FORM 10-Q  SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, 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, 2002

 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

 

     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 telephonenumber, including area code)

                                           N/A                                   (Former name, former address and former fiscal year, if changed since last report.)

Indicatea check mark whether the registrant(1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired 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 12, 2002 was 58,835,161.

FIRST COMMONWEALTH FINANCIALCORPORATION AND SUBSIDIARIES

  PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS            Included in Part I of this  report:                          PAGE            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  . . . . . . . .     11 ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT              MARKET RISK . . . . . . .  . . . . . . . . . . . . .     31                               PART II - OTHER INFORMATION  Other Information . . . . . . . . . . . . . . . . . . . . . .     32  

Exhibits and Reports on Form 8K . . . . . . . . .  . . . . . .     32

  Signatures. . . . . . . . . . . . . . . . . . . . . . . . . .      33 

 

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

|                                                                                                                                                                                                                                                                                                                                                          | June 30,2002                                                     | December 31,2001                               |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------|------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                          |                                                             |                                           |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                    |                                                             |                                           |
|   Cash and due from banks on demand .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   | $   83,759                                        |   $   98,130               |
|   Interest-bearing deposits with banks.        . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   | 744                                                         |      4,250            |
|   Securities available for sale, at market.        . . . . . . . . . .                                                                                                                                                                                                                                                                                   | 1,469,400                                                   |  1,469,118                           |
|                                                                                                                                                                                                                                                                                                                                                          |                                                             |                                           |
|   Securities held to maturity, at cost,           (Market value $272,068 in 2002             and $298,643 in 2001) . . . . . . . . . . . . . . .        . . . .                                                                                                                                                                 |   264,566                                              |    293,290                      |
|                                                                                                                                                                                                                                                                                                                                                          |                                                             |                                           |
|   Loans . . . . . . . . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   | 2,613,962                                                   |  2,569,231                           |
|     Unearned income . . . .        . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                         |       (997)                             |      (1,297)               |
|     Allowance for credit losses        . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                         |    (34,302)                                            |     (34,157)                    |
|                                                                                                                                                                                                                                                                                                                                                          | __________                                                       | ___________                                    |
|       Net loans .        . . . . . . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                               | 2,578,663                                                   |  2,533,777                           |
|                                                                                                                                                                                                                                                                                                                                                          |                                                             |                                           |
|   Property and equipment. . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |     46,071                                   |     46,418                 |
|   Other real estate owned . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |      1,468                              |      1,619            |
|   Goodwill. . . . . . . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |      8,134                              |      6,539            |
|   Amortizing intangibles. . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |         44               |        232  |
|   Other assets .. . . . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |    132,123                                        |    130,157                      |
|                                                                                                                                                                                                                                                                                                                                                          | __________                                                       | _________                                      |
|                 TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                | $4,584,972                                                  | $4,583,530                                |
|                                                                                                                                                                                                                                                                                                                                                          | ==========                                                       | ==========                                     |
| **LIABILITIES**                                                                                                                                                                                                                                                                                                                                               |                                                             |                                           |
|                                                                                                                                                                                                                                                                                                                                                          |                                                             |                                           |
|   Deposits (all domestic):                                                                                                                                                                                                                                                                                                                               |                                                             |                                           |
|     Noninterest bearing . .        . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                         |   $  394,071                                      |    $  412,695              |
|     Interest bearing. . . .        . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                         | 2,789,563                                                   |  2,680,455                           |
|                                                                                                                                                                                                                                                                                                                                                          | __________                                                       | __________                                     |
|       Total deposits.        . . . . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                               | 3,183,634                                                   |  3,093,150                           |
|                                                                                                                                                                                                                                                                                                                                                          |                                                             |                                           |
|   Short-term borrowings . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |   305,647                                              |    427,736                      |
|   Other liabilities . . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |    26,958                                         |     28,358                 |
|                                                                                                                                                                                                                                                                                                                                                          |                                                             |                                           |
|   Company obligated mandatorily redeemable        capital             securities of subsidiary trust. . . . . . . . . . .        . . . .                                                                                                                                                                                                  |    35,000                                         |     35,000                 |
|   Other long-term debt. . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |   646,215                                              |    629,220                      |
|                                                                                                                                                                                                                                                                                                                                                          | __________                                                       | __________                                     |
|       Total long-term        debt. . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                               |   681,215                                              |    664,220                      |
|                                                                                                                                                                                                                                                                                                                                                          | __________                                                       | __________                                     |
|       Total liabilities        . . . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                               |    4,197,454                                      |  4,213,464                           |
|                                                                                                                                                                                                                                                                                                                                                          |                                                             |                                           |
| **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, 62,525,412             shares issued; 58,779,955 and 58,451,624             shares outstanding at June 30, 2002 and             December 31, 2001 respectively. . . . . . . . . . .        . . . . |                  62,525  |     62,525                 |
|   Additional paid-in capital. . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |    65,253                                         |     66,176                 |
|   Retained earnings . . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |   289,202                                              |    288,219                      |
|   Accumulated other comprehensive income.        . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |    21,414                                         |      8,703            |
|   Treasury stock (3,745,457 shares at        June 30, 2002 and             4,073,788 at December 31, 2001, at cost). . . . . .        . . . .                                                                                                                                                                                             |    (47,286)                                            |     (51,431)                    |
|   Unearned ESOP shares. . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                   |     (3,590)                                       |      (4,126)               |
|                                                                                                                                                                                                                                                                                                                                                          | __________                                                       | __________                                     |
|       Total shareholders'        equity. . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                               |   387,518                                              |    370,066                      |
|                                                                                                                                                                                                                                                                                                                                                          | __________                                                       | __________                                     |
|                TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . .                                                                                                                                                                                                                                                     |   $4,584,972                                           | $4,583,530                                |
|                                                                                                                                                                                                                                                                                                                                                          | ==========                                                       | ==========                                     |

The accompanying notes are an integral part of these consolidated  financial statements.

 

3  FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Unaudited)(Dollars in thousands, except per share data)

|                                                                                                                                                                                                  | For the QuarterEnded June 30,                                  | For the 6 MonthsEnded June 30,                             |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------|------------------------------------------------------------|
|                                                                                                                                                                                                  |
|                                                                                                                                                                                                  |
|                                                                                                                                                                                                  | __ 2002__                                                      | __ 2001__                                                  | __2002__ |    2001_ |
| **Interest Income**                                                                                                                                                                                   |                                                           |                                                       |   |   |
|   Interest and fees on loans . . . . .        . . . .                                                                                                                                            |    $ 45,220                                          |  $  50,755                                       | $ 90,547 | $ 102,977 |
|   Interest and dividends on investments:                                                                                                                                                         |                                                           |                                                       |   |   |
|     Taxable interest . . . .        . . . . . . . . .                                                                                                                                  |    21,791                                            |     23,443                                  |   44,029 |    46,774 |
|     Interest exempt from Federal        income taxes.                                                                                                                                  |     2,417                                       |      2,374                             |    4,809 |     4,745 |
|     Dividends. . . . . . . .        . . . . . . . . .                                                                                                                                  |       441                             |        575                   |      993 |     1,429 |
|   Interest on Federal funds sold . . .        . . . .                                                                                                                                            |         1                   |        206                   |        4 |       488 |
|   Interest on bank deposits. . . . . .        . . . .                                                                                                                                            |         8                   |         18              |       19 |        38 |
|                                                                                                                                                                                                  |   _______                                                 |    _______                                       | ________ |  ________ |
|       Total interest        income. . . . . . . . . .                                                                                                                        |    69,878                                            |     77,371                                  |   140,401 |    156,451 |
|                                                                                                                                                                                                  |                                                           |                                                       |   |   |
| **Interest Expense**                                                                                                                                                                                  |                                                           |                                                       |   |   |
|   Interest on deposits . . . . . . . .        . . . .                                                                                                                                            |    20,782                                            |     31,243                                  |    42,103 |     63,300 |
|   Interest on short-term borrowings. .        . . . .                                                                                                                                            |     1,502                                       |      2,709                             |     3,267 |      6,233 |
|                                                                                                                                                                                                  |                                                           |                                                       |   |   |
|   Interest on company obligated mandatorily                     redeemable capital        securities of              subsidiary trust . . . . . . . |                832               |        832                   |     1,663 |      1,663 |
|   Interest on other long-term debt . .        . . . .                                                                                                                                            |     8,829                                       |      8,629                             |    17,393 |     17,065 |
|                                                                                                                                                                                                  |    ______                                            |     ______                                  |    ______ |     ______ |
|       Total interest        on long-term debt . . . .                                                                                                                        |     9,661                                       |      9,461                             |    19,056 |     18,728 |
|                                                                                                                                                                                                  |    ______                                            |     ______                                  |    ______ |     ______ |
|       Total interest        expense . . . . . . . . .                                                                                                                        |    31,945                                            |     43,413                                  |    64,426 |     88,261 |
|                                                                                                                                                                                                  |    ______                                            |     ______                                  |    ______ |     ______ |
| **Net Interest Income**                                                                                                                                                                               |    37,933                                            |     33,958                                  |    75,975 |     68,190 |
|   Provision for credit losses. .        . . . . . . .                                                                                                                                       |     3,008                                       |      2,557                             |     5,925 |      4,964 |
|                                                                                                                                                                                                  |                                                           |                                                       |   |   |
| **Net interest income after provision for        credit losses . . . . . . . . . . . . . .**                                                                                                          |    ______    34,925                        |     ______            31,401 |    ______           70,050 |     ______    63,226 |
||
|                                                                                                                                                                                                  |                                                           |                                                       |   |   |
| **Other Income**                                                                                                                                                                                      |                                                           |                                                       |   |   |
|   Securities gains . . . . . . . . . .        . . . .                                                                                                                                            |       576                             |      1,790                             |       615 |      1,995 |
|   Trust income . . . . . . . . . . . .        . . . .                                                                                                                                            |     1,342                                       |      1,256                             |     2,555 |      2,550 |
|   Service charges on deposit accounts.        . . . .                                                                                                                                            |     2,746                                       |      2,707                             |     5,439 |      5,288 |
|   Insurance commissions. . . . . . . .        . . . .                                                                                                                                            |       951                             |        633                   |     1,807 |      1,288 |
|   Income from bank owned life insurance.        . . .                                                                                                                                            |     1,173                                       |      1,111                             |     2,242 |      2,060 |
|   Other income . . . . . . . . . . . .        . . . .                                                                                                                                            |     3,149                                       |      2,876                             |     5,668 |      6,459 |
|                                                                                                                                                                                                  |    ______                                            |    _______                                       |   _______ |    _______ |
|       Total other        income . . . . . . . . . . .                                                                                                                        |     9,937                                       |     10,373                                  |    18,326 |     19,640 |
|                                                                                                                                                                                                  |                                                           |                                                       |   |   |
| **Other Expenses**                                                                                                                                                                                    |                                                           |                                                       |   |   |
|   Salaries and employee benefits . . .        . . . .                                                                                                                                            |    14,767                                            |     13,401                                  |     29,410 |     27,070 |
|   Net occupancy expense  . . . .        . . . . . . .                                                                                                                                       |     1,613                                       |      1,623                             |      3,299 |      3,400 |
|   Furniture and equipment expense. . .        . . . .                                                                                                                                            |     2,568                                  |      2,254                             |      4,966 |      4,380 |
|   Data processing expense. . . . . . .        . . . .                                                                                                                                            |       484                             |        821                   |        926 |      1,588 |
|   Pennsylvania shares tax expense. . .        . . . .                                                                                                                                            |       996                             |        970                   |      1,991 |      1,911 |
|   Goodwill amortization. . . . . . . .        . . . .                                                                                                                                            |         0    |        231                   |          0 |        461 |
|   Intangible amortization. . . . . . .        . . . .                                                                                                                                            |        68                        |        123                   |        188 |        246 |
|   Litigation settlement. . . . . . . .        . . . .                                                                                                                                            |         0                   |          0         |      8,000 |          0 |
|   Restructuring charges. . . . . . . .        . . . .                                                                                                                                            |     3,116                                       |          0         |      3,116 |          0 |
|   Other operating expenses . . . . . .        . . . .                                                                                                                                            |     8,003                                       |      6,580                             |     15,162 |     12,403 |
|                                                                                                                                                                                                  |   _______                                                 |    _______                                       |    _______ |    _______ |
|       Total other        expenses . . . . . . . . . .                                                                                                                        |    31,615                                            |     26,003                                  |     67,058 |     51,459 |
|                                                                                                                                                                                                  |   _______                                                 |   _______                                             |    _______ |    _______ |
| **Income before income taxes********.****.****.****.****.****.****.**                                                                                                                                 |    13,247                                            |     15,771                                  |     21,318 |     31,407 |
|   Applicable income taxes . . . . . .        . . . . .                                                                                                                                           |     2,290                                       |      3,737                             |      2,723 |      7,350 |
|                                                                                                                                                                                                  |  ________                                                 |   ________                                            |   ________ |   ________ |
| **Net income****.****.****.****.****.****.****.****.****.****.****.****.****.****.****.****.******                                                                                                    | $ 10,957                                                       | $ 12,034                                                   |   $ 18,595 |   $ 24,057 |
|                                                                                                                                                                                                  |   =======                                                 |  ======                                               | ======= | ======== |
| Average Shares Outstanding  . . . . .        . . . . .                                                                                                                                           |  58,359,322                                               | 57,799,443                                                 | 58,251,440 | 57,760,915 |
| Average Shares Outstanding Assuming Dilution        .                                                                                                                                                 |  58,851,264                                               | 58,035,585                                                 | 58,669,047 | 57,919,444 |
| **Per Share Data:**                                                                                                                                                                                   |                                                           |                                                       |   |   |
|   Basic earnings per share. . . . . .        . . . . .                                                                                                                                           |   $ 0.190                                                 |   $ 0.210                                             |  $  0.320 |   $ 0.420 |
|   Diluted earnings per share. . . . .        . . . . .                                                                                                                                           |   $ 0.190                                                 |   $ 0.210                                             |  $  0.320 |   $ 0.420 |
|   Cash dividends per share. . . . . .        . . . . .                                                                                                                                           |   $ 0.150                                                 |   $ 0.145                                             |  $  0.300 |   $ 0.290 |

