Compared to theFirst Six Months of 2002**(continued)The decrease in net interest income has been partially offset by increases innon-interest income for the first half of 2003 compared to the first half of2002.  Diluted earnings per share was$0.45 for the first six months of 2003 compared to $0.32 for the first sixmonths 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     |    $ | 0.32        |
|---------------------------------------|---------------------|------------------|
|                                  |                |             |
| Increase  (decrease) from changes in: |                |             |
|  Net  interest income            |                | (0.07)           |
|  Provision  for credit losses    |                | (0.02)           |
|  Security  transactions          |                | 0.08        |
|  Service  charges on deposits    |                | 0.01        |
|  Other  income                   |                | 0.01        |
|  Salaries  and employee benefits |                | (0.02)           |
|  Net  occupancy expense          |                | (0.01)           |
|  Litigation  settlement          |                | 0.15        |
|  Restructuring  charges          |                | 0.05        |
|  Other  operating expenses       |                | 0.02        |
|  Applicable  income taxes        |                | (0.07)           |
|                                  |                |             |
| Net  income per share                 | $                   |  0.45  |

Return on average assets was 1.17% and return on average equity was 13.07% forthe first six months of 2003 compared to 0.82% and 9.77%, respectively, for thefirst six 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 $3.7 million for the first half of 2003 compared to the first half of2002, primarily as earning asset yields declined faster than funding costs.  Net interest margin (net interest income, ona tax-equivalent basis, as a percentage of average earning assets) was 3.63%for the six months of 2003 compared to 3.79% for the six months of 2002.  Continued low or declining interest rateswould tend to further strain net interest income due to low reinvestment ratesand accelerated prepayments of certain loans and investments.15

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

RESULTS OF OPERATIONS(continued)**First Six Months of 2003 as Compared to theFirst Six 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                                      |   $ | (10) |    $ | (7) |    $ | (3) |
|   Securities                                                     |   | (9,891) |   | (762) |   | (9,129) |
|   Federal  funds sold                                            |   | (2) |   | -0- |   | (2) |
|   Loans                                                          |   |  (6,995) |   |    399  |   |  (7,394) |
|     Total  interest income                             |   | (16,898) |   |   (370) |   | (16,528) |
| Interest-bearing  liabilities:                                             |   |   |   |   |   |   |
|   Deposits                                                       |   | (10,345) |   | (3) |   | (10,342) |
|   Short-term  borrowings                                         |   | (117) |   | 968  |   | (1,085) |
|   Long-term  debt                                                |   |  (2,748) |   | (2,720) |   |    (28) |
|     Total  interest expense                            |   | (13,210) |   | (1,755) |   | (11,455) |
|       Net  interest income                   | $ |  (3,688) | $ |  1,385  | $ |  (5,073) |
|                                                                       |   |   |   |   |   |   |

 

Interestand fees on loans declined $7.0 million for the first six months of 2003compared to 2002 levels as loan yields declined in the lower interest rateenvironment.  The total yield on loansfor the first half of 2003 was 6.60%, compared to loan yields of 7.23% for thefirst half of 2002.  Average loans forthe first six months of 2003 rose $55.2 million compared to averages for thefirst six months of 2002 as increases in commercial loans, municipal loans andindirect installment loans were partially offset by decreases in averagemortgage loans.  The Corporationhas continued 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.16

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

RESULTS OF OPERATIONS(continued)**First Six Months of 2003 as Compared to theFirst Six Months of 2002**(continued)Interest income on investments declined $9.9 million for the first half of 2003compared to the first half of 2002 reflecting decreases due to interest ratesof $9.1 million combined with decreases due to investment volumes of $762thousand.  Total yield on investmentswas 5.02% for the first six months of 2003 compared to 6.11% for the sameperiod of 2002.  Declines in interestincome due to rate for U.S. government agency securities were $7.9 million asyields on U.S. government agency securities decreased 142 basis points (1.42%)for the 2003 period compared to the corresponding period of 2002.  Average investments for the first half of2003 included decreases in average asset backed securities of $74.9 millionwhich were partially offset by increases in average U.S. government agencysecurities and average municipal investments compared to 2002 averages.Interest on deposits dropped $10.3 million for the 2003 period compared to 2002primarily due to decreases in interest expense due to interest rates.  Deposit costs were 2.05% for the first sixmonths of 2003 compared to 2.72% for the first six months of 2002.  The rate on savings deposits fell 47 basispoints (0.47%) resulting in a decrease to interest expense of $2.6 million forthe first six months of 2003 compared to the first six months of 2002.  The rate on time deposits for 2003 alsodeclined, down 90 basis points (0.90%) compared to 2002 levels, resulting in adecrease to interest expense of $7.7 million for the first six months of2003.  The Corporation's deposit mixalso changed for the first half of 2003 as clients registered a preference forsavings deposits during continuing economic uncertainties.  Average savings deposits increased $75.4million for 2003 compared to 2002 averages while average time deposits dropped$49.3 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 decreased $117 thousand for the sixmonths of 2003 compared to the six months of 2002 as decreases in interestexpense due to rate of $1.1 million were, for the most part, offset byincreases in interest expense due to volume of $968 thousand compared to 2002levels.  The cost of short-termborrowings for the 2003 period decreased by 50 basis points (0.50%) compared to2002 costs of 1.86%. The average balance of short-term borrowings for the firstsix months of 2003 increased by $109.2 million over averages for the prioryear.  The increase in short-termborrowings can mainly be attributed to $100 million of long-term debt thatmatured during the fourth quarter of 2002 and was replaced with short-termborrowings.17

