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

  (X) QUARTERLY REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES      EXCHANGE ACT  OF 1934

  For the quarterly period ended March 31, 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

                 First Commonwealth Financial Corporation             _              (Exact name  of registrant as specified in its charter)

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

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

                                        724-349-7220                                       (Registrant's 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 ofMay 3, 2002 was 58,704,143.

FIRST COMMONWEALTH FINANCIAL CORPORATION 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  . . . . . . . .     12 ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT              MARKET RISK . . . . . . .  . . . . . . . . . . . . .     27                               PART II - OTHER INFORMATION  Other Information . . . . . . . . . . . . . . . . . . . . . .     28

Signatures. . . . . . . . . . . . .  . . . . . .Signature Page 

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

|                                                                                                                                                                                                                                                                                                                                                           | March 31,        2002                                      | December 31,        2001                 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------|------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                           | ________                                                   | __________                               |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                     |                                                       |                                     |
|   Cash and due from banks on demand .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    | $   60,686                                  |   $    98,130   |
|   Interest-bearing deposits with banks.        . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    | 1,279                                                 | 4,250                               |
|   Federal funds sold. . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    | 2,150                                                 | -0-                                 |
|   Securities available for sale, at market.        . . . . . . . . . .                                                                                                                                                                                                                                                                                    | 1,437,306                                             | 1,469,118                           |
|                                                                                                                                                                                                                                                                                                                                                           |                                                       |                                     |
|   Securities held to maturity, at cost,           (Market value $283,951 in 2002             and $298,643 in 2001) . . . . . . . . . . . . . . .        . . . .                                                                                                                                                                  |   279,595                                        |    293,290                |
|                                                                                                                                                                                                                                                                                                                                                           |                                                       |                                     |
|   Loans . . . . . . . . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    | 2,589,053                                             |  2,569,231                     |
|     Unearned income . . . .        . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                          | (1,128)                                                    |      (1,297)         |
|     Allowance for credit losses        . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                          |    (34,078)                                      |     (34,157)              |
|                                                                                                                                                                                                                                                                                                                                                           | __________                                                 | __________                               |
|       Net loans .        . . . . . . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                | 2,553,847                                             |  2,533,777                     |
|                                                                                                                                                                                                                                                                                                                                                           |                                                       |                                     |
|   Property and equipment. . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |     46,563                                  |     46,418                |
|   Other real estate owned . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |      2,106                             |      1,619           |
|   Goodwill. . . . . . . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |      8,141                             |      6,539           |
|   Amortizing intangibles. . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |      112                               |        232 |
|   Other assets .. . . . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |    141,848                                       |    130,157                     |
|                                                                                                                                                                                                                                                                                                                                                           | __________                                                 | __________                               |
|                 TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                 | $4,533,633                                                 | $4,583,530                               |
|                                                                                                                                                                                                                                                                                                                                                           | ==========                                                 | ==========                               |
| **LIABILITIES**                                                                                                                                                                                                                                                                                                                                                |                                                       |                                     |
|                                                                                                                                                                                                                                                                                                                                                           |                                                       |                                     |
|   Deposits (all domestic):                                                                                                                                                                                                                                                                                                                                |                                                       |                                     |
|     Noninterest bearing . .        . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                          |   $  373,405                                     |   $   412,695             |
|     Interest bearing. . . .        . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                          | 2,731,148                                                  |  2,680,455                          |
|                                                                                                                                                                                                                                                                                                                                                           | __________                                                 | __________                               |
|       Total deposits.        . . . . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                | 3,104,553                                                  |  3,093,150                          |
|                                                                                                                                                                                                                                                                                                                                                           |                                                       |                                     |
|   Short-term borrowings . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |   341,985                                             |    427,736                     |
|   Other liabilities . . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |    36,989                                        |     28,358                |
|                                                                                                                                                                                                                                                                                                                                                           |                                                       |                                     |
|   Company obligated mandatorily redeemable        capital             securities of subsidiary trust. . . . . . . . . . .        . . . .                                                                                                                                                                                                   |    35,000                                        |     35,000                |
|   Other long-term debt. . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |   646,858                                             |    629,220                     |
|                                                                                                                                                                                                                                                                                                                                                           | __________                                                 | __________                               |
|       Total long-term        debt. . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                |   681,858                                             |    664,220                     |
|                                                                                                                                                                                                                                                                                                                                                           | __________                                                 | __________                               |
|       Total liabilities        . . . . . . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                | 4,165,385                                                  |  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; 58,641,160 and 58,451,624             shares outstanding at March 31, 2002 and             December 31, 2001 respectively. . . . . . . . . . .        . . . . |                  62,525 |     62,525                |
|   Additional paid-in capital. . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |    65,667                                        |     66,176                |
|   Retained earnings . . . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |   287,062                                             |    288,219                     |
|   Accumulated other comprehensive income.        . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |     5,890                                   |      8,703           |
|   Treasury stock (3,884,252 shares at        March 31, 2002 and             4,073,788 at December 31, 2001, at cost). . . . . .        . . . .                                                                                                                                                                                             |    (49,038)                                      |     (51,431)              |
|   Unearned ESOP shares. . . . . . . .        . . . . . . . . . . . . .                                                                                                                                                                                                                                                                                    |     (3,858)                                 |      (4,126)         |
|                                                                                                                                                                                                                                                                                                                                                           | __________                                                 | __________                               |
|       Total shareholders'        equity. . . . . . . . . . . . . . . .                                                                                                                                                                                                                                                                |    368,248                                       |    370,066                     |
|                                                                                                                                                                                                                                                                                                                                                           | __________                                                 | __________                               |
|                TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . . .                                                                                                                                                                                                                                                      | $4,533,633                                                 | $4,583,530                               |
|                                                                                                                                                                                                                                                                                                                                                           | ==========                                                 | ==========                               |