 

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

 

4FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'  EQUITY (Unaudited)(Dollars in thousands)

|                                                                                                                                                                                                                                                                        | Common  Stock  ______           | Additional  Paid-In  Capital  _________ | Retained  Earnings  ________           | Accumulated  Other  Comprehensive  Income  _____________ | Treasury  Stock  ________        | Unearned  ESOP  Shares  ______ | Total  Shareholders'  Equity  _____________ |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------|-----------------------------------------|----------------------------------------|----------------------------------------------------------|----------------------------------|--------------------------------|---------------------------------------------|
|                                                                                                                                                                                                                                                                        |                            |                                    |                                   |                                                     |                             |                           |                                        |
| **Balance at  December 31, 2000. . .**                                                                                                                                                                                                                                      | $62,525                         | $67,223                                 | $272,169                               |  $(7,808)                                           | $(54,666)                        | $(5,287)                       | $334,156                                    |
|    Comprehensive income                                                                                                                                                                                                                                                |                            |                                    |                                   |                                                     |                             |                           |                                        |
|     Net  income. . . . . . . . . .                                                                                                                                                                                                                           |     -0-          |     -0-                  |   24,057                          |     -0-                                   |     -0-           |    -0-               |   24,057                               |
|     Other  comprehensive income,     net of tax:      Unrealized holding gains on       securities arising during       the period. . . . . . . . . |     -0-          |     -0-                  |      -0-           |  10,765                                             |     -0-           |    -0-               |   10,765                               |
|        Less:  reclassification       adjustment for gains on       securities included in net       income. . . . . . . . . . .                     |     -0-  _______ |     -0-  _______         |      -0-  ________ |   (1,268)  _______                             |     -0-  ________ |    -0-  ________     |    (1,268)  _________             |
|     Total  other comprehensive     income. . . . . . . . . . . .                                                                                                                                                                         |     -0-  _______ |     -0-  _______         |      -0-  ________ |   9,497_______                                      |     -0-  ________ |    -0-  ________     |    9,497  _________               |
|   Total  comprehensive income. . .                                                                                                                                                                                                                                     |     -0-          |     -0-                  |   24,057                     |   9,497                                             |     -0-           |    -0-               |    33,554                         |
|                                                                                                                                                                                                                                                                        |                            |                                    |                                   |                                                     |                             |                           |                                        |
|   Cash  dividends declared. . . . .                                                                                                                                                                                                                                    |     -0-          |     -0-                  | (16,897)                               |    -0-                                         |     -0-           |    -0-               |    (16,897)                       |
|                                                                                                                                                                                                                                                                        |                            |                                    |                                   |                                                     |                             |                           |                                        |
|   Decrease  in unearned ESOP shares                                                                                                                                                                                                                                    |     -0-          |     -0-                  |      -0-           |    -0-                                         |     -0-           |    625               |      625                |
|                                                                                                                                                                                                                                                                        |                            |                                    |                                   |                                                     |                             |                           |                                        |
|   Discount  on dividend   reinvestment plan purchases. .                                                                                                                                                                                                     |     -0-          |     (306)                |      -0-           |    -0-                                         |     -0-           |    -0-               |      (306)              |
|                                                                                                                                                                                                                                                                        |                            |                                    |                                   |                                                     |                             |                           |                                        |
|   Treasury  stock reissued. . . . .                                                                                                                                                                                                                                    |     -0-          |     (371)                |      -0-           |    -0-                                         |   1,425                     |    -0-               |    1,054                          |
|                                                                                                                                                                                                                                                                        | _______                         | _______                                 | ________                               | ______                                                   | _________                        | ________                       | ________                                    |
| **Balance at  June 30, 2001. . .**                                                                                                                                                                                                                                          | $62,525  =======                | $66,546  =======                        | $279,329  ========                     | $1,689  ======                                           | $(53,241)  =========             | $(4,662)  ========             | $352,186  ========                          |
|                                                                                                                                                                                                                                                                        |                            |                                    |                                   |                                                     |                             |                           |                                        |
| **Balance at  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 ========                      |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

5FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES              CONSOLIDATED STATEMENTS  OF CASH FLOWS(Unaudited)     (Dollars in thousands) 