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

RESULTS OF OPERATIONS(continued)**First Six Months of 2003 as Compared to theFirst Six Months of 2002**(continued)Interest expense on long-term debt decreased $2.7 million for the first sixmonths of 2003 compared to the corresponding period of 2002, primarily as aresult of volume decreases.  Averagelong-term debt for the six months of 2003 decreased by $96.4 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 $6.9million for the six months of 2003 compared to $5.9 million for the six monthsof 2002.  Net charge-offs against theallowance for credit losses were $5.8 million for both the 2003 and 2002periods.  Net charge-offs as a percentof average loans outstanding were also comparable for the first half of 2003and the first half of 2002 representing 0.22% of average loans for bothperiods.  The provision for creditlosses as a percent of net charge-offs was 119.05% at June 30, 2003 compared to102.85% at December 31, 2002 and 102.51% at June 30, 2002.  Management continues to gather additionaldata related to its loan portfolio to make sure material trends and factors areconsidered in management's evaluation of the adequacy of the allowance forcredit losses.  See the "CreditReview" section for any analysis of the quality of the loan portfolio.18

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

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

|                                                | 2003                   | 2002                            |
|-----------------------------------------------------|------------------------|---------------------------------|
|                                                | (amounts in thousands) |
|                                                |                   |                            |   |   |
| Balance  January 1,                                 | $                      | 34,496                          |   $ | 34,157 |
| Loans  charged off:                                 |                   |                            |   |   |
|   Commercial,  financial and agricultural |                   | 2,112                           |   | 2,972 |
|   Real  estate-construction               |                   | 378                             |   | 3 |
|   Real  estate-commercial                 |                   | 467                             |   | 351 |
|   Real  estate-residential                |                   | 2,040                           |   | 863 |
|   Loans  to individuals                   |                   | 1,685                           |   | 2,187 |
|   Lease  financing receivables            |                   |    191           |   |    236 |
|                                                |                   |                            |   |   |
|     Total  loans charged off    |                   |  6,873                     |   |  6,612 |
|                                                |                   |                            |   |   |
| Recoveries  of previously charged off loans:        |                   |                            |   |   |
|   Commercial,  financial and agricultural |                   | 712                             |   | 505 |
|   Real  estate-construction               |                   | 0                               |   | 0 |
|   Real  estate-commercial                 |                   | 0                               |   | 0 |
|   Real  estate-residential                |                   | 10                              |   | 11 |
|   Loans  to individuals                   |                   | 334                             |   | 311 |
|   Lease  financing receivables            |                   |      0 |   |      5 |
|                                                |                   |                            |   |   |
|     Total  recoveries           |                   |  1,056                     |   |    832 |
|                                                |                   |                            |   |   |
|     Net  charge offs            |                   |  5,817                     |   |  5,780 |
|                                                |                   |                            |   |   |
| Provision  charged to operations                    |                   |  6,925                     |   |  5,925 |
|                                                |                   |                            |   |   |
| Balance  June 30,                                   | $                      | 35,604                          | $ | 34,302 |

 

Netsecurities gains were $5.5 million during the first six months of 2003 comparedto $615 thousand for the first six months of 2002.  Securities gains during the 2003 period resulted primarily fromthe sale of fixed rate corporate bonds classified as securities "availablefor sale" with book values of $34.5 million and Pennsylvania bank stockswith book values of $6.7 million.  Thecorporate bonds sold during 2003 had an average remaining life of one year andthe proceeds were reinvested in adjustable rate trust preferred securities withmaturities of 30 years and mortgage backed securities with an average life of3.6 years.  This reinvestment strategywas initiated to partially mitigate the Corporation's exposure to low anddeclining interest rates.  Securities gainsduring the 2002 period resulted primarily from the sale of Pennsylvania bankstocks, U.S. treasury securities and fixed rate corporate bonds classified assecurities "available for sale". 19