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

 

3

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

                      

|                                                                                                                                                               | For the  Quarter  Ended March 31,      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|
|                                                                                                                                                               | ________________                       |
|                                                                                                                                                               | 2002                                   | 2001 |
|                                                                                                                                                               | _____                                  | _____ |
| **Interest Income**                                                                                                                                                |                                   |   |
|   Interest and fees on loans . . . . .        . . . . . . . . . . . . .                                                                                       |  $45,327                          |  $52,222 |
|   Interest  and dividends on investments:                                                                                                                     |                                   |   |
|     Taxable interest . . . .        . . . . . . . . . . . . . . . . . .                                                                             |   22,238                          |   23,331 |
|     Interest exempt from Federal        income taxes. . . . . . . . . .                                                                             |    2,392                     |    2,371 |
|     Dividends. . . . . . . .        . . . . . . . . . . . . . . . . . .                                                                             |      552           |      854 |
|   Interest on Federal funds sold . . .        . . . . . . . . . . . . .                                                                                       |        3 |      282 |
|   Interest on bank deposits. . . . . .        . . . . . . . . . . . . .                                                                                       |       11      |       20 |
|                                                                                                                                                               |   _______                         |   ______ |
|       Total interest        income. . . . . . . . . . . . . . . . . . .                                                                   |   70,523                          |   79,080 |
|                                                                                                                                                               |                                   |   |
| **Interest  Expense**                                                                                                                                              |                                   |   |
|   Interest on deposits . . . . . . . .        . . . . . . . . . . . . .                                                                                       |   21,321                          |   32,057 |
|   Interest on short-term borrowings. .        . . . . . . . . . . . . .                                                                                       |    1,765                     |    3,524 |
|                                                                                                                                                               |                                   |   |
|   Interest  on company obligated mandatorily redeemable capital            securities of subsidiary trust . . . . . . . . . .        . . . . . |       831     |      831 |
|   Interest on other long-term debt . .        . . . . . . . . . . . . .                                                                                       |    8,564                     |    8,436 |
|                                                                                                                                                               |   ______                          |   ______ |
|       Total interest        on long-term debt . . . . . . . . . . . . .                                                                   |    9,395                     |    9,267 |
|                                                                                                                                                               |  ______                           |   ______ |
|       Total interest        expense . . . . . . . . . . . . . . . . . .                                                                   |   32,481                          |   44,848 |
|                                                                                                                                                               |   ______                          |  _______ |
| **Net Interest  Income**                                                                                                                                           |   38,042                          |   34,232 |
|   Provision for credit losses. . . . .        . . . . . . . . . . . . .                                                                                       |    2,917                     |    2,407 |
|                                                                                                                                                               |   ______                          |  _______ |
| **Net interest income after provision for        credit losses. . .**                                                                                              |   35,125                          |   31,825 |
|                                                                                                                                                               |                                   |   |
| **Other Income**                                                                                                                                                   |                                   |   |
|   Securities gains . . . . . . . . . .        . . . . . . . . . . . . .                                                                                       |       39      |      205 |