|                                                                                                                              | For the Six MonthsEnded June 30,                      |
|-----------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------|
|                                                                                                                              |                                                  |
|                                                                                                                              | 2002                                                  | 2001 |
|                                                                                                                              |                                                  |   |
| **Operating Activities**                                                                                                          |                                                  |   |
|   Net income. . . . . . . . . . . . .        . . . . . . . . . . . . . . . . . . . . .                                       |  $  18,595                             |  $  24,057  |
|   Adjustments to reconcile net income        to net             cash provided (used) by operating activities: |                                                  |   |
|      Provision for credit        losses. . . . . . . . . . . . . . . . . . . . . . . .                        |      5,925                   |  4,964  |
|      Depreciation and amortization.        . . . . . . . . . . . . . . . . . . . . . .                        |      3,759                   |  3,783  |
|      Net gains on sales        of assets. . . . . . . . . . . . . . . . . . .                                 |              (663)           |  (2,942) |
|      Income from increase        in cash surrender value of bank owned life insurance.                        |     (2,242)                            |  (2,060) |
|      Decrease in interest        receivable. . . . . . . . . . . . . . . . . . . . . .                        |               654  |  1,434  |
|      Decrease in interest        payable . . . . . . . . . . . . . . . . . . . . . . .                        |     (2,066)                            | (16,858) |
|      Decrease in income        taxes payable . . . . . . . . . . . . . . . . . . . . .                        |     (1,869)                            |    (184) |
|      Change in deferred        taxes . . . . . . . . . . . . . . . . . . . . . . . . .                        |              (663)           |    (148) |
|      Other-net. . . . .        . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        |               728  |  (3,011) |
|                                                                                                                              |     _______                            |   _______ |
|       Net cash provided        by operating activities. . . . . . . . . . . . .                          |     22,158                        |  9,035  |
|                                                                                                                              |                                                  |   |
| **Investing Activities**                                                                                                          |                                        |       |
|   Transactions with securities held to        maturity:                                                                      |                                                  |   |
|    Proceeds from sales. . . . . .        . . . . . . . . . . . . . . . . . . . . . . .                                  |               -0-       |    -0- |
|    Proceeds from maturities and redemptions        . . . . . . . . . . . . . . . . . .                                  |     43,977                        | 87,957  |
|    Purchases. . . . . . . . . . .        . . . . . . . . . . . . . . . . . . . . . . .                                  |    (15,241)                                 |    -0- |
|   Transactions with securities available        for sale:                                                                    |                                                  |   |
|    Proceeds from sales. . . . . .        . . . . . . . . . . . . . . . . . . . . . . .                                  |     10,237                        | 71,431  |
|    Proceeds from maturities and redemptions        . . . . . . . . . . . . . . . . . .                                  |    215,851                             |    199,943  |
|    Purchases. . . . . . . . . . .        . . . . . . . . . . . . . . . . . . . . . . .                                  |   (206,211)                                      |   (444,379) |
|   Proceeds from sales of loans and other        assets . . . . . . . . . . . . . . . .                                       |     48,401                        | 46,679  |
|   Acquisition of affiliate, net of cash        received. . . . . . . . . . . . . . . .                                       |                (4) |               -0- |
|   Investment in bank owned life insurance        . . . . . . . . . . . . . . . . . . .                                       |     (5,000)                            | (15,000) |
|   Net decrease (increase) in time deposits        with banks . . . . . . . . . . . . .                                       |      3,506                   |     (72) |
|   Net increase in loans . . . . . . .        . . . . . . . . . . . . . . . . . . . . .                                       |    (99,506)                                 |   (108,246) |
|   Purchases of premises and equipment        . . . . . . . . . . . . . . . . . . . . .                                       |     (3,300)                            |     (3,245) |
|                                                                                                                              |    _________                                |  _________ |
|     Net cash used by investing        activities. . . . . . . . . . . . . .                                        |     (7,290)                            | (164,932) |
|                                                                                                                              |                                                  |   |
| **Financing Activities**                                                                                                          |                                                  |   |
|                                                                                                                              |                                                  |   |
|   Repayments of other long-term debt.        . . . . . . . . . . . . . . . . . . . . .                                       |              (681)           |     (376) |
|   Proceeds from issuance of other long-term        debt. . . . . . . . . . . . . . . .                                       |     18,200                        |   9,500  |
|   Discount on dividend reinvestment plan        purchases. . . . . . . . . . . . . . .                                  |              (316)           |     (306) |
|   Dividends paid. . . . . . . . . . .        . . . . . . . . . . . . . . . . . . . . .                                       |    (17,564)                                 |  (16,882) |
|   Net decrease in Federal funds purchased        . . . . . . . . . . . . . . . . . . .                                       |    (81,900)                                 |   (3,900) |
|   Net increase (decrease) in other short-term        borrowings. . . . . . . . . . . .                                       |    (40,188)                                 |   3,760  |
|   Sale of branch and deposits, net of        cash received . . . . . . . . . . . . . .                                       |               -0-       |   (9,591) |
|   Net increase in deposits. . . . . .        . . . . . . . . . . . . . . . . . . . . .                                       | 90,484                                           | 160,852  |
|   Proceeds from sale of treasury stock.        . . . . . . . . . . . . . . . . . . . .                                       |      2,726                   |   1,054  |
|                                                                                                                              |    _________                                |  ________ |
|     Net cash provided (used)        by financing activities. . . . . . . . . . . . . .                             |    (29,239)                                 | 144,111  |
|                                                                                                                              |    _________                                |  ________ |
|     Net decrease in cash and        cash equivalents. . . . . . . . . . . .                                        |    (14,371)                                 |  (11,786) |
|                                                                                                                              |                                                  |   |
|   Cash and cash equivalents at January        1. . . . . . . . . . . . . . . . . . . .                                       |     98,130                        | 101,848  |
|                                                                                                                              |    _________                                | ________ |
|   Cash and cash equivalents at June 30.        . . . . . . . . . . . . . . . . . . .                                         |  $  83,759                             |  $  90,062  |
|                                                                                                                              |    =========                                | ======== |

 

The accompanying notes are integral part of theseconsolidated financial statements.

6FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2002(Unaudited)

NOTE 1     Management RepresentationThe consolidated financial statements include the accounts of the Corporationand its subsidiaries.  All significantintercompany transactions and balances have been eliminated.  Certain prior period amounts have beenreclassified to conform with the current period presentation.  The accounting and reporting policies ofFirst Commonwealth conform with accounting principles generally accepted in theUnited States of America.  Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates, assumptions andjudgments that affect the amounts reported in the financial statements andaccompanying notes. Actual realized amounts could differ from thoseestimates.  In the opinion ofmanagement, the unaudited interim consolidated financial statements include alladjustments (consisting of only normal recurring adjustments) necessary for afair statement of financial position as of June 30, 2002, and the results ofoperations for the three month and six month periods ended June 30, 2002 and2001, and statements of cash flows and changes in shareholders' equity for thesix month periods ended June 30, 2002 and 2001.  The results of operations for the interim periods are notnecessarily indicative of the results that may be expected for the full year orany other interim period.  These interimfinancial statements should be read in conjunction with the Corporation's 2001Annual Report on Form 10-K.NOTE 2     Cash Flow Disclosures(dollar amounts in thousands)

|                                                                                                              | 2002                           | 2001                    |
|-------------------------------------------------------------------------------------------------------------------|--------------------------------|-------------------------|
|                                                                                                              |                           |                    |
| Cash  paid during the first six months of the year for:                                                           |                           |                    |
|                                                                                                              |                           |                    |
| Interest                                                                                                          |  $ 66,491                 | $105,119                |
| Income  Taxes                                                                                                     |  $   5,260           | $  7,650           |
|                                                                                                              |                           |                    |
| Noncash  investing and financing activities:                                                                      |                           |                    |
|                                                                                                              |                           |                    |
|   ESOP loan reductions                                                                                       |  $     536 | $    625 |
|   Loans transferred to other real estate  owned and    repossessed assets                     |  $   3,599           | $  2,777           |
|   Gross increase in market value adjustment        to    securities available        for sale |  $ 19,556                 | $ 14,611                |
|   Treasury stock reissued for acquisition                                                                    |  $     812 | $    -0- |
|                                                                                                              |                           |                    |

 

 

7  FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2002(Unaudited)

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

|                                                                                                             | June 30,  2002                                   | June 30,  2001         |
|------------------------------------------------------------------------------------------------------------------|--------------------------------------------------|------------------------|
|                                                                                                             |                                             |                   |
|                                                                                                             | 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 . . . . . . . .  . . . .   | $20,166                                          |  $(7,058)         | $13,108 |  $16,561 |  $(5,796) |  $10,765 |
|   Less:  reclassification adjustment for gains    realized in net income. . . . . .  . . . . |         (610) |     213 |     (397) |   (1,950) |      682 |    (1,268) |
|                                                                                                             | _______                                          |  ______           | _______ | _______ | _______ | _______ |
|   Net  unrealized gains (losses) . . . . . . .                                                              |  19,556                                     |   (6,845)         |  12,711 |  14,611 |   (5,114) |   9,497 |
|                                                                                                             | _______                                          | ______                 | _______ | _______ | _______ | _______ |
| Other comprehensive income. . . . . . . . . .                                                                    | $19,556                                          |  $(6,845)         | $12,711 | $14,611 |  $(5,114) | $ 9,497 |
|                                                                                                             | =======                                          | ======                 | ======== | ======== | ======= | ======== |

 

NOTE 4     Business CombinationEffective March 1, 2002, the Corporation acquired all of  the outstanding shares of Strategic Capital Concepts, Inc. ("SCC")  and Strategic Financial Advisors, Inc. ("SFA"), each a Pennsylvania  corporation headquartered in Allison Park, Pennsylvania.  As a registered  investment adviser, Strategic Capital Concepts provides financial planning,  asset management and consulting services to individuals, businesses, retirement  plans, trusts and estates.  Strategic Financial Advisors offers investment  and insurance products as well as employee benefit services.  Each of the  outstanding shares of Strategic Capital Concepts, Inc. and Strategic Financial  Advisors, Inc. were exchanged for shares of the Corporation's common stock.   In addition, the shareholders of SCC and SFA are entitled to receive additional  shares of the Corporation's common stock for each of the years 2002 through  2005 based on a formula defined in the merger agreement which takes into consideration  the financial performance of SCC and SFA after the merger date.  The merger  was accounted for as a purchase transaction whereby the identifiable tangible  and intangible assets and liabilities of SCC and SFA have been recorded at their  fair values at the acquisition date.  Goodwill in the amount of $1.6 million  was recorded as a result of the transaction.  As prescribed under the purchase  method of accounting, the results of operations of SCC and SFA from the date  of acquisition are included in the Corporation's financial statements for 2002.   This acquisition should expand the Corporation's product offerings and positively  impact fee based revenue, which is a continuing priority.

 

8

 

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2002(Unaudited)

 NOTE 5     Goodwill and Other  Intangible AssetsOn January 1, 2002, the Corporation adopted FASB Statement  No. 142, "Goodwill and Other Intangible Assets" ("FAS No. 142"),  which addresses the accounting and reporting for acquired goodwill and other  intangible assets which supersedes APB Opinion No. 17, "Intangible Assets".  FAS No. 142 includes requirements to test goodwill and indefinite-lived intangible  assets for impairment rather than amortize them.  As of January 1, 2002,  the Corporation had goodwill, net of accumulated amortization, of approximately  $5.8 million subject to the transitional testing provisions of FAS No. 142.   Also, management reclassified an intangible asset previously recorded by an  insurance subsidiary when acquiring the expiring list of policy holders from  their joint-venture partner to goodwill with a net carrying amount of $718 thousand.

As of January 1, 2002, the Corporation discontinued  the amortization of goodwill which is expected to reduce other operating expense  by $922 thousand in 2002.  Goodwill amortization expense was $231 thousand  and $461 thousand for the second quarter and first six months of 2001 respectively.   Goodwill represented basic and diluted earnings per share of $0.004 and $0.008  for the three and six month periods ending June 30, 2001.  Upon implementation  of the standard, the Corporation determined no impairment existed on its outstanding  goodwill.

NOTE 6     New Accounting  Pronouncements

InJuly 2001, the Financial Accounting Standards Board ("FASB") issuedstatement No. 141, "Business Combinations" ("FAS No. 141")which supersedes APB Opinion No. 16 "Business Combinations" butcarries forward the guidance in Opinion No. 16 related to the application ofthe purchase method of accounting.  FASNo. 141 requires the purchase method of accounting for business combinationsinitiated after June 30, 2001 and eliminates the pooling-of-interest method.  FAS No. 141 also specifies the types ofacquired intangible assets that are required to be recognized and reportedseparately from goodwill.  Intangibleassets are recognized as assets apart from goodwill if the asset arises fromcontractual or other legal rights or the asset is capable of being separatedfrom the acquired entity and sold or exchanged.  In addition to the disclosure requirements in Opinion No. 16, FASNo. 141 requires disclosure of the primary reasons for the business combinationand the allocation of the purchase price paid to the assets acquired andliabilities assumed by major balance sheet caption.  Implementation of FAS No. 141 did not have a material impact onthe Corporation's financial condition or results of operations.