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

RESULTS OF OPERATIONS(continued) **First Six Months of 2003 as Compared to theFirst Six Months of 2002**(continued)Trust income was relatively stable for the first half of 2003 compared to thefirst half of 2002.  Although feerevenue continues to be negatively impacted by low market values, the enhancedreferral programs and integrated growth plans for financial affiliates thathave been initiated have helped to offset this trend.  The Corporation's continued success in building relationshipswith commercial clients provides fee based affiliates with additional salesopportunities through the "Total Solutions Financial Management"("TSFM") process.  Thisstrategy combines products, services and professional staff from theCorporation's trust, insurance, financial advisory and banking affiliates andpartners them in providing comprehensive financial services offerings.Service charges on deposits are the Corporation's most significant component ofnon-interest income and increased $665 thousand for the first six months of2003 compared to the corresponding period of 2002.  Increases in insufficient funds fees "NSF" of $960thousand for the first half of 2003 were partially offset by decreases inselected fees related to certain transaction accounts compared to 2002levels.  Management strives to implementreasonable fees for services and closely monitors collection of those fees.Insurance commissions fell $162 thousand for the 2003 period as decreases inannuity and credit insurance revenues were larger than the increases that weregenerated in all other insurance categories. As part of the previously discussed TSFM process, the Corporation'sinsurance subsidiary will continue to have expanded opportunities to meet theinsurance needs of commercial clients. In addition, the Corporation has developed "FOCUS" a financialplanning tool designed to help clients prioritize and assess their financialneeds.  The "FOCUS" conceptresults in a systematic approach covering a wide range of personal financialgoals including appropriate insurance coverage.Other income for the first six months of 2003 rose $830 thousand from the $5.7million reported for the first six months of 2002.  Other income for the first half of 2003 included increases inSTAR interchange fees, merchant discount and income from the increase in cashsurrender value of split dollar life insurance of $600 thousand, $430 thousandand $160 thousand, respectively, versus 2002 results.  Gains on the sale of residential mortgage loans including thesale of the related servicing rights increased by $182 thousand for the sixmonths of 2003 compared to 2002 gains. Other income for the 2003 periodincluded decreases in debit card interchange fees and gains on sale offoreclosed property.20

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

RESULTS OF OPERATIONS(continued)**First Six Months of 2003 as Compared to theFirst Six Months of 2002**(continued)Noninterest expense was $56.2 million for the six months of 2003 reflecting adecrease of $10.9 million from the 2002 level of $67.1 million, primarilyreflecting the effects of the previously mentioned litigation settlement andrestructuring charges included in 2002 costs. The 2002 period includes the $8.0 million litigation charge while the2003 period includes a $610 thousand recovery from insurance coverage relatedto the settlement.  The 2002 period alsoincludes a $3.1 million restructuring charge related to employee separation payand costs related to merging the Corporation's two subsidiary banks into onecharter. Employee costs were $30.5 million for the first six months of 2003,representing an increase of $1.1 million over 2002 levels.  Salary costsfor the first half of 2003 increased $340 thousand or 1.5% compared to 2002levels of $22.7 million.  Salary costsfor 2003 include on-going savings resulting from the merger of theCorporation's banking subsidiaries under one charter and the consolidation ofsupport functions which caused some staff positions to be eliminated during2002.  These staffing reductions werepart of the corporate restructuring initiative which also provided severancebenefits to affected employees. Severance costs were expensed as incurred during 2002 while monthly cashpayments for some individuals continue during 2003.  Employee benefit costs rose $731 thousand or 10.9% for the firsthalf of 2003 with the largest increase being hospitalization costs, which wereup $542 thousand or 22.8%.  TheCorporation continues to evaluate its current menu of employee benefits to providea competitive benefits package while also managing costs.  Current benefit options include coveragesfully paid for by the employer, as well as voluntary benefits whereby employeeshave the option of purchasing additional benefits at reduced group rates.Net occupancy expense increased $446 thousand for the first half of 2003 andincluded increases in building repairs and maintenance, utilities and netrental expense compared to 2002 costs. Much of these increases were due to increased utility costs and snowremoval expenses resulting from the harsh winter.  The Corporation is actively evaluating its branch deliverynetwork to optimize client service in existing branches and to continueexpansion into growth markets.  Theexecution of these initiatives may impact occupancy and other expenses infuture periods.  Amortization of core deposit intangibles declined by $175 thousand for thefirst half of 2003 compared to 2002 amortization as amounts related to certainacquisitions became fully amortized during 2002.  21