|   Trust income . . . . . . . . . . . .        . . . . . . . . . . . . .                                                                                       |    1,213                     |    1,294 |
|   Service charges on deposit accounts.        . . . . . . . . . . . . .                                                                                       |    2,693                     |    2,581 |
|   Insurance commissions. . . . . . . .        . . . . . . . . . . . . .                                                                                       |      856           |      655 |
|   Income from bank owned life insurance.        . . . . . . . . . . . .                                                                                       |    1,069                     |      949 |
|   Other income . . . . . . . . . . . .        . . . . . . . . . . . . .                                                                                       |    2,519                     |    3,583 |
|                                                                                                                                                               |   ______                          |   ______ |
|       Total other        income . . . . . . . . . . . . . . . . . . . .                                                                   |    8,389                     |    9,267 |
|                                                                                                                                                               |                                   |   |
| **Other  Expenses**                                                                                                                                                |                                   |   |
|   Salaries and employee benefits . . .        . . . . . . . . . . . . .                                                                                       |   14,643                          |   13,669 |
|   Net occupancy expense  . . . .        . . . . . . . . . . . . . . . .                                                                                  |    1,686                     |    1,777 |
|   Furniture and equipment expense. . .        . . . . . . . . . . . . .                                                                                       |    2,398                     |    2,126 |
|   Data processing expense. . . . . . .        . . . . . . . . . . . . .                                                                                       |      442           |      767 |
|   Pennsylvania shares tax expense. . .        . . . . . . . . . . . . .                                                                                       |      995           |      941 |
|   Goodwill amortization. . . . . . . .        . . . . . . . . . . . . .                                                                                       |      -0-           |      230 |
|   Intangible amortization. . . . . . .        . . . . . . . . . . . . .                                                                                       |      120           |      123 |
|   Litigation settlement. . . . . . . .        . . . . . . . . . . . . .                                                                                       |    8,000                     |      -0- |
|   Other operating expenses . . . . . .        . . . . . . . . . . . . .                                                                                       |    7,159                     |    5,823 |
|                                                                                                                                                               |  _______                          | _______ |
|       Total other        expenses . . . . . . . . . . . . . . . . . . .                                                                   |   35,443                          |   25,456 |
|                                                                                                                                                               |   _______                         | _______ |
| **Income before income taxes**        . . . . . . . . . . . . . . . .                                                                                              |    8,071                |   15,636 |
|   Applicable income taxes . . . . . .        . . . . . . . . . . . . . .                                                                                      |      433           |    3,613 |
|                                                                                                                                                               |  _______                          |  ________ |
| **Net income. . . . . . . . . . . . . . .        . . . . . . . . .**                                                                                          |  $ 7,638                          |  $12,023 |
|                                                                                                                                                               |  =======                          |  ======== |
|                                                                                                                                                               |                                   |   |
| Average Shares Outstanding  . . . . .        . . . . . . . . . . . . . .                                                                                      | 58,142,359                             | 57,721,959 |
| Average Shares Outstanding Assuming Dilution        . . . . . . . . . .                                                                                            | 58,484,806                             | 57,802,012 |
| **Per Share Data:**                                                                                                                                                |                                   |   |
|   Basic earnings per share. . . . . .        . . . . . . . . . . . . . .                                                                                      | $ 0.13                                 | $ 0.21 |
|   Diluted earnings per share. . . . .        . . . . . . . . . . . . . .                                                                                      | $ 0.13                                 | $ 0.21 |
|   Cash dividends per share. . . . . .        . . . . . . . . . . . . . .                                                                                      | $0.150                                 | $0.145 |