Effective January 1, 2002, the Corporation adopted  FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived  Assets" ("FAS No. 144") which requires that long-lived assets  be reviewed for impairment whenever events or changes in circumstances, such  as a significant decrease in the market value of an asset or the extent or manner  in which an asset is used indicate that the carrying amount of an asset may  not be recoverable.  If there is an indication that the carrying amount  of an asset may not be recoverable, future undiscounted cash flows expected  to

 

 

9

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune 30, 2002(Unaudited)

 

NOTE 6     New Accounting  Pronouncements (continued)result from the use and disposition of the asset are estimated.   If the sum of the expected cash flows is less than the carrying value of the  asset a

loss is recognized for thedifference between the carrying value and the market value of the asset.  This statement also requires measurement oflong-lived assets classified as held for sale at the lower of their carryingamount or fair value less cost to sell and to cease depreciation oramortization on these assets. Implementation of FAS No. 144 did not have a material impact on theCorporation's financial condition or results of operations.

In April 2002, the FASB issued Statement No. 145,  "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement  No. 13, and Technical Corrections" ("FAS No. 145").  FAS  No. 145 rescinds Statement 4, which required all gains and losses from extinguishment  of debt to be aggregated and, if material, classified as an extraordinary item,  net of related income tax effect.  As a result, the criteria in Opinion  30 will now be used to classify those gains and losses.  This statement  also amends FASB Statement No. 13 to require that certain lease modifications  that have economic effects similar to sale-leaseback transactions be accounted  for in the same manner as sale-leaseback transactions.  This statement  also makes technical corrections to existing pronouncements, which are not substantive  but in some cases may change accounting practice.  Implementation of FAS  No. 145 is not expected to have a material impact on the Corporation's financial  condition or results of operations.

In July 2002, the FASB issued Statement No. 146,  "Accounting for Costs Associated with Exit or Disposal Activities"  ("FAS NO. 146").  FAS No. 146 replaces EITF Issue No. 94-3, "Liability  Recognition for Certain Employee Termination Benefits and Other Costs to Exit  an Activity (including Certain Costs Incurred in a Restructuring)".   The standard requires companies to recognize costs associated with exit or disposal  activities when they are incurred rather than at the date of a commitment to  an exit or disposal plan.  Statement 146 is to be applied prospectively  to exit or disposal activities initiated after December 31, 2002.  

Had this statement been in effect, the $3.1 million  of restructuring costs recognized by the Corporation in the second quarter of  2002 would have been recognized in the third quarter of 2002.  Upon adoption,  FAS No. 146 is not expected to have a material impact on the Corporation's financial  condition or results of operations.

 

 

10

 

ITEM 2. FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED  SUBSIDIARIES   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS

 

RESULTSOF OPERATIONS**First Six Months of 2002 as Compared to theFirst Six Months of 2001**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 (the"Corporation") including its subsidiaries.  In addition to historical information, this discussion andanalysis contains forward-looking statements. The forward-looking statements contained herein are subject to certainrisks and uncertainties that could cause actual results to differ materiallyfrom those projected in the forward-looking statements.  Important factors that might cause such adifference include, but are not limited to, those discussed in this"Management's Discussion and Analysis of Financial Condition and Resultsof Operations."  Readers arecautioned not to place undue reliance on these forward-looking statements,which reflect management's analysis only as of the date hereof.  The Corporation undertakes no obligation topublicly revise or update these forward-looking statements to reflect events orcircumstances that arise after the date hereof.Net income for the first half of 2002 was $18.6 million which reflected adecrease of $5.5 million compared to 2001 results of $24.1 million.  Basic and diluted earnings per share were$0.32 for the first six months of 2002 compared to $0.42 for the first sixmonths of 2001.  The 2002 periodincluded $3.1 million ($2.0 million after-tax) of nonrecurring restructuringcharges associated with the merger of the charters of the Corporation's twocommercial banks (First Commonwealth Bank and Southwest Bank) and the adoptionof a new common brand and identity for all financial servicessubsidiaries.  These restructuringcharges included $2.8 million related to separation pay for those employeeswhose positions will be eliminated or chose not to relocate as a result of theupcoming merger of the two subsidiary banks. The savings from thisconsolidation are expected to be approximately $2.0 million for both 2003 and2004.  Additional separation costs couldbe recorded during the third quarter of 2002 as processes and staffing levelsare re-evaluated during continued integration of banking operations.  Additional restructuring charges anticipatedin the third quarter will also create future cost reductions as various boardsand committees are consolidated and reduced in size in order to provide moreeffective and efficient corporate governance. While the financial impact of these additional costs for 2002 are notimmediately determinable the effect on future years is expected to be positiveand will be quantified during the third quarter.  The second half of 2002 will also include additional chargesrelated to the design and implementation of the new common brand and identity.  Net income for the first half of 2002 wasnegatively impacted by the $8.0 million litigation settlement ($5.2 million,net of tax effect) recorded in the first quarter.  This settlement related to a lender liability action filed in1994 against one of the Corporation's subsidiary banks and followed an adversepre-trial judgment by the trial judge on procedural grounds.  Management believes that liability insurancewill cover a portion of the settlement, but the precise amount of insurancecoverage has not yet been determined. 

11

 

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTSOF OPERATIONS (continued)

**First Six Months of 2002 as Compared to the First  Six Months of 2001**

Corenet income (excluding securities transactions, gains on asset sales andnonrecurring charges) was $25.4 million for the six months of 2002,representing an increase of 15.0% compared to $22.1 million for 2001.  Gains on the sale of assets includes securitiesgains of $615 thousand and $2.0 million in 2002 and 2001, respectively, as wellas a $989 thousand gain on the sale of a branch and a block of mortgages in2001.  Diluted earnings per share forcore earnings was $0.43 for the six months of 2002 compared to diluted earningsper share of $0.38 for the six months of 2001. Return on average assets was 0.82% and return on average equity was9.77% during the 2002 period, compared to 1.09% and 13.91%, respectively duringthe same period of 2001.  Return onaverage assets and return on average equity based on core earnings were 1.13%and 13.36%, respectively for the first half of 2002 compared to 1.00% and12.79%, respectively for the first half of 2001.

 

|                                | For the Six Months  Ended June 30,               |
|-------------------------------------|--------------------------------------------------|
|                                | 2002                                             | 2001 |
| **Reconciliation of Core Earnings** |                                             |   |
|                                |                                             |   |
| Net  income as reported             |  $18,595                                    | $24,057 |
| Non-core  items (net of tax):       |                                             |   |
|   Gains on sale of securities  |          |   |
|     and other assets |      (400)                   |    (1,940) |
|   Restructuring charges        |    2,025                               |     -0- |
|   Litigation settlement        |    5,200                               |     -0- |
|                                |  _______                                    | _______ |
| Core  net income                    |  $25,420                                    | $22,117 |
|                                |  =======                                    | ======= |
| Core  basic earnings per share      |    $0.44                               |    $0.38 |
| Core  diluted earnings per share    |    $0.43                               |    $0.38 |
| Core  return on average assets      |      1.13%                   |     1.00% |
| Core  return on average equity      |     13.36%                        |    12.79% |

 

 

 

12

 

 

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTSOF OPERATIONS (continued)

**First Six Months of 2002 as Compared to the First  Six Months of 2001**(continued)

Net interest income, the most significant component  of earnings, is the amount by which interest income generated from earning assets  exceeds interest expense on liabilities.  Net interest income was $76.0  million for the first six months of 2002 compared to $68.2 million for the same  period of 2001.  Net interest margin (net interest income, on a tax-equivalent  basis, as a percentage of average earning assets) was 3.79% for the six months  of 2002 compared to 3.49% for the six months of 2001.  The rise in net  interest margin for the 2002 period compared to 2001 resulted primarily from  deposit rate decreases that were greater than loan yield decreases compared  to the 2001 period as interest rates fell to near historic lows.  The cost  of deposits fell by 134 basis points (1.34%) for the first six months of 2002  compared to the first six months of 2001, while loan yields decreased by 118  basis points (1.18%) over the same time period.  The Corporation expects  ongoing pressure on net interest income despite continual management of interest  rate risk.  The Corporation has undertaken numerous initiatives to expand  its fee-based services to minimize the shrinkage of the net interest margin.

The following table shows the effect of changes in  volumes and rates on interest income and interest expense.Analysis of Changes in Net Interest Income(dollar amounts in thousands)

 

|                                               | 2002 Change from 2001    |
|----------------------------------------------------|--------------------------|
|                                               | TotalChange              | Change Dueto Volume | Change Dueto Rate |
|                                               |                     |   |   |
| Interest-earning  assets:                          |                     |   |   |
|   Time deposits with banks                    |  $(   19) | $   10 |  $(    29) |
|   Securities                                  |    (3,117)          |  1,378 |   (4,495) |
|   Federal funds sold                          |     (484) |    (470) |      (14) |
|   Loans                                       |  (12,430)           |  2,708 |  (15,138) |
|                                               |  _______            | _______ |  ________ |
|     Total interest income           |  (16,050)           |  3,626 |  (19,676) |
|                                               |  _______            | _______ |  ________ |
| Interest-bearing  liabilities:                     |                     |   |   |
|   Deposits                                    |  (21,197)           |    (700) |  (20,497) |
|   Short-term borrowings                       |    (2,966)          |  2,249 |   (5,215) |
|   Long-term debt                              |     328   |    410 |      (82) |
|                 |  _______            | _______ |  ________ |
|     Total interest expense          |  (23,835)           |  1,959 |  (25,794) |
|                                               |  _______            | _______ |  ________ |
|       Net interest income | $ 7,785                  |   $ 1,667 |  $ 6,118 |
|                                               |  =======            | ======= |  ======== |
|                                               |                     |   |   |

 

 

13

 

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTSOF OPERATIONS (continued)

**First Six Months of 2002 as Compared to the First  Six Months of 2001**(continued)

Interest and fees on loans declined $12.4 million  for 2002 compared to 2001 levels.  The decrease in interest income included  decreases in interest income due to rate of $15.1 million which were partially  offset by increases in interest income due to volume of $2.7 million.   The total yield on loans for the first six months of 2002 was 7.23%, compared  to loan yields of 8.41% for the first six months of 2001.  Average loans  for the first half of 2002 rose $72.9 million compared to the first half of  2001 as increases in commercial loans and municipal loans were partially offset  by decreases in average mortgage loans.  During 2002 the Corporation has  continued to offer competitive fixed rate mortgages to customers wanting to  lock in rates during the current low interest rate environment.  The Corporation  has reduced interest rate risk related to new mortgage loan production through  utilization of various lending programs whereby loans originated by subsidiary  banks are immediately sold along with the right to service these loans.