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

RESULTS OF OPERATIONS (continued)**First Six Months of 2003 as Compared to theFirst Six Months of 2002**(continued)Other operating expenses for the 2003 period were $14.1 million reflecting adecrease of $1.0 million (6.7%) from the 2002 amount of $15.2 million.  The first six months of 2003 includeddecreases in loss on sale of assets (primarily leased vehicles), otherprofessional fees and telephone expenses of $171 thousand, $799 thousand and$325 thousand, respectively compared to 2002 costs.  Directors' fees for the 2003 period reflected decreases of $298thousand resulting from the restructuring of the Corporation's Boards ofDirectors and committees during 2002. Legal fees were also $201 thousand lowerin the first half of 2003 compared to the first half of 2002.  These fees are being centrally managed tomaximize risk management as well as cost control.  The first six months of 2003 included an increase in charge cardinterchange charges of $368 thousand compared to the first six months of2002.  Advertising costs for 2003 reflectedincreases of $230 thousand, primarily as a result of continued promotion of theCorporation's brand and identity launched during the fourth quarter of 2002, aswell as on-going marketing campaigns for free checking products.  These free checking products are expected tohave a favorable impact on deposit costs and service charge revenue in futureperiods, as well as providing potential add-on sales of other financialproducts and services.  Income tax expense increased $4.0 million for the first half of 2003 comparedto the first half of 2002.  The 2002period included a $2.8 million tax effect related to the $8.0 millionlitigation settlement recorded during 2002 as well as a $1.1 million tax effectrelated to the 2002 restructuring charges. The Corporation's effective tax rate was 20.2% for the first six monthsof 2003 compared to 12.8% for the corresponding period of 2002.**Three Months Ended June 30, 2003 as Comparedto the Three Months EndedJune****30, 2002**Net income was $13.4 million for the second quarter of 2003 an increase of $2.5million compared to 2002 results of $10.9 million. The change in net income forthe 2003 period reflected decreases in non-interest expenses primarily relatedto nonrecurring expenses included in the 2002 period and an increase insecurity gains for the 2003 period compared to the corresponding period of2002.  Restructuring charges of $3.1million ($2.0 million net of tax) were included in results of operations forthe second quarter of 2002. The three months of 2003 included securities gainsof $3.2 million ($2.1 million net of tax) compared to securities gains of $576thousand ($374 thousand net of tax) for the three months of 2002.  Net interest income for the second quarterof 2003 reflected a decrease compared to the amount reported for the three monthsof 2002. The decrease in net interest income has been partially offset byincreases in non-interest income for the 2003 quarter compared to the 2002quarter.  Basicand diluted earnings per share were $0.23 for the second quarter of 2003compared to $0.19 for the second quarter of 2002.  Return on average assets was 1.15% and return on average equitywas 12.99% for the second quarter of 2003 compared to 0.96% and 11.43%,respectively, for the second quarter of 2002.22

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

RESULTS OF OPERATIONS (continued)**Three Months Ended June 30, 2003 as Comparedto the Three Months EndedJune****30, 2002**(continued)****Net interest income for the second quarter of 2003 of $35.4 million representeda decrease of $2.5 million compared to the second quarter of 2002.  Net interest margin (net interest income, ona tax-equivalent basis, as a percentage of average earning assets) for the 2003period was 3.49% reflecting a decrease of 28 basis points (0.28%) from 3.77%reported in 2002 as asset yields declined more than the cost of funds.   Interest and fees on loans for the three months ended June 30, 2003 decreased$3.7 million compared to the three months ended June 30, 2002, primarily as aresult of rate decreases, most notably for variable rate commercial loans.  The total yield on loans for the secondquarter of 2003 was 6.51% representing a decrease of 65 basis points(0.65%)compared to yields for the second quarter of 2002.  Declines in interest and fees on loans dueto rate for the second quarter of 2003 compared to the second quarter of 2002were partially offset by increases in interest income due to volume for commercialloans.  Average loans for the secondquarter of 2003 increased $46.3 million compared to averages for the secondquarter of 2002 and included increases in commercial loans, municipal loans andhome equity loans which were partially offset by deceases in averageresidential mortgage loans. Interest income on investments for the three months ended June 30, 2003 was$19.7 million, reflecting a decrease of $5.0 million compared to the threemonths ended June 30, 2002.  Total yieldon investments was 4.77% for the second quarter of 2003 compared to 6.09% forthe second quarter of 2002.  Changes ininvestment income due to rate totaled $5.7 million for the 2003 period asoverall interest rates were lower than in the prior year.  Rate decreases during 2003 were slightlyoffset by volume increases, most notably, volume increases for U.S. governmentagency securities and municipal investments. Average investments increased by$63.8 million for the second quarter of 2003 compared to averages for thesecond quarter of 2002.  Interest on deposits dropped $4.8 million for the three months ended June 30,2003 compared to the three months ended June 30, 2002 as both rates and volumesdeclined for the 2003 period.  Interestexpense on savings reflected decreases due to rate of $1.3 million for the 2003period as savings costs fell from 1.21% in 2002 to 0.76% in 2003.  Interest on time deposits reflecteddecreases due to rate of $2.3 million and decreases due to volume of $1.4million for the second quarter of 2003 compared to the second quarter of 2002.  Average time deposits were $1,598.4 millionfor 2003 compared to $1,626.4 million for the corresponding period of 2002. Thecost of time deposits was 3.43% for 2003 compared to 4.27% for 2002.  23