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

4

FIRST 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-                  |   12,023                          |     -0-                                   |     -0-            |    -0-               |   12,023                               |
|     Other comprehensive              income,net of tax:              Unrealized holding                gains on securities                arising during               the period. . . . .              |    -0-          |     -0-                  |      -0-           |  11,189                                             |     -0-            |    -0-               |   11,189                               |
|       Less:         reclassification                adjustment for gains        on securities        included               in net income. . . . .                                                                          |    -0-  _______ |     -0-  _______         |      -0-  ________ |    (109)  _______                              |     -0-  ________  |    -0-  ________     |      (109)  _________   |
|     Total  other comprehensive             income. . . . . . . . .                                                                                                                                                                                                                                                              |    -0-  _______ |     -0-  _______         |      -0-  ________ | 11,080  _______                                          |     -0-  ________  |    -0-  ________     |    11,080  _________              |
|   Total comprehensive income.                                                                                                                                                                                                                                                                                                                                 |    -0-          |     -0-                  |   12,023                          | 11,080                                                   |     -0-            |    -0-               |    23,103                         |
|                                                                                                                                                                                                                                                                                                                                                               |                      |                                    |                                   |                                                     |                              |                           |                                        |
|   Cash dividends declared. .                                                                                                                                                                                                                                                                                                                                  |    -0-          |     -0-                  | (8,443)                                |    -0-                                         |     -0-            |    -0-               |    (8,443)                        |
|                                                                                                                                                                                                                                                                                                                                                               |                      |                                    |                                   |                                                     |                              |                           |                                        |
|   Decrease in unearned ESOP               shares                                                                                                                                                                                                                                                                                |    -0-          |     -0-                  |      -0-           |    -0-                                         |     -0-            |    357               |      357                |
|                                                                                                                                                                                                                                                                                                                                                               |                      |                                    |                                   |                                                     |                              |                           |                                        |
|   Discount on dividend           reinvestment plan            purchases. .                                                                                                                                                                                                                                                                |    -0-          |     (153)                |      -0-           |    -0-                                         |     -0-            |    -0-               |      (153)              |
|                                                                                                                                                                                                                                                                                                                                                               |                      |                                    |                                   |                                                     |                              |                           |                                        |
|   Treasury stock reissued. .                                                                                                                                                                                                                                                                                                                                  |    -0-          |      (91)           |      -0-           |    -0-                                         |     337            |    -0-               |      246                |
|                                                                                                                                                                                                                                                                                                                                                               |    _______           |   _______                          |        ________    |     ______                                |      ________ |      ________        |    ________                            |
| **Balance at March 31, 2001.**                                                                                                                                                                                                                                                                                                                                     | $62,525  =======          | $66,979  =======                        | $275,749  ========                     | $3,272  ======                                           | $(54,329)  =========              | $(4,930)  ========             | $349,266  ========                          |
|                                                                                                                                                                                                                                                                                                                                                               |                      |                                    |                                   |                                                     |                              |                           |                                        |
| **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-                  |    7,638                     |    -0-                                         |    -0-                  |    -0-               |    7,638                          |
|     Other comprehensive      income, net        of tax:              Unrealized holding                losses on                securities arising                during the period. . . |    -0-          |     -0-                  |     -0-                 |  (2,787)                                            |     -0-            |    -0-               |   (2,787)                              |
|       Less:         reclassification               adjustment for gains                on securities included               in net income. . . . .                                                                               |    -0-  _______ |     -0-  _______         |     -0-  ________       |     (26)  _______                    |     -0-  ________  |    -0-  ________     |     (26)  _________          |
|     Total  other comprehensive             income. . . . . . . . .                                                                                                                                                                                                                                                              |    -0-  _______ |     -0-  _______         |     -0-  ________       |   (2,813)  ______                              |     -0-  ________  |    -0-  ________     |   (2,813)  _______                     |
|   Total comprehensive income.                                                                                                                                                                                                                                                                                                                                 |    -0-          |     -0-                  |   7,638                           |    (2,813)                                     |     -0-            |    -0-               |   4,825                                |
|                                                                                                                                                                                                                                                                                                                                                               |                      |                                    |                                   |                                                     |                              |                           |                                        |
|   Cash dividends declared. .                                                                                                                                                                                                                                                                                                                                  |    -0-          |     -0-                  |   (8,795)                         |     -0-                                   |     -0-       |    -0-               |   (8,795)                              |
|                                                                                                                                                                                                                                                                                                                                                               |                      |                                    |                                   |                                                     |                              |                           |                                        |
|   Decrease in unearned ESOP           shares                                                                                                                                                                                                                                                                                                        |    -0-          |     -0-                  |     -0-            |     -0-                                   |     -0-            |    268               |     268                      |
|                                                                                                                                                                                                                                                                                                                                                               |                      |                                    |                                   |                                                     |                              |                           |                                        |
|   Discount on dividend           reinvestment plan            purchases. .                                                                                                                                                                                                                                                                |    -0-          |     (157)                |     -0-            |     -0-                                   |     -0-            |    -0-               |     (157)                    |
|                                                                                                                                                                                                                                                                                                                                                               |                      |                                    |                                   |                                                     |                              |                           |                                        |
|   Treasury stock reissued. .                                                                                                                                                                                                                                                                                                                                  |    -0-          |     (352)                |     -0-            |     -0-                                   |   2,393                      |    -0-               |    2,041                          |
|                                                                                                                                                                                                                                                                                                                                                               |                      |                                    |                                   |                                                     |                              |                           |                                        |
| **Balance at March 31, 2002.**                                                                                                                                                                                                                                                                                                                                     | $62,525  =======          | $65,667  =======                        | $287,062  ========                     |  $5,890 ======                                 | $(49,038)  =========              | $(3,858)  ========             | $368,248 ========                      |

The accompanying notes are an integralpart of these consolidated financial statements.

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

 