 Interest income on investments decreased $3.1 million  for the six months of 2002 compared to the corresponding period of 2001 as decreases  in interest income due to rate were only partially offset by increases in interest  income due to volume.  Total yield on investments was 6.12% for the first  half of 2002 compared to 6.63% for the first half of 2001.  Decreases in  interest income due to rate for U.S. government agency securities were $2.8  million as yields on U.S. government agency securities decreased 50 basis points  (0.50%) for the 2002 period compared to 2001.  Average investments for  the six months of 2002 included an increase of $48.7 million for corporate bonds  compared to 2001 generating an increase in interest income of $1.8 million.Interest on deposits fell $21.2 million for the 2002 period compared  to 2001, as interest on total savings deposits decreased by $5.5 million and  interest on time deposits decreased by $15.7 million.  Interest expense  on deposits for the first half of 2002 reflected decreases due to rate of $20.5  million as the cost of total savings deposits decreased 119 basis points (1.19%)  and the cost of time deposits slipped 143 basis points (1.43%) compared to costs  for the first half of 2001.  Average deposits for the first six months  of 2002 included decreases in average time deposits of $145.5 million which  were partially offset by increases in average total savings deposits of $89.9  million over 2001 averages.  Interest expense on short-term borrowings decreased $3.0 million for the six  months of 2002 compared to the corresponding period of 2001 as decreases in  interest expense due to rate of $5.2 million were partially offset by increases  in interest expense due to volume of $2.2 million compared to 2001 levels.   The cost of short-term borrowings for the 2002 period decreased by 298 basis  points (2.98%) compared to 2001 costs of 4.84%.  The average balance of  short-term borrowings for the first half of 2002 increased by $93.6 million  compared to 2001 averages.

 

14

 

 

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTS OF OPERATIONS (continued)

**First Six Months of 2002 as Compared  to the First Six Months of 2001**(continued)

Interest expense on long-term debt increased $328 thousand for the  six  months of 2002 compared to the corresponding period of 2001 as a result  of volume increases.  Average long-term debt for the six months of 2002  increased by $14.5 million compared to 2001 averages as maturities were extended  for short term borrowings from the Federal Home Loan Bank, to take advantage  of the lower interest rate environment.  The provision for credit losses was $5.9 million for the six months of 2002  compared to $5.0 million for the six months of 2001.  Net charge-offs against  the allowance for credit losses were $5.8 million in the 2002 period, reflecting  an increase of $1.1 million compared to 2001 levels.    The 2002 period included increases in net charge-offs for commercial loans not  secured by real estate of $831 thousand compared to 2001 net charge-offs.   Net charge-offs as a percent of average loans outstanding were 0.22% for the  first half of 2002 compared to 0.19% for the first half of 2001.  The provision  for credit losses as a percent of net charge-offs was 102.51% at June 30, 2002  compared to 106.07% at June 30, 2001.  See the "Credit Review"  section for an analysis of the credit quality of the loan portfolio. 

 

 

15

 

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTS OF OPERATIONS (continued)

**First Six Months of 2002 as Compared to the First  Six Months of 2001**(continued)

Below is an analysis of the consolidated allowance for credit losses for thesix month periods ended June 30, 2002 and 2001.

|                                          | 2002                             | 2001                                          |
|-----------------------------------------------|----------------------------------|-----------------------------------------------|
|                                          |                             |                                          |
|                                          | (amounts in thousands)           |
|                                          |                             |                                          |
| Balance January 1,                            | $34,157                          |  $33,601                                 |
| Loans charged off:                            |                             |                                          |
|   Commercial, financial and agricultural |   2,972                     |      860                  |
|   Real estate-construction          |       3 |      -0-                  |
|   Real estate-commercial                 |     351           |      625                  |
|   Real estate-residential                |     863           |    1,110                            |
|   Loans to individuals              |   2,187                     |    2,344                            |
|   Lease financing receivables            |     236           |      306                  |
|                                          | _______                          |   ______                                 |
|     Total loans charged off    | $ 6,612                          |  $ 5,245                                 |
|                                          |                             |                                          |
| Recoveries of previously charged off loans:   |                             |                                          |
|   Commercial, financial and agricultural |     505           |      101                  |
|   Real estate-construction               |     -0-           |      -0-                  |
|   Real estate-commercial                 |     -0-           |      -0-                  |
|   Real estate-residential           |      11      |              42      |
|   Loans to individuals                   |     311           |      417                  |
|   Lease financing receivables            |       5 |               5 |
|                                          | ______                           |  _______                                 |
|     Total recoveries           |     832           |      565                  |
|                                          | _______                          |  _______                                 |
|     Net charge offs            |   5,780                     |    4,680                            |
|                                          | _______                          |  _______                                 |
| Provision charged to operations               |   5,925                     |    4,964                            |
|                                          | _______                          |  _______                                 |
| Balance June 30,                              | $34,302                          |  $33,885                                 |
|                                          | =======                          |  =======                                 |

 

 

 

 

16

 

  FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTSOF OPERATIONS (continued)

**First Six Months of 2002 as Compared to the First  Six Months of 2001** (continued)

Net securities gains were $615 thousand during the  first half of 2002 compared to $2.0 million for the first half of 2001.   Securities gains during the 2002 period resulted primarily from the sale of  Pennsylvania bank stocks, U.S. treasury securities and fixed rate corporate  bonds classified as securities "available for sale" with book values  of $1.1 million, $1.5 million, and $5.6 million, respectively.  The first  half of 2001 included securities gains of $1.7 million generated from the sale  of fixed rate corporate bonds with book values of $37.4 million.  Additional     securities gains during the first half of 2001 resulted from  the sale of U.S. government agency securities classified as securities "available  for sale" with a book value of $10.0 million.

Service charges on deposits for the first half of  2002 increased $151 thousand compared to the first half of 2001, primarily as  a result of increases in bank club and account analysis fees.  Insurance  commissions increased $519 thousand for the first half of 2002 compared to the  first half of 2001 and included an increase of $274 thousand in annuity sales  revenues.  Insurance commissions for the 2002 period also included increases  in commercial lines and advanced life insurance income.  Insurance commissions  for 2002 were also positively impacted by inclusion of Strategic Capital Concepts  insurance production since March 1, 2002.  

Other income for the first six months of 2002 fell  to $5.7 million representing a decline of $791 thousand compared to $6.5 million  reported for the first six months of 2001. This decrease was due in part to  gains on sale of assets included in the 2001 period.  The Corporation sold  one of its branches during the first quarter of 2001 which resulted in a gain  of $777 thousand.  The 2001 period also included a gain of $212 thousand  from the sale of $12.9 million of 30 year residential mortgage loans with significant  prepayment exposure during the falling interest rate environment.  

Fee based revenue, such as insurance commissions,  mutual fund sales fees and investment management fees are expected to be positively  impacted in future periods as the Corporation's newly acquired subsidiaries,  Strategic Capital Concepts and Strategic Financial Advisors are incorporated  into the integrated advisory sales model utilized to integrate products between  the Corporation's bank, insurance and trust subsidiaries.  Certified financial  planners from the new subsidiaries will also be included on the employee team  used to deliver products and services to commercial customers through our "Total  Solutions Financial Management" approach.

 

17  FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTSOF OPERATIONS (continued)

**First Six Months of 2002 as Compared to the First  Six Months of 2001**(continued)

Noninterest expense was $67.1 million for the six  months of 2002 reflecting a rise of $15.6 million over the 2001 level of $51.5  million.  The increase in noninterest expense for 2002 was primarily the  result of nonrecurring charges for the previously described litigation settlement  and corporate restructuring of $8.0 million and $3.1 million, respectively.    Employee costs were $29.4 million for the first half of 2002, representing 1.30%  of average assets on an annualized basis compared to $27.1 million or 1.23%  of average assets on an annualized basis for 2001.  Salary costs for the  2002 period increased $1.4 million or 6.6% compared to 2001 levels of $21.3  million.  Employee benefit costs for the first six months of 2002 reflected  increases of $943 thousand over the first six months of 2001 and included increases  in health insurance costs, expenses of the Corporation's employee stock ownership  plan and 401(k) plan compared to the first six months of 2001.

 As a result of the merger of the Corporation's banking  subsidiaries, Southwest Bank and First Commonwealth Bank, which is expected  to occur later this year, banking operations are in the process of being consolidated  under First Commonwealth Bank.  This change will provide banking clients  with greater flexibility, efficiency and seamless service throughout our market-area.   As a result of this merger, there will be a consolidation of support functions  with some staff positions being eliminated.  The personnel within the branches  and relationship managers in the corporate services will continue to serve in  the same manner.  Employees whose positions were being eliminated were  notified and continued to work in their positions for at least 60 days.   Notified employees had the opportunity to seek other positions within the Corporation  or to receive a separation package based on years of service.  A one-time  charge of $2.8 million for the cost of the separation package is included in  restructuring charges reported on the income statement for the second quarter  of 2002.  In subsequent years a cost savings related to employee costs  will be recognized which is estimated to be approximately $2.0 million annually.   Restructuring charges during 2002 also include $324 thousand related to writing  off obsolete signs and supplies due to the name change under one charter.

Occupancyexpenses decreased for the 2002 period compared to 2001 primarily as a resultof decreases in building repairs, building depreciation and utilitiescosts.  Furniture and equipment expensesof $5.0 million for the first six months of 2002 reflected increases of $586thousand over 2001 levels and included increases in computer softwaredepreciation and software maintenance of $783 thousand, primarily related tothe upgrade of core banking software.  