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

RESULTS OF OPERATIONS(continued)**Three Months Ended June 30, 2003 as Comparedto the Three Months EndedJune****30, 2002**(continued)**** Interest expense on short-term borrowings rose for the second quarter of 2003compared to the second quarter of 2002 as increases in interest expense due tovolume were offset by decreases in interest expense due to rate.  Average short-term borrowings increased$151.8 million for the second quarter of 2003 compared to 2002 averages, due inpart to $100 million of long-term debt maturing in the fourth quarter of 2002which was rolled into short-term borrowings. The largest portion of the additional increase in short-term borrowingscan primarily be attributed to the pre-investment strategy implemented duringthe second quarter of 2003 which is described in the "InterestSensitivity" section of this report. Interest expense on long-term debt for the three months ended June 30,2003 fell $1.5 million from $9.7 million reported for the three months endedJune 30, 2002 primarily as a result of volume decreases.  Average long-term debt was $102.7 millionlower in the second quarter of 2003 than averages for the second quarter of2002.    The provision for credit losses was $3.5 million for the three months endedJune 30, 2003 compared to $3.0 million for the three months ended June 30,2002.  Net charge-offs for the secondquarter of 2003 were $3.2 million, an increase of $398 thousand from netcharge-offs for the second quarter of 2002. Net charge-offs for the second quarter of 2003 included increases in netcharge-offs of residential mortgage loans of $1.3 million combined with decreasesin net charge-offs for most other loan categories.   Net securities gains were $3.2 million for the second quarter of 2003 comparedto securities gains of $576 thousand for the second quarter of 2002.  Securities gains during both the 2003 andthe 2002 periods resulted primarily from the sale of Pennsylvania bankstocks.  During the second quarter of2003 Pennsylvania bank stocks with book values of $5.6 million were sold, whilebank stocks with book values of $1.1 million were sold during the secondquarter of 2002, generating gains of $3.2 million and $475 thousand,respectively. Service charges on deposits increased by $509 thousand for the three monthsended June 30, 2003 compared to the three months ended June 30, 2002.  This increase is due in part to increases ininsufficient funds fees "NSF" for the second quarter of 2003 comparedto 2002 levels.  Other income for the second quarter of 2003 rose $389 thousand from the $3.1million reported for the second quarter of 2002.  Other income for the 2003 period included increases in STARinterchange fees, merchant discount and income from the increase in cashsurrender value of split dollar life insurance of $214 thousand, $232 thousandand $160 thousand, respectively, versus 2002 results.  Other income for the 2003 period included decreases in debit cardinterchange fees, and gains on sale of foreclosed property.24

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

RESULTS OF OPERATIONS(continued)**Three Months Ended June 30, 2003 as Comparedto the Three Months EndedJune****30, 2002**(continued)**** Total noninterest expense for the three months ended June 30, 2003 was $28.4million reflecting a decrease of $3.2 million from the $31.6 million that wasreported for the corresponding period of 2002. The decrease of 2003 resulted primarily from the previously discussedrestructuring charges of $3.1 million which were included in the 2002 period.  Employee costs were $15.1 million for thesecond quarter of 2003, representing an increase of $379 thousand over 2002levels.  Salary costs for the threemonths of 2003 increased by less than 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 $341 thousand or 10.3% for the secondquarter of 2003 with the largest increase being hospitalization costs, whichwere up $285 thousand or 23.8% compared to 2002 levels.Net occupancy expense increased $158 thousand for the three months ended June30, 2003 compared to the three months ended June 30, 2002, primarily as aresult of increases in building repairs and maintenance.  Amortization of core deposit intangiblesdeclined by $62 thousand for the 2003 period as amounts related to certainacquisitions became fully amortized during 2002.  Other operating expenses for the 2003 quarter were $7.2 million reflecting adecrease of $790 thousand from the 2002 amount of $8.0 million.  The most notable decreases in otheroperating expenses for the second quarter of 2003 compared to the secondquarter of 2002 occurred in directors fees, other professional fees and legalfees which decreased by $179 thousand, $608 thousand and $101 thousand,respectively.  Other operating expensesfor the second quarter of 2003 were also positively impacted by reductions intelephone costs of $165 thousand due in part to active management of both voiceand dataline expenses by the Corporation's data processing and technologyaffiliate.  The three months ended June30, 2003 included increases in advertising, charge card interchange costs andpostage compared to the three months ended June 30, 2002.    Income tax expense increased $1.1 million for the second quarter of 2003compared to the second quarter of 2002 primarily as a result of increases inincome before taxes of $3.5 million over 2002 levels.  Tax expense for 2002 included the $1.1 million tax effect relatedto the 2002 restructuring charges.  Taxexpense for the second quarter of 2003 was positively impacted by an increasein tax-free municipal income compared to 2002 levels.  The Corporation's effective tax rate was20.0% for the second quarter of 2003 compared to 17.3% for the correspondingperiod of 200225