|                                                                                                                                                           | For the  3 Months  Ended March 31,                 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|
|                                                                                                                                                           | ________________                                   |
|                                                                                                                                                           | 2002                                               | 2001 |
|                                                                                                                                                           | _____                                              | _____ |
| **Operating Activities**                                                                                                                                       |                                               |   |
|   Net income. . . . . . . . . . . . .        . . . . . . . . . . . . .                                                                                    |     $7,638                          |    $12,023 |
|    Adjustments to reconcile net income to net     cash provided (used) by operating  activities:                                           |                                               |   |
|      Provision for credit        losses. . . . . . . . . . . . . . . . .                                                                   |      2,917                     |   2,407 |
|      Depreciation and amortization.        . . . . . . . . . . . . . . .                                                                   |      1,836                     |   1,824 |
|      Net losses (gains)        on sales of assets. . . . . . . . . . . .                                                                   |        179           |   (1,182) |
|      Income from increase        in cash surrender value of bank owned               life insurance.         |     (1,068)                         |     (949) |
|      Decrease in interest        receivable. . . . . . . . . . . . . . .                                                                   |        838           |   1,040 |
|      Decrease in interest        payable . . . . . . . . . . . . . . . .                                                                   |     (1,245)                         |  (14,818) |
|      Increase in income        taxes payable . . . . . . . . . . . . . .                                                                   |        476           |   3,577 |
|      Change in deferred        taxes . . . . . . . . . . . . . . . . . .                                                                   |        (49)          |      22 |
|      Other-net. . . . .        . . . . . . . . . . . . . . . . . . . . .                                                                   |      3,912                     |   (4,399) |
|                                                                                                                                                           |     ______                          |   _______ |
|       Net cash provided        (used) by operating activities. . . . . .                                                              |     15,434                          |     (455) |
|                                                                                                                                                           |                                               |   |
| **Investing  Activities**                                                                                                                                      |                                     |       |
|    Transactions with securities held to maturity:                                                                                                         |                                               |   |
|    Proceeds from sales. . . . . .        . . . . . . . . . . . . . . . .                                                                             |        -0-           |     -0- |
|    Proceeds from maturities and redemptions        . . . . . . . . . . .                                                                             |     28,937                          |  73,608 |
|    Purchases. . . . . . . . . . .        . . . . . . . . . . . . . . . .                                                                             |    (15,241)                              |      -0- |
|    Transactions with securities available for sale:                                                                                                       |                                               |   |
|    Proceeds from sales. . . . . .        . . . . . . . . . . . . . . . .                                                                             |      3,200                     |  25,520 |
|    Proceeds from maturities and redemptions        . . . . . . . . . . .                                                                             |    114,941                               |  97,663 |
|    Purchases. . . . . . . . . . .        . . . . . . . . . . . . . . . .                                                                             |    (90,617)                              | (264,767) |
|   Proceeds from sales of loans and other        assets . . . . . . . . .                                                                                  |      5,037                     |  24,791 |
|   Acquisition of affiliate, net of cash        received. . . . . . . . .                                                                                  |          8 |     -0- |
|   Investment in bank owned life insurance        . . . . . . . . . . . .                                                                                  |     (5,000)                         |  (15,000) |
|   Net decrease (increase) in time deposits        with banks . . . . . .                                                                                  |      2,971                     |   (1,032) |
|   Net increase in loans . . . . . . .        . . . . . . . . . . . . . .                                                                                  |    (29,039)                              |  (38,350) |
|   Purchases of premises and equipment        . . . . . . . . . . . . . .                                                                                  |     (1,776)                         |   (1,584) |
|                                                                                                                                                           |    ________                              |  _______ |
|     Net cash provided (used)        by investing activities. . . . . . .                                                                        |     13,421                          |  (99,151) |
|                                                                                                                                                           |                                               |   |
| **Financing  Activities**                                                                                                                                      |                                               |   |
|                                                                                                                                                           |                                               |   |
|   Repayments of other long-term debt.        . . . . . . . . . . . . . .                                                                                  |       (306)               |     (130) |
|   Proceeds from issuance of other long-term        debt. . . . . . . . .                                                                                  |     18,200                          |   2,000 |
|   Proceeds  from issuance of company obligated mandatorily            redeemable capital securities of subsidiary trust .        . . . . . |        -0-           |     -0- |
|   Discount on dividend reinvestment plan        purchased. . . . . . . .                                                                                  |       (157)               |     (153) |
|   Dividends paid. . . . . . . . . . .        . . . . . . . . . . . . . .                                                                                  |     (8,768)                         |   (8,440) |
|   Net decrease in Federal funds purchased        . . . . . . . . . . . .                                                                                  |    (65,579)                              |   (6,150) |
|   Net increase (decrease) in other short-term        borrowings. . . . .                                                                                  |    (20,171)                              |  20,893 |
|   Sale of branch and deposits, net of        cash received . . . . . . .                                                                                  |        -0-           |   (9,591) |
|   Net increase in deposits. . . . . .        . . . . . . . . . . . . . .                                                                                  |     11,403                          |  97,333 |
|   Proceeds from sale of treasury stock.        . . . . . . . . . . . . .                                                                                  |      1,229                     |     246 |
|                                                                                                                                                           |    ________                              |  _______ |
|     Net cash provided (used)        by financing activities. . . . . . .                                                                        |    (64,149)                              |  96,008 |
|                                                                                                                                                           |    ________                              |  _______ |
|     Net increase (decrease)        in cash and cash equivalents. . . . .                                                                        |    (35,294)                              |   (3,598) |
|                                                                                                                                                           |                                               |   |
|   Cash and cash equivalents at January        1. . . . . . . . . . . . .                                                                                  |     98,130                          | 101,848 |
|                                                                                                                                                           |    ________                              | _______ |
|   Cash and cash equivalents at March 31.        . . . . . . . . . . . .                                                                                   |    $62,836                               | $98,250 |
|                                                                                                                                                           |    ========                              | ======= |

 

The accompanying notes are integral part of theseconsolidated financial statements.