 

18

 

FIRST COMMONWEALTH FINANCIAL CORPORATION  AND CONSOLIDATED SUBSIDIARIES   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTSOF OPERATIONS (continued)

******First  Six Months of 2002 as Compared to the First Six Months of 2001**(continued)

Outside data processing expense decreased $662 thousand  for the first half of 2002 compared to the first half of 2001 and was positively  impacted by the conversion of Southwest Bank from outsourced processing to that  provided by a subsidiary of the Corporation.  Accounting changes from the  adoption of FAS No. 142 resulted in a decrease of $461 thousand of goodwill  amortization for the first half of 2002 compared to the first half of 2001.   Under the new pronouncement, goodwill amortization was discontinued effective  January 1, 2002.  Other operating expenses for the 2002 period were $15.2 million reflecting a  rise of $2.8 million over the 2001 amount of $12.4 million.  The first  six months of 2002 included increases in loss on sale of assets, primarily loss  on sale of vehicles previously leased, of $447 thousand compared to 2001 levels.   Other professional fees for the 2002 period reflected increases of $996 thousand  over the first half of 2001 and included consulting fees related to implementation  of the Corporation's "Balanced Scorecard" performance measurement  system, enhancements to product and customer profitability systems and corporate  restructuring.  Consultants are also being utilized to assist in the ongoing  efforts to develop a world class sales culture and to generate new deposit dollars  and relationships.  Corporate restructuring and movement towards a sales  culture also impacted the decision to have employee benefit plans reviewed by  outside specialists during 2002.  Promotions expense for the first six  months of 2002 reflected an increase of $1.0 million compared to the first six  months of 2001, due in part to expenses incurred in the successful marketing  campaign for free checking products introduced during 2002. These products are  expected to have a favorable impact on deposit growth, costs and service charge  revenue in future periods as well as providing potential add on sales of other  financial products and services.

Income tax expense was $2.7 million for the first  six months of 2002 compared to $7.4 million for the first six months of 2001.   The Corporation's effective tax rate was 12.77% for the 2002 period compared  to 23.4% for the corresponding period of 2001.  Income tax expense for  the 2002 period included $2.8 million and $1.1 million tax benefit resulting  from the previously described litigation settlement and restructuring charges,  respectively.  The Corporation's effective tax rate for the 2002 period,  excluding these one time charges was 20.4%. 

 

19

 

FIRST COMMONWEALTH FINANCIAL CORPORATION  AND CONSOLIDATED SUBSIDIARIES   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTS OF OPERATIONS (continued) 

### **Three Months Ended June 30, 2002 as Compared  to the Three Months Ended****June 30, 2001**

Net income was $11.0 million for the second quarter  of 2002 a decrease of $1.1 million compared to 2001 results of $12.0 million.   The 2002 period included a $3.1 million ($2.0 million after-tax) one-time restructuring  charge related to employee separation pay and costs related to merging the Corporation's  two subsidiary banks under one charter.  Core earnings (excluding securities  transactions, nonrecurring gains on sale of assets and nonrecurring charges)  increased $1.7 million or 15.99% in the 2002 period.  Basic and diluted  earnings per share were $0.19 during the 2002 quarter compared to $0.21 for  the same period of 2001.  Diluted core earnings per share was $0.21 for  the second quarter of 2002 compared to $0.19 for the second quarter of 2001.   Return on average assets was 0.96% and return on average equity was 11.43% during  the 2002 quarter, compared to 1.08% and 13.69%, respectively during the 2001  quarter.  Core return on average assets and core return on average equity  were 1.11% and 13.15% for the second quarter of 2002.

 

|                                                       | For the Quarter             Ended June 30,      |
|------------------------------------------------------------|---------------------------------------------------------------------------------------------------|
|                                                       | 2002                                                                     | 2001      |
|                                                       |                                                                                              |   |
| **Reconciliation of Core Earnings**                        |                                                                                              |   |
|                                                       |                                                                                              |   |
| Net income as reported                                     |  $10,957                                                                                | $12,034  |
| Non-core items (net of tax):                               |                                                                                              |   |
|   Gains on sale of securities and other        assets |      (374)                                                                    |   (1,164) |
|   Restructuring charges                               |    2,025                                                                           |     -0-  |
|                                                       |  ________                                                                                    | ________ |
| Core net income                                            |  $12,608                                                                                | $10,870  |
|                                                       |  ========                                                                                    | ======== |
| Core basic earnings per share                              |    $0.22                                                                           |   $0.19  |
| Core diluted earnings per share                            |    $0.21                                                                           |   $0.19  |
| Core return on average assets                              |      1.11%                                                                    |     0.97% |
| Core return on average equity                              |     13.15%                                                                         |    12.37% |

 

Netinterest income for the second quarter of 2002 of $37.9 million represented anincrease of $4.0 million compared to the second quarter of 2001.  Net interest margin (net interest income, ona tax-equivalent basis, as a percentage of average earning assets) for the 2002period was 3.77%, reflecting an increase of 33 basis points (0.33%) from 3.44%reported in 2001 as the cost of funds declined more than asset yields, wheninterest rates fell throughout 2001 and remained at low levels during the 2002period.

 

 

20

 

 

FIRST COMMONWEALTH FINANCIAL CORPORATION  AND CONSOLIDATED SUBSIDIARIES   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTSOF OPERATIONS (continued)

Interest and fees on loans for the three months ended  June 30, 2002 decreased $5.5 million compared to the three months ended June  30, 2001, primarily as a result of rate decreases, most notably for variable  rate commercial loans.  The total yield on loans for the second quarter  of 2002 was 7.15% representing a decrease of 107 basis points (1.07%) compared  to yields for the second quarter of 2001.  Declines in interest and fees  on loans due to rate for the second quarter of 2002 compared to the second quarter  of 2001 were partially offset by increases in interest income due to volume  for commercial loans.  Average loans for the second quarter of 2002 increased  $80.0 million compared to averages for the second quarter of 2001 and included  increases in commercial loans and direct installment loans which were partially  offset by decreases in residential mortgage loans.

Interest income on investments for the three months  ended June 30, 2002 was $24.6 million, reflecting a decrease of $1.7 million  compared to the three months ended June 30, 2001.  Decreases in interest  income due to rate for government agency securities were $1.2 million as yields  on government agency securities declined 46 basis points (0.46%) compared to  yields for 2001.  Total yield on investments was 6.09% for the second quarter  of 2002 compared to 6.56% for the second quarter of 2001.  Changes in investment  income due to rate totaled $2.0 million for the 2002 period as overall interest  rates were lower than in the prior year.  Rate decreases during 2002 were  slightly offset by volume increases, most notably, volume increases of $521  thousand for corporate bonds.  Average corporate bonds for the second quarter  of 2002 increased $29.4 million compared to 2001 averages.

Interest on deposits for the second quarter of 2002  was $20.8 million reflecting a decrease of $10.5 million compared to the second  quarter of 2001 as both rates and volumes declined for the 2002 period.   Interest expense on savings reflected decreases due to rate of $2.7 million  for the 2002 period as savings costs fell from 2.31% in 2001 to 1.21% in 2002.   Interest on time deposits reflected decreases due to rate of $8.4 million and  decreases due to volume of $2.1 million for the second quarter of 2002 compared  to the second quarter of 2001.  Average time deposits were $1,626.4 million  for 2002 compared to $1,770.2 million for the corresponding period of 2001.   The cost of time deposits was 4.28% for 2002 compared to 5.71% for 2001.

Interest on short-term borrowings for the second  quarter of 2002 decreased $1.2 million compared to the second quarter of 2001  as rate decreases were partially offset by volume increases.  Short-term  borrowing costs were 1.85% for the 2002 period compared to 4.32% for the 2001  period resulting in a decrease in interest expense due to rate of $2.0 million.   Average short-term borrowings increased $73.4 million for the second quarter  of 2002 compared to the corresponding period of 2001 generating an increase  in

 

21

 

 FIRST COMMONWEALTH FINANCIAL  CORPORATION AND CONSOLIDATED SUBSIDIARIES   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTSOF OPERATIONS (continued)

interest expense due to volume of $800 thousand.   Interest on long-term debt for the three months ended June 30, 2002 increased  $200 thousand over the three months ended June 30, 2001.  Average long-term  debt increased $16.2 million for the 2002 quarter compared to the 2001 quarter.

The provision for credit losses was $3.0 million  for the three months ended June 30, 2002 compared to $2.6 million for the three  months ended June 30, 2001.  Net charge-offs for the second quarter of  2002 were $2.8 million, compared to net charge-offs of $3.0 million for the  second quarter of 2001.  Net charge-offs for the second quarter of 2002  included decreases in charge-offs of residential mortgage loans and commercial  loans secured by real estate of $346 thousand and $207 thousand respectively,  compared to 2001 levels.

Net securities gains were $576 thousand for the second  quarter of 2002 compared to securities gains of $1.8 million for the second  quarter of 2001.  The 2002 period included gains primarily from the sale  of Pennsylvania bank stocks in the amount of $475 thousand.  Securities  gains for the second quarter of 2001 resulted primarily from sales of fixed  rate corporate bonds classified as securities "available for sale"  with book values of $37.4 million.

Insurance commissions increased $318 thousand for  the second quarter of 2002 compared to the corresponding period of 2001.   Although service charges on deposits increased by only $39 thousand during 2002  they are expected to be favorably impacted in future periods by the Corporation's  "High Performance" checking products which were introduced during  2002.

Other income for the three months ended June 30,  2002 was $3.1 million, an increase of $273 thousand over $2.9 million reported  for the three months ended June 30, 2001.  Income from gains on sale of  other real estate owned, bank club income and check printing revenue increased  $334 thousand, $104 thousand and $52 thousand compared to 2001 revenues.   Other income for the second quarter of 2002 reflected decreases in debit card  interchange and mutual fund sales commissions of $176 thousand and $150 thousand  respectively.

Total noninterest expense for the three months ended  June 30, 2002 was $31.6 million reflecting an increase of $5.6 million over  the $26.0 million that was reported for the corresponding period of 2001.   The increase for 2002 resulted primarily from the previously discussed restructuring  charges of $3.1 million.  Additional restructuring costs are expected to  be incurred during the third quarter of 2002.  Employee costs were $14.8  million during the second quarter of 2002 reflecting an increase of $1.4 million  over 2001 levels.  Salaries increased by $884 thousand for the second quarter  of 2002 and employee benefit costs increased $482 thousand.  Employee benefit  cost increases resulted primarily from increases in health insurance costs of  $261 thousand compared to 2001 levels. 

 

22

 

FIRST COMMONWEALTH FINANCIAL CORPORATION  AND CONSOLIDATED SUBSIDIARIES   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

RESULTSOF OPERATIONS (continued)

Furniture and equipment expenses increased $314 thousand  for the second quarter of 2002 primarily as a result of increases in software  depreciation and software maintenance costs.  Outside data processing expenses  decreased $337 thousand for the second quarter of 2002 as one of the Corporation's  subsidiary banks converted to in-house data processing during the fourth quarter  of 2001.  The three months ended June 30, 2002 reflected a decrease of  $231 thousand related to implementation of FAS No. 141 during 2002 which changed  the accounting treatment for goodwill from an amortizing intangible to a non-amortizing  intangible.  