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

monitoringand measuring liquidity and quantifies minimum liquidity requirements whichcomply with regulatory requirements. The policy also includes a liquidity contingency plan to address fundingneeds to maintain liquidity under a variety of business conditions.  The Corporation's liquidity position ismonitored by the Asset/Liability Management Committee ("ALCO").At June 30, 2003 total earning assets were $4,586.4 million, up from the $4,291.2million recorded at December 31, 2002. Net loans increased $11.8 million for the first six months of 2003 ascommercial loans increased by $48.4 million and municipal loans increased by$12.1 million compared to year-end 2002, while loans to individuals increasedby $14.3 million over the same time frame. The first six months of 2003 reflected decreases of $54.2 million inresidential real estate loans, due in part to the continued run-off of theexisting portfolio and sale of new loan production 

asthe Corporation continues to change its loan mix.  The Corporation's auto lease portfolio also reflected decreasesof $9.7 million for the first six months of 2003 as focus shifts from indirectleasing activities.  Investmentsecurities increased $283.0 million for the first six months of 2003 due inpart to a $150 million pre-investment strategy that is described in the"Interest Sensitivity" section of this report. 26

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

LIQUIDITY (continued)Total deposits increased $175.7 million for the first six months of 2003.  This included increases in time deposits of$72.9 million, total savings deposits of $83.5 million, and demand deposits of$19.3 million compared to year-end 2002. Included in time deposits for the first six months of 2003 were $100million of brokered deposits with a weighted average term of 27 months.  Proceeds from the issuance of brokereddeposits were utilized to pay down short-term borrowings during the firstquarter of 2003.  Short-term borrowingsincreased during the second quarter to $594.2 million compared to $469.1million at December 31, 2002. Short-term borrowings of $150 million were used to fund the previouslymentioned 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 June 30,2003, securities available for sale had an amortized cost of $1,795.7 millionand an approximate fair value of $1,835.9 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.27

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 $271.8 million or 5.63% of total assets at June 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 includematuring certificates of deposit, money market deposits, savings deposits, NOWaccounts and 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 June 30,2003, and December 31, 2002 (dollar amounts in thousands):

|                                             | June 30,  2003                   |
|--------------------------------------------------|----------------------------------|
|                                             | 0-90  Days   | 91-180  Days   | 181-365  Days   | Cumulative0-365 Days |
| Loans                                            | $                                | 1,017,995  | $ | 181,100  | $ | 304,428  | $ | 1,503,523  |
| Investments                                      |                             | 433,088  |   | 140,687  |   | 361,469  |   | 935,244  |
| Other interest-earning assets                    |                             |     1,237  |   |       0  |   |       0  |   |     1,237  |
|                                             |                             |   |   |   |   |   |   |   |
|   Total interest-sensitive assets      |                             | 1,452,320  |   | 321,787  |   | 665,897  |   | 2,440,004  |
|                                             |                             |   |   |   |   |   |   |   |
| Certificates of deposit                          |                             | 226,870  |   | 193,511  |   | 438,504  |   | 858,885  |
| Other deposits                                   |                             | 1,256,014  |   | 0  |   | 0  |   | 1,256,014  |
| Borrowings                                       |                             |   594,791  |   |     921  |   |   1,166  |   |   596,878  |
|                                             |                             |   |   |   |   |   |   |   |
|   Total interest-sensitive liabilities |                             | 2,077,675  |   | 194,432  |   | 439,670  |   | 2,711,777  |
|                                             |                             |   |   |   |   |   |   |   |
| Gap                                              | $                                |  (625,355) | $ | 127,355  | $ | 226,227  | $ |  (271,773) |
|                                             |                             |   |   |   |   |   |   |   |
| ISA/ISL                                          |                             | 0.70  |   | 1.66  |   | 1.51  |   | 0.90  |
| Gap/Total assets                                 |                             | 12.95% |   | 2.64% |   | 4.68% |   | 5.63% |
|                                             |                             |   |   |   |   |   |   |   |

28

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 aspecific point in time, and as a result may not accurately predict the impactof changes in 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.29

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 300 basis point (3.00%) movement upward or a 100 basispoint movement downward which cannot result in more than a 7.5% change or 5.0%change, respectively, in net interest income when compared to the base case,without Board approval and a strategy in place to reduce interest rate risk tofall within established ranges.  Theanalysis at June 30, 2003 indicated that a 300 basis point (3.00%) increase ininterest rates would increase net interest income 405 basis points (4.05%)above the base case scenario and a 100 basis point (1.00%) decline in interestrates would decrease net interest income by 272 basis points (2.72%) below thebase case scenario, over the next twelve months, both within policy limits.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 ALCOstrategies are established by the Corporation's senior management.  The ALCO continues to evaluate the use ofderivative instruments to protect against the risk of adverse price or interestrate movements on the valuesof certain assets and liabilities. Although no derivative instruments were utilized as of June 30, 2003,the Corporation entered into an interest rate swap transaction in July2003.  The swap has a three-year maturityand involves hedging adjustable LIBOR based commercial loans with areceive-fixed interest rate swap of $25 million notional amount.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.30