6

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSMarch 31, 2002(Unaudited)

NOTE 1     Management RepresentationIn the opinion of management, the unaudited interim consolidated financialstatements include all adjustments (consisting of only normal recurringadjustments) necessary for a fair statement of financial position as of March31, 2002 and the results of operations for the three month periods ended March31, 2002 and 2001, and statements of cash flows and changes in shareholders'equity for the three month periods ended March 31, 2002 and 2001.  The results of the three months ended March31, 2002 and 2001 are not necessarily indicative of the results to be expectedfor the entire year.  The interimconsolidated financial statements should be read in conjunction with the annualconsolidated financial statements of First Commonwealth Financial Corporationand Subsidiaries, including the notes thereto. NOTE 2     Cash Flow Disclosures(dollar amounts in thousands)

|                                                                                                            | 2002                     | 2001                            |
|-----------------------------------------------------------------------------------------------------------------|--------------------------|---------------------------------|
|                                                                                                            |                     |                            |
| Cash  paid during the first three months of the year for:                                                       |                     |                            |
|                                                                                                            |                     |                            |
| Interest                                                                                                        |  $33,726            | $44,847                         |
| Income  Taxes                                                                                                   |  $    -0- | $   -0-               |
|                                                                                                            |                     |                            |
| Noncash  investing and financing activities:                                                                    |                     |                            |
|                                                                                                            |                     |                            |
|   ESOP loan reductions                                                                                     |  $    268 |    $   357  |
|   Loans transferred to other real estate  owned and    repossessed assets                   |  $ 2,109            |    $ 1,020            |
|   Gross increase (decrease) in market value    adjustment to securities available  for sale | $(4,327)       |   $17,046   |
|   Treasury stock reissued for acquisition                                                                  |  $    812 |    $   -0-  |
|                                                                                                            |                     |                            |

 

 

7

  FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSMarch 31, 2002(Unaudited)

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

|                                                                                                             | March  31, 2002  _______________ | March  31, 2001  _______________   |
|------------------------------------------------------------------------------------------------------------------|----------------------------------|------------------------------------|
|                                                                                                             | Pre-tax  Amount  _______         | Tax  (Expense)  Benefit  _________ | Net of  Tax  Amount  _______ | Pre-tax  Amount  ________ | Tax  (Expense)  Benefit  _________ | Net of  Tax  Amount  _______ |
|                                                                                                             |                             |                               |   |   |   |   |
| Unrealized gains (losses) on securities:                                                                         |                             |                               |   |   |   |   |
|    Unrealized holding gains (losses) arising    during the period . . . . . . . .  . . . .   | ($4,287)                         | $1,500                             | ($2,787) | $17,214 | ($6,025) | $11,189 |
|   Less:  reclassification adjustment for gains    realized in net income. . . . . .  . . . . |     (40)          |     14              |     (26) |    (168) |     59 |    (109) |
|                                                                                                             | _______                          | ______                             | _______ | _______ | _______ | _______ |
|   Net  unrealized gains (losses) . . . . . . .                                                              | (4,327)                          | 1,514                              | (2,813) | 17,046 | (5,966) | 11,080 |
|                                                                                                             | _______                          | ______                             | _______ | _______ | _______ | _______ |
| Other comprehensive income. . . . . . . . . .                                                                    | ($4,327)                         | $1,514                             | ($2,813) | $17,046 | ($5,966) | $11,080 |
|                                                                                                             | =======                          | ======                             | ======== | ======== | ======= | ======== |

 

NOTE4     Business CombinationEffective March 1, 2002, the Corporation acquired all of the outstanding sharesof Strategic Capital Concepts, Inc. ("SCC") and Strategic FinancialAdvisors, Inc. ("SFA"), each a Pennsylvania corporation headquarteredin Allison Park, Pennsylvania.  As aregistered investment adviser, Strategic Capital Concepts provides financialplanning, asset management and consulting services to individuals, businesses,retirement plans, trusts and estates. Strategic Financial Advisors offers investment and insurance products aswell as employee benefit services.  Eachof the outstanding shares of Strategic Capital Concepts, Inc. and StrategicFinancial Advisors, Inc. were exchanged for shares of the Corporation's commonstock.  In addition, the shareholders ofSCC and SFA are entitled to receive additional shares of the Corporation'scommon stock for each of the years 2002 through 2005 based on a formula definedin the merger agreement which takes into consideration the financialperformance of SCC and SFA after the merger date.  The merger was accounted for as a purchase transaction wherebythe identifiable tangible and intangible assets and liabilities of SCC and SFAhave been recorded at their fair values at the acquisition date.  Goodwill in the amount of $1.6 million wasrecorded as a result of the transaction. As prescribed under the purchase method of accounting, the results ofoperations of SCC and SFA from the date of acquisition are included in theCorporation's financial statements for the first quarter of 2002.NOTE 5     Subsequent EventOn May 9, 2002, the Corporation reached final settlement with the plaintiffs ina lender liability action filed in 1994 against one of its subsidiary banksrelating to lending activities occurring prior to the Corporation's acquisitionof that subsidiary.  The decision tosettle followed an adverse pre-trial judgment by the trial judge on proceduralgrounds. 