Other operating expenses for the second quarter of  2002 increased $1.4 million and included increases for loss on asset sales,  other professional fees and promotions expenses of $104 thousand, $625 thousand  and $595 thousand respectively, compared to 2001 costs.  As previously  discussed, these increases resulted from various restructuring and marketing  initiatives including sales and product development including branding, as well  as performance measurement system enhancements.  Directors fees are expected  to be reduced in future periods as corporate governance is re-evaluated and  board structures are modified for more effective and efficient management.   One-time charges and estimates of future cost savings of this initiative are  expected to be identified later this year.  Postage expense decreased $138  thousand during the second quarter of 2002 as customer privacy mailings were  incorporated in regular mailings in the 2002 period and additional cost control  initiatives were also implemented.

Income taxes were $2.3 million for the 2002 period  compared to $3.7 million for the corresponding period of 2001.  The Corporation's  effective tax rate was 17.29% for the second quarter of 2002 compared to 23.7%  for the second quarter of 2001.  The 2002 period included the tax benefit  of $1.1 million related to the nonrecurring expenses for restructuring.   The Corporation's effective tax rate excluding nonrecurring expenses was 20.66%  for the three months ended June 30, 2002.

LIQUIDITYLiquidity is a measure of the Corporation's  ability to efficiently meet normal cash flow requirements of both borrowers  and depositors.  In the ordinary course of business, funds are generated  from the banking subsidiaries core deposit base and the maturity or 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  Federal funds purchased, borrowings through the use of lines available for repurchase  agreements and borrowings from the Federal Reserve Bank.  Additionally,  the banking subsidiaries are members of the Federal Home Loan Bank and may borrow  under overnight and term borrowing arrangements.  The sale of earning assets  may also provide an additional source of liquidity.

 

 

23

 

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS 

LIQUIDITY(Continued) The Corporation monitors liquidity through regular computations  of prescribed liquidity ratios.  The Corporation actively manages liquidity  within a defined range and has developed liquidity contingency plans, including  ensuring availability of alternate funding sources to maintain liquidity under  a variety of business conditions.  In addition to the previously described  funding sources, the Corporation also has the ability to access the capital  markets.

At June 30, 2002 total earning assets were $4,348  million, up $13.1 million from the $4,335 million recorded at December 31, 2001.   Net loans rose $44.9 million for the first six months of 2002 fueled by increases  in the commercial, municipal and installment categories offset in part by decreases  in mortgage loans.  Interest bearing liabilities settled at $3,776 million  at June 30, 2002, up slightly from year-end 2001.  Total borrowings dropped  by $105.1 million for the first six months of 2002 due primarily to the rise  in deposits.  Deposits grew $90.5 million for the first six months of 2002  as increases in time deposits of $33.6 million and total savings of $75.5 million  were partially offset by a decline in demand deposits of $18.6 million.   The Corporation has launched a program ("High Performance Checking")  that is focused on growing deposits, primarily in the low cost categories, that  is expected to have a favorable impact on deposit growth and mix.  Marketable securities that the Corporation holds in its investment portfolio  are an additional source of liquidity. These securities are classified as "securities  available for sale" and while the Corporation does not have specific intentions  to sell these securities, they have been designated as "available for sale"  because they may be sold for the purpose of obtaining future liquidity, for  management of interest rate risk or as part of the implementation of tax management  strategies.  As of June 30, 2002, securities available for sale had an  amortized cost of $1,436.4 million and an approximate fair value of $1,469.4  million.

**Interest Sensitivity**The objective of interest rate sensitivity management is  to maintain an appropriate balance between the stable growth of income and the  risks associated with maximizing income through interest sensitivity imbalances.   While no single number can accurately describe the impact of changes in interest  rates on net interest income, interest rate sensitivity positions, or "gaps",  when measured over a variety of time periods, may be helpful.  An asset or liability is considered to be interest-sensitive if the rate it  yields 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 a time period, a negative gap results.

 

 

24

 

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES    MANAGEMENT'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 amount of $604.3 million or 13.18% of earning assets as of June  30, 2002.  A positive gap tends to indicate that earnings will be impacted  favorably if interest rates rise during the period and negatively when interest  rates fall during the time period.  A negative gap tends to indicate that  earnings will be affected inversely to interest rate changes.  In other  words, as interest rates fall, a negative gap should tend to produce a positive  effect on earnings, and when interest rates rise, a negative gap should tend  to affect earnings negatively.The primary components of ISA include adjustable rate loans  and investments, loan repayments, investment maturities and money market investments.   The primary components of ISL include maturing certificates of deposit, money  market deposits, savings deposits, NOW accounts and short-term borrowings.

 The following table lists the amounts and ratios  of assets and liabilities with rates or yields subject to change within the  periods indicated as of June 30, 2002 and December 31, 2001.

|                                                            | June 30, 2002                            |
|-----------------------------------------------------------------|------------------------------------------|
|                                                            | 0-90Days                                 | 91-180Days | 181-365Days | Cumulative0-365 Days |
|                                                            |                                     |   |   |   |
| Loans                                                           | $ 949,713                           | $161,538  | $269,673  | $1,380,924  |
| Investments                                                     |   201,903                      |   80,439  |  236,231  |  518,573  |
| Other interest-earning assets                                   |       744  |      -0-  |      -0-  |      744  |
|                                                            | __________                               | _________ | _________ |  __________ |
|   Total interest-sensitive assets                          |  1,152,360                     |  241,977  |  505,904  |  1,900,241  |
|                                                            | __________                               | _________ | _________ | __________ |
| Certificates of deposit                                         |    344,654                |  230,196  |  356,282  |  931,132  |
| Other deposits                                                  |  1,165,687                     |      -0-  |      -0-  |  1,165,687  |
| Borrowings                                                      |    305,214                |  101,125  |    1,341  |  407,680  |
|                                                            | __________                               | _________ | __________ | __________ |
|   Total interest-sensitive           liabilities |          1,815,555             |  331,321  |  357,623  |  2,504,499  |
|                                                            | __________                               | _________ | _________ | __________ |
| Gap                                                             | $ (663,195)                              | $( 89,344) | $ 148,281  |  $(604,258) |
|                                                            |  ===========                        | ========== | ========== | ========== |
| ISA/ISL                                                         |      0.63       |     0.73  |     1.41  |      0.76  |
| Gap/Total Assets                                                |      14.46%          |      1.95% |      3.23% |      13.18% |

 

 

 

25

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

**Interest Sensitivity**(continued)

|                                                     | December  31, 2001              |
|----------------------------------------------------------|---------------------------------|
|                                                     | 0-90Days                        | 91-180Days | 181-365Days | Cumulative0-365 Days |
|                                                     |                            |   |   |   |
| Loans                                                    | $  839,279            | $ 155,276  | $ 276,760  | $1,271,315   |
| Investments                                              |   154,327                  |   90,890 |  180,001 |  425,218 |
| Other interest-earning assets                            |     4,250        |      -0- |      -0- |    4,250 |
|                                                     | _________                       | ________ | ________ |   _________ |
|   Total  interest-sensitive assets                  |   997,856                  |  246,166 |  456,761 |   1,700,783 |
|                                                     | _________                       | ________ | ________ | _________ |
| Certificates of deposit                                  |   329,825                  |  284,518 |  407,188 | 1,021,531 |
| Other deposits                                           | 1,090,160                       |      -0- |      -0- | 1,090,160 |
| Borrowings                                               |   430,189                  |      350 |      750 |   431,289 |
|                                                     | _________                       | ________ | ________ | _________ |
|   Total  interest-sensitive   Liabilities | 1,850,174                       |  284,868 |  407,938 | 2,542,980 |
|                                                     | _________                       | ________ | ________ | _________ |
| Gap                                                      | $  (852,318)                    | $  (38,702) | $  48,823 |  $ (842,197) |
|                                                     |  ==========                | ======== | ======== | ========== |
| ISA/ISL                                                  |      0.54   |     0.86 |     1.12 |     0.67 |
| Gap/Total Assets                                         |      18.60% |      0.84% |      1.07% |     18.37% |

 

Althoughthe periodic gap analysis provides management with a method of measuringcurrent interest rate risk, it only measures rate sensitivity at a specific pointin time.  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 dynamicsimulation 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 which wouldinclude an acceleration of a deposit rate reduction or lag in a deposit rateincrease.  The repricing strategies forloans would be inversely related.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 downward fromthe base case scenario.  The Corporation's

26

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

**Interest Sensitivity**(continued) 

current asset/liability management policy indicates  that a 300 basis point (3.00%) change in interest rates up or down cannot result  in more than a 7.5% change in net interest income when compared to a base case,  without Board approval and a strategy in place to reduce interest rate risk  below the established maximum level.  The analysis at June 30, 2002 indicated  that a 300 basis point (3.00%) increase in interest rates would decrease net  interest income 78 points (0.78%) below the base case scenario and a 300 basis  point (3.00%) decline in interest rates would decrease net interest income by  573 basis points (5.73%) below the base case scenario, over the next twelve  months, both well within policy limits.  Management believes the probability  of a 300 basis point (3.00%) drop in interest rates is low.  Additional  simulation decreasing interest rates 100 basis points (1.00%) would result in  an increase in net interest income of 41 basis points (0.41%), also well within  policy limits.  The Corporation's "Asset/Liability Management  Committee" ("ALCO") is responsible for the identification, assessment  and management of interest rate risk exposure, liquidity, capital adequacy and  investment portfolio position.  The primary objective of the ALCO process  is to ensure that the Corporation's balance sheet structure maintains prudent  levels of risk within the context of currently known and forecasted economic  conditions and to establish strategies which maximize the Corporation's net  interest income based on the assumption of those risks.  The ALCO attempts  to mitigate interest rate risk through the use of strategies such as asset sales,  asset and liability pricing and matched maturity funding.  The ALCO strategies  are established by the Corporation's senior management and are approved by the  Corporation's board of directors.  The ALCO continues to evaluate the use  of derivative instruments to protect against the risk of adverse price or interest  rate movements on the values of certain assets and liabilities, although none  are being utilized currently.

CREDIT REVIEWThe 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 which termshave 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.