FIRST COMMONWEALTH FINANCIAL CORPORATIONAND 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 June 30,            |
|------------------------------------------------------------------------------|------------------------|
|                                                                         | 2003                   | 2002 |
|                                                                         | (amounts in thousands) |
| Nonperforming  Loans:                                                        |                   |   |   |   |
|                                                                         |                   |   |   |   |
|   Loans  on nonaccrual basis                                       | $                      | 20,810  |   $ | 25,705  |
|   Past  due loans                                                  |                   | 14,778  |   | 14,987  |
|   Renegotiated  loans                                              |                   |       201  |   |       828  |
|                                                                         |                   |   |   |   |
|     Total  Nonperforming loans                           | $                      |    35,789  | $ |    41,520  |
|                                                                         |                   |   |   |   |
| Other  real estate owned                                                     | $                      | 1,714  | $ | 1,468  |
|                                                                         |                   |   |   |   |
| Loans  outstanding at end of period                                          | $                      | 2,621,569  | $ | 2,612,965  |
|                                                                         |                   |   |   |   |
| Average  loans outstanding (year-to-date)                                    | $                      | 2,644,059  | $ | 2,588,873  |
|                                                                         |                   |   |   |   |
| Nonperforming  loans as percent of total loans                               |                   | 1.37% |   | 1.59% |
|                                                                         |                   |   |   |   |
| Provision  for credit losses                                                 | $                      | 6,925  | $ | 5,925  |
|                                                                         |                   |   |   |   |
| Net  charge-offs                                                             | $                      | 5,817  | $ | 5,780  |
|                                                                         |                   |   |   |   |
| Net  charge-offs as a percent of average loans outstanding                   |                   | 0.22% |   | 0.22% |
|                                                                         |                   |   |   |   |
| Provision  for credit losses as a percent of net charge-offs                 |                   | 119.05% |   | 102.51% |
|                                                                         |                   |   |   |   |
| Allowance  for credit losses as a percent of average loans outstanding       |                   | 1.35% |   | 1.32% |
|                                                                         |                   |   |   |   |
| Allowance  for credit losses as a percent of end-of-period loans outstanding |                   | 1.36% |   | 1.31% |
|                                                                         |                   |   |   |   |
| Allowance  for credit losses as a percent of nonperforming loans             |                   | 99.48% |   | 82.62% |

31

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 collateraldependent.  Payments received onimpaired loans are applied against the recorded investment in the loan.  For loans other than those that theCorporation expects repayment through liquidation of the collateral, when theremaining recorded investment in the impaired loan is less than or equal to thepresent value of the expected cash flows, income is recorded on a cash basis.  Impaired loans include loans on a nonaccrualbasis and renegotiated loans.The following table identifies impaired loans, and information regarding therelationship of impaired loans to the reserve for credit losses at June 30,2003 and June 30, 2002:

|                                                                              | 2003                   | 2002   |
|-----------------------------------------------------------------------------------|------------------------|--------|
|                                                                              | (amounts in thousands) |
|                                                                              |                   |   |   |   |
| Recorded  investment in impaired loans at end    of period                   |  $                | 21,011 |   $ | 26,533 |
|                                                                              |                   |   |   |   |
| Year  to date average balance of impaired loans                                   | $                      | 22,262 | $ | 25,078 |
|                                                                              |                   |   |   |   |
| Allowance  for credit losses related to    impaired loans                    | $                      | 5,308  | $ | 5,382 |
|                                                                              |                   |   |   |   |
| Impaired  loans with an allocation of the   allowance for credit losses      | $                      | 15,318 | $ | 15,312 |
|                                                                              |                   |   |   |   |
| Impaired  loans with no allocation of the allowance   for credit losses | $                      | 5,693  | $ | 11,221 |
|                                                                              |                   |   |   |   |
| Year  to date income recorded on impaired loans    on a cash basis           | $                      | 199    | $ | 188 |

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 June 30, 2003, there were nosignificant concentrations of credit.Nonperforming loans at June 30, 2003 decreased $5.7 million compared to 2002levels as nonaccrual loans, past due loans and renegotiated loans decreasedcompared to June 30, 2002.  The decreasein nonaccrual loan levels of $4.9 million was primarily due to decreases innonaccrual commercial loans.  Nonaccrualloans include two significant credits in both periods.  The largest credit ($6.1 million) carries an80% guaranty of a U.S. government agency. While a sale of the underlying assets is pending,32