8

  FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSMarch 31, 2002(Unaudited)

NOTE 5     Subsequent Event  (continued)  Under the settlement agreement, the Corporation will pay the plaintiffs $8.0  million in cash.  Management believes that liability insurance will cover  a portion of the settlement, but the precise amount of insurance coverage has  not yet been determined.  In addition, the uninsured portion of the settlement  will be tax-deductible.  The settlement resulted in a one-time charge of  $8.0 million ($5.2 million, net of tax effect) or $0.09 per share, after tax  to the company's first quarter earnings, but the  settlement will not affect the company's ongoing operating results.  The  $8.0 million dollar litigation settlement is reflected as a separate line item  in the Corporation's Consolidated Statements of Income for the first quarter  of 2002 and a corresponding accrued liability is included in "Other Liabilities"  on the Corporation's Consolidated Balance Sheet at March 31, 2002.NOTE 6     New Accounting Pronouncements  In July 2001, the Financial Accounting Standards Board ("FASB") issued  statement No. 141, "Business Combinations" ("FAS No. 141")  which supersedes APB Opinion No. 16 "Business Combinations" but carries  forward the guidance in Opinion No. 16 related to the application of the purchase  method of accounting.  FAS No. 141 requires the purchase method of accounting  for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interest  method.  FAS No. 141 also specifies the types of acquired intangible assets  that are required to be recognized and reported separately from goodwill.   Intangible assets are recognized as assets apart from goodwill if the asset  arises from contractual or other legal rights or the asset is capable of being  separated from the acquired entity and sold or exchanged.  In addition  to the disclosure requirements in Opinion No. 16, FAS No. 141 requires disclosure  of the primary reasons for the business combination and the allocation of the  purchase price paid to the assets acquired and liabilities assumed by major  balance sheet caption.  After initial recognition, goodwill and other intangible  assets acquired in a business combination are accounted for following the provisions  of FASB statement No. 142, "Goodwill and Other Intangible Assets."   Implementation of FAS No. 141 did not have a material impact on the Corporation's  financial condition or results of operations.  In July 2001, the FASB issued statement No. 142, "Goodwill and Other Intangible  Assets" ("FAS No. 142"), which supersedes APB Opinion No. 17,  "Intangible Assets" and is effective for fiscal years beginning after  December 15, 2001.  FAS No. 142 addresses how intangible assets acquired  other than by business combination should be accounted for in financial statements  upon their acquisition.  This statement also addresses financial accounting  and reporting for goodwill and other intangible assets subsequent to their acquisition.   Additional provisions of FAS No. 142 include the reclassification of certain  existing recognized intangibles to goodwill and reclassification of certain  intangibles out of previously reported goodwill upon adoption.  FAS No.  142 requires that goodwill and other intangible assets with indefinite useful  lives, including goodwill recorded in past business combinations, no longer  be amortized, but instead

 

9

  FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTSMarch 31, 2002(Unaudited)

NOTE 6     New Accounting  Pronouncements (continued)

be tested for impairment at least annually and written  down and charged to results of operations only in the periods in which the recorded  value is more than the estimated fair value.  Intangible assets that have  finite useful lives will continue to be amortized over their useful lives.   This statement also requires the Corporation to complete a transitional goodwill  impairment test by June 30, 2002, including the identification of reporting  units for the purpose of assessing potential future impairments of goodwill.   After identifying its reporting units, the Corporation must determine the carrying  value of each reporting unit by assigning the assets and liabilities, including  the existing goodwill and intangible assets to those reporting units and then  determine the carrying value of each reporting unit.  If the carrying value  of any reporting unit exceeds its fair value, then detailed fair values for  each of the assigned assets (excluding goodwill) and liabilities will be determined  to calculate the amount of goodwill impairment, if any.  Any transitional  impairment loss resulting from the adoption of FAS No. 142 will be recognized  as the effect of a change in accounting principle in the Corporation's income  statement.     FAS No. 142 requires disclosure of information about goodwill and other intangible  assets in years subsequent to their acquisition which was not previously required,  including changes in the carrying amount of goodwill from period to period,  the carrying amount of intangible assets, and for assets subject to amortization,  the estimated amortization expense for the next five years.  As of January  1, 2002, the Corporation had goodwill, net of accumulated amortization, of approximately  $5.8 million, which would be subject to the transitional assessment provisions  of FAS No. 142.  In addition, management has 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.  The  customer list intangible was recorded by the Corporation's insurance subsidiary  in August 2000 and has been amortized to a carrying amount of $718 thousand.   Goodwill amortization expense was $230 thousand during the first quarter of  2001, including amortization related to the insurance agency intangible.   Goodwill represented basic and diluted earnings per share of $0.004 for the  first three months of 2001.  The elimination of goodwill amortization is  expected to reduce other operating expenses by $922 thousand for 2002.   Although the Corporation has not yet completed its transitional goodwill impairment  testing, management's preliminary determination is that no impairment loss will  be recognized.         In June 2001, the FASB, issued statement No. 143, "Accounting for Asset  Retirement Obligations" ("FAS No. 143") which is effective for  financial statements issued for fiscal years beginning after June 15, 2002.   The statement addresses financial accounting and reporting for obligations associated  with the retirement of tangible long-lived assets and associated asset retirement  costs.  FAS No. 143 requires that the fair value of a liability for an  asset retirement obligation be recognized in the period in which it is incurred  if a reasonable estimate of fair value can be made.  