 

27

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

CREDIT REVIEW(continued)

|                                                                                                               | At June 30,                                    |
|--------------------------------------------------------------------------------------------------------------------|------------------------------------------------|
|                                                                                                               | 2002                                           | 2001 |
|                                                                                                               | (amounts in thousands)                         |
| Nonperforming Loans:                                                                                               |                                           |   |
|                                                                                                               |                                           |   |
|   Loans on nonaccrual basis                                                                                   | $   25,705                      | $    8,937  |
|   Past due loans                                                                                              |     14,987                 |     20,500  |
|   Renegotiated loans                                                                                          |        828  |      2,237  |
|                                                                                                               | __________                                     | __________ |
|     Total Nonperforming Loans                                                                       | $   41,520                      | $   31,674  |
|                                                                                                               | ==========                                     | ========== |
|   Other real estate owned                                                                                     | $    1,468                 | $    1,786  |
|                                                                                                               |                                           |   |
|   Loans outstanding at end of period                                                                          | $2,612,965                                | $2,547,540  |
|                                                                                                               |                                           |   |
|   Average loans outstanding (year-to-date)                                                                    | $2,588,873                                | $2,515,991  |
|                                                                                                               |                                           |   |
|   Nonperforming loans as percent of total        loans                                                        |      1.59%                 |      1.24% |
|                                                                                                               |                                           |   |
|   Provision for credit losses                                                                                 | $    5,925                 |  $    4,964  |
|                                                                                                               |                                           |   |
|   Net charge-offs                                                                                             | $    5,780                 | $    4,680  |
|                                                                                                               |                                           |   |
|   Net charge-offs as percent of average            loans outstanding                           |      0.22%                 |      0.19% |
|                                                                                                               |                                           |   |
|   Provision for credit losses as percent                    of net charge-offs                 |    102.51%                           |             106.07% |
|                                                                                                               |                                           |   |
|   Allowance for credit losses as percent            of average loans outstanding               |      1.32%                 |      1.35% |
|                                                                                                               |                                           |   |
|   Allowance for credit losses as percent                    of end-of-period loans outstanding |      1.31%                 |      1.33% |
|                                                                                                               |                                           |   |
|   Allowance for credit losses as percent                    of nonperforming loans             |     82.62%                      |    106.98% |

 

TheCorporation considers a loan to be impaired when, based on current informationand events, it is probable that the Corporation will be unable to collectprincipal or interest due according to the contractual terms of the loan.  Loan impairment is measured based on thepresent 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 cashbasis.  Impaired loans include loans ona nonaccrual basis and renegotiated loans.

 

 

28

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

CREDIT REVIEW (continued)

The following table identifies impaired loans, and  information regarding the relationship of impaired loans to the reserve for  credit losses at June 30, 2002 and June 30, 2001.

|                                                                         | 2002                    | 2001              |
|------------------------------------------------------------------------------|-------------------------|-------------------|
|                                                                         | (amounts  in thousands) |
|                                                                         |                    |              |
| Recorded investment in impaired loans at end of  period                      | $26,533                 | $11,174           |
|                                                                         |                    |              |
| Year to date average balance of impaired loans                               | $25,078                 | $12,052           |
|                                                                         |                    |              |
| Allowance for credit losses related to impaired  loans                       | $ 5,382                 | $ 1,669           |
|                                                                         |                    |              |
| Impaired loans with an allocation of the allowance  for   credit losses | $15,312                 | $ 3,661           |
|                                                                         |                    |              |
| Impaired loans with no allocation of the allowance  for  credit losses  | $11,221                 | $ 7,513           |
|                                                                         |                    |              |
| Year to date income recorded on impaired loans on  a cash basis              | $   188       | $   233 |

Other than those described above, there are no material  credits that management has serious doubts as to the borrower's ability to comply  with the present loan repayment terms.  Additionally, the portfolio is  well diversified and as of June 30, 2002, there were no significant concentrations  of credit.  Nonperforming loans at June 30, 2002 increased $9.8 million compared to 2001  levels as increases in nonaccrual loans were only partially offset by decreases  in past due loans and renegotiated loans.  Past due loans improved in comparison  to both year-end 2001 and June 30, 2002. The jump in nonaccrual loans compared  to year-ago levels resulted principally from the inclusion of two significant  credits during the third quarter of 2001.  The largest credit ($6.5 million)  is not past due and carries an 80% guaranty of a U.S. government agency but  is experiencing cash flow difficulties and has been placed in nonaccrual status.   A resolution of this credit is expected during 2002.  The second credit,  which was $5.9 million at year-end 2001, continues to be resolved through liquidation  of collateral and exercising other remedies.  The balance outstanding at  June 30, 2002,  related to this credit was $4.4 million.  The Corporation  anticipates final resolution of this credit during 2002 without additional losses  in excess of amounts currently reserved.  Nonperforming loans at June 30,  2002, were basically unchanged compared to December 31, 2001.  Nonperforming  loans as a percent of total loans was 1.59% at June 30, 2002, compared to 1.62%  at December 31, 2001, and 1.24% at June 30, 2001, while the allowance for credit  losses as a percent of nonperforming loans was 82.62%, 82.28% and 106.98%, respectively  for the same periods.      

29

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

CREDIT REVIEW (continued)

The Corporation's loan portfolio continues to be  monitored by senior management to identify potential portfolio risks and detect  potential credit deterioration in the early stages.  Committees formed  during 2001 for the purpose of reviewing watchlist credits for workout progress  or deterioration and monitoring loan loss adequacy and the status of significant  nonperforming credits continue to provide additional internal monitoring and  analysis in addition to that provided by the credit committees of the banks  and parent company.  Credit risk is mitigated during the loan origination  process through the use of sound underwriting policies and collateral requirements.   Management also attempts to minimize loan losses by analyzing and modifying  collection techniques on a periodic basis.

The Corporation maintains an allowance for credit  losses at a level deemed sufficient to absorb losses which are inherent in the  loan and lease portfolios.  Management and the Corporation's Board of Directors  review the adequacy of the allowance on a quarterly basis to ensure that the  provision for credit losses has been charged against earnings in an amount necessary  to maintain the allowance at a level that is appropriate based on management's  assessment of probable estimated losses.

The Corporation's methodology for assessing the appropriateness  of the allowance for credit losses consists of several key elements.  These  elements include a specific allowance for primary watch list classified loans,  a formula allowance based on historical trends, an additional allowance for  special circumstances and an unallocated allowance.  The Corporation believes  that the allowance for credit losses is adequate at this time.  Uncertain  economic conditions pose a risk to the banking industry but management believes  that its risk management process serves as an early warning system so that appropriate  responses will be implemented, as required. 

 CAPITAL RESOURCESShareholders' equity stood at $387.5 million  at June 30, 2002, a $17.5 million or 4.7% rise compared to December 31, 2001.   Dividends declared reduced equity by $17.6 million and $16.9 million for the  first six months of 2002 and 2001, respectively.  Payments by the Corporation's  Employee Stock Ownership Plan (the "ESOP") to reduce debt it incurred  to acquire the Corporation's common stock for future distribution as employee  compensation, net of fair value adjustments to ESOP shares, increased equity  by $536 thousand.  Amounts paid to fund the discount on reinvested dividends  reduced equity by $316 thousand.  The market value adjustment for available  for sale securities net of security sales increased equity by $12.7 million  for the period.  Proceeds from the reissuance of treasury shares to provide  for stock options exercised increased equity by $2.7 million during 2002.   Equity capital was also impacted during 2002 by an increase of $812 thousand  from the reissuance of treasury shares to fund an acquisition.

 

30

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

CAPITAL RESOURCES  (continued)

A strong capital base provides the Corporation with  a foundation to expand lending, to protect depositors and provide for growth  while protecting against future uncertainties.  The evaluation of capital  adequacy depends on a variety of factors, including asset quality, liquidity,  earnings history and prospects, internal controls and management ability.   In consideration of these factors, management's primary emphasis with respect  to the Corporation's capital position is to maintain an adequate and stable  ratio of equity to assets.

 The Federal Reserve Board has issued risk-based  capital adequacy guidelines which are designed principally as a measure of credit  risk.  These guidelines require:  (1) at least 50% of a banking organization's  total capital be common and other "core" equity capital ("Tier  I Capital"); (2) assets and off-balance-sheet items be weighted according  to risk; (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 generally expected  to be 3-5 percent for all but the most highly rated banks, as determined by  a regulatory rating system.  The table below presents the Corporation's capital position at June 30, 2002:   

|                          |  

Amount  (in thousands) | Percent  of Adjusted  Assets |
|-------------------------------|--------------------------------|------------------------------|
|                          |                           |                         |
| Tier  I Capital               | $392,885                       |  12.9%                  |
| Risk-Based  Requirement       |   121,941            |  4.0                    |
|                          |                           |                         |
| Total  Capital                |  427,187                  | 14.0                         |
| Risk-Based  Requirement       |  243,882                  |  8.0                    |
|                          |                           |                         |
| Minimum  Leverage Capital     |  392,885                  |  8.6                    |
| Minimum  Leverage Requirement |  136,573                  |  3.0                    |

For an institution to qualify as well capitalized  under regulatory guidelines, Tier 1, Total and Leverage Capital ratios must  be at least 6.0%, 10.0% and 5.0%, respectively.  At June 30, 2002, the  Corporation's banking subsidiaries exceeded those requirements. 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK

Information appearing in Item 2 of this report under  the caption "Interest Sensitivity" is incorporated herein by reference  in response to this item.

 

 

31

FIRST COMMONWEALTH FINANCIAL CORPORATION 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 22, 2002, the Corporation held its regularly scheduled             annual meeting of shareholders.   The following proposal was             considered and acted  upon:

                      Proposal  1

          The  following directors were elected for terms to expire in 2005:

                                        Votes                  Votes                                         For                Withheld

          Ray  T. Charley           46,767,974              479,399          Edward  T. Cote           46,658,005              589,368          Johnston  A. Glass        46,773,276              474,097          Dale  P. Latimer          46,725,211              522,162          Joseph  E. O'Dell         46,766,170              481,203          David  R. Tomb Jr.        46,696,466              550,907

ITEM 5.   OTHER INFORMATION

           Not applicable

ITEM 6.   EXHIBITS AND REPORTS ON FORM  8-K

           (a)     Exhibits                    Exhibits  99.1 and 99.2 Certification pursuant to 18 U.S.C.                      Section 1350 as adopted pursuant to Section 906 of the                      Sarbanes-Oxley Act of 2002

           (b)     Reports on Form 8-K                     None

  32  SIGNATURES

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

FIRST COMMONWEALTH FINANCIAL CORPORATION(Registrant)

  DATED:  AUGUST 13, 2002     /S/Joseph E. O'Dell                             ____________________________________                             Joseph E. O'Dell, President and                             Chief Executive Officer

 

DATED:  AUGUST 13, 2002      /S/John J. Dolan                             _____________________________________                             John J. Dolan, Executive Vice                             President and Chief Financial Officer

 

 

33