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

CREDIT REVIEW (continued)delays with the bankruptcy court would result in a delay of the final sale andresolution of the remaining balance. The second credit which was $3.0 million at June 30, 2003, continues tobe resolved through 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 to individuals andloans secured by 1-4 family residential real estate, which were offset by loanssecured by commercial real estate. Renegotiated loans also fell, decreasing by $627 thousand for the 2003period.  Nonperforming loans as apercent of total loans was 1.37% at June 30, 2003 compared to 1.47% at December31, 2002, and 1.59% at June 30, 2002, while the allowance for credit losses asa percent of nonperforming loans was 99.48%, 89.76% and 82.62%, respectivelyfor 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 workout progress ordeterioration, as well as evaluating the status of significant nonperformingcredits and loan loss adequacy.  Creditrisk is mitigated during the loan origination process through the use of soundunderwriting policies 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 leaseportfolios at each balance sheet date. Management reviews the adequacy of the allowance on a quarterly basis toensure that the provision for credit losses has been charged against earningsin an amount necessary to maintain the allowance at a level that is appropriatebased on management's assessment of probable estimated losses.  The Corporation's methodology for assessingthe appropriateness of the allowance for credit losses consists of several keyelements.  These elements include aspecific allowance for primary watch list classified loans, a formula allowancebased on historical trends, an additional allowance for special circumstancesand an unallocated 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 beadequate based on information currently available, additional allowance forcredit loss  provisions may be necessarydue to changes in management estimates and assumptions about asset impairment,information about borrowers that indicate changes in the expected future cashflows or changes in economic conditions. The allowance for credit losses and the provision for credit losses aresignificant elements of the Corporation's financial statements, thereforemanagement periodically reviews the processes and procedures utilized indetermining the allowance for credit losses to identify33

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 which 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 stood at $411.5 million at June 30, 2003, an increase of $10.1million compared to December 31, 2002. Dividends declared reduced equity by $18.3 million during the first sixmonths of 2003.  The retained net incomeof $8.4 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 distribution as employeecompensation, net of fair value adjustments to unearned ESOP shares, increasedequity by $536 thousand.  Amounts paidto fund the discount on reinvested dividends reduced equity by $334 thousandduring the first six months of 2003. The market value adjustment to securities available for sale increasedequity by $250 thousand for the period. Proceeds from the reissuance of treasury shares to fund stock optionsexercised increased equity by $987 thousand during 2003.  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 guidelineswhich 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.34

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 June 30, 2003:

 

|                          | Amount(in thousands) |                     | Percent ofAdjusted Assets |
|-------------------------------|----------------------|--------------------------|---------------------------|
| Tier  I Capital               | $  412,203 |      | 12.6%                     |
| Risk-Based  Requirement       | 131,398              |                     | 4.0                  |
|                          |                 |                     |                      |
| Total  Capital                | 447,807              |                     | 13.6                 |
| Risk-Based  Requirement       | 262,796              |                     | 8.0                  |
|                          |                 |                     |                      |
| Minimum  Leverage Capital     | 412,203              |                     | 8.8                  |
| Minimum  Leverage Requirement | 140,357              |                     | 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 June 30, 2003,the Corporation's banking and trust subsidiaries exceeded those requirements.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.35

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                                                                                                                                                                                                                                                                                                                                                |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | On  April 21, 2003, the Corporation held its regularly scheduled annual meeting  of shareholders.  The following  proposal was considered and acted upon:                                                                                                                                                                                                                                      |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | The  following directors were elected for terms to expire in 2006:                                                                                                                                                                                                                                                                                                                                  |
|     |                            Votes  For          Votes Withheld                                                                                                                                              |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | James  W.  Newill            46,730,939            519,822                                                                                                                                                                                                                  |
|     | John  A. Robertshaw,  Jr.    46,670,538            580,223                                                                                                                                                                                                                                                          |
|     | Laurie  Stern  Singer        46,601,570            649,191                                                                                                                                                                                                                                      |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
| ITEM  5. | OTHER  INFORMATION                                                                                                                                                                                                                                                                                                                                                                                  |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | The  Corporation's Chief Executive Officer and Chief Financial Officer have  furnished to the SEC the certification with respect to this Form 10-Q that is  required by Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                              |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
| ITEM  6. | EXHIBITS  AND REPORTS ON FORM 8-K                                                                                                                                                                                                                                                                                                                                                                   |
|     |                                                                                                                                                                                                                                                                                                                                                                                                |
|     | (a)  Exhibits                                                                                                                                                                                                                                                                                                                                                                                       |
|     |     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 April 17, 2003 reporting the Corporation's       press release announcing its earnings for the three  month      period ended March 31, 2003                                                                                                                                                                             |

36

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:  August 11, 2003 | /s/Joseph  E.  O'Dell                                    |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                         | Joseph  E. O'Dell, President and Chief Executive Officer                                                                                                     |
|                         |                                                                                                                                                         |
|                         |                                                                                                                                                         |
|                         |                                                                                                                                                         |
| DATED:  August 11, 2003 | /s/John  J.  Dolan                        |
|                         | John  J. Dolan, Executive Vice President and Chief Financial Officer                                                                                         |

37