  10

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  March 31, 2002(Unaudited)

NOTE 6     New Accounting  Pronouncements (continued)

 The associated asset retirement costs are capitalized  as part of the carrying amount of the long-lived asset and subsequently allocated  to expense over the asset's useful life.  Implementation of FAS No. 143  is not expected to have a material impact on the 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 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 the difference between  the carrying value and the market value of the asset.  This statement also  requires measurement of long-lived assets classified as held for sale at the  lower of their carrying amount or fair value less cost to sell and to cease  depreciation or amortization on these assets.  Implementation of FAS No.  144 did not have a material impact on the Corporation's financial condition  or results of operations.  In April 2002, the FASB issued statement No. 145, "Recission of FASB Statement  No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections"  ("FAS No. 145").  FAS No. 145 rescinds Statement No. 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.

11

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

RESULTSOF OPERATIONS**First Three Months of 2002 as Compared to theFirst Three 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 are cautionednot to place undue reliance on these forward-looking statements, which reflectmanagement's analysis only as of the date hereof.  The Corporation undertakes no obligation to publicly revise orupdate these forward-looking statements to reflect events or circumstances thatarise after the date hereof.Net income for the first three months of 2002 was $7.6 million reflecting adecrease of $4.4 million compared to 2001 results of $12.0 million.  Diluted earnings per share were $0.13 forthe first quarter of 2002 compared to $0.21 for the first quarter of 2001.  The decrease in net income for the 2002period was primarily the result of the one-time charge for the litigationsettlement previously described in Note 5 to the Consolidated FinancialStatements.  This settlement resultedfrom a lender liability action filed in 1994 against one of the Corporation'ssubsidiary banks relating to a loan made prior to the company's acquisition ofthat subsidiary.  Net income excludinggains on asset sales and the litigation settlement was $12.8 million for thethree months of 2002, representing an increase of 14% compared to $11.2 millionfor 2001.  Gains on the sale of assetsincludes securities gains of $39 thousand and $205 thousand in 2002 and 2001,respectively, as well as a $989 thousand gain on the sale of a branch and ablock of mortgages in 2001.  Dilutedearnings per share for core earnings (earnings excluding securitiestransactions, gains on asset sales and the litigation settlement) were $0.22for the three months of 2002 compared to diluted earnings per share of $0.20for the three months of 2001.  Return onaverage assets was 0.68% and return on average equity was 8.09% during the 2002period, compared to 1.11% and 14.14%, respectively during the same period of2001.  Return on average assets andreturn on average equity based on core earnings were 1.14% and 13.57%,respectively for the first quarter of 2002 compared to 1.03% and 13.22%,respectively for the first quarter of 2001.

12

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

RESULTSOF OPERATIONS (continued)

 

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

|                                | For the Quarter  Ended March 31, |
|-------------------------------------|----------------------------------|
|                                | 2002                             | 2001 |
|                                | ____                             | ____ |
| **Reconciliation of Core Earnings** |                             |   |
| ________________________________    |                             |   |
|                                |                             |   |
| Net  income as reported             | $ 7,638                          | $12,023 |
| Non-core  items (net of tax):       |                             |   |
|   Gains on sale of assets      |      25      |     783 |
|   Litigation settlement        |    5,200                    |     -0- |
|                                | _______                          | _______ |
| Core  net income                    | $12,813                          | $11,240 |
|                                | =======                          | ======= |
| Core  basic earnings per share      |    $0.22                    |    $0.19 |
| Core  diluted earnings per share    |    $0.22                    |    $0.19 |
| Core  return on average assets      |     1.14%         |     1.03% |
| Core  return on average equity      |    13.57%              |    13.22% |

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 $38.0  million for the three months of 2002 compared to $34.2 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 3.82% for the three months  of 2002 compared to 3.55% for the three months of 2001.  The increase 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.  The cost of deposits decreased by 139 basis points  (1.39%) for the first three months of 2002 compared to the first three months  of 2001, while loan yields decreased by 129 basis points (1.29%) over the same  time period.  The Corporation continues to manage interest rate risk and  to expand its fee-based services to offset persistent pressure on net interest  income.

  13

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

RESULTS OF OPERATIONS (continued) 

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

 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         |
|----------------------------------------------------|-------------------------------|
|                                               | Total  Change  ______         | Change Due  to Volume  __________ | Change Due  to Rate  __________ |
|                                               |                          |   |   |
| Interest-earning  assets:                          |                          |   |   |
|   Time deposits with banks                    |  ($    9) | $    9 |  ($    18) |
|   Securities                                  |    (1,374)               |  1,130 |   (2,504) |
|   Federal funds sold                          |     (279)      |    (268) |      (11) |
|   Loans                                       |    (6,895)               |  1,380 |   (8,275) |
|                                               |    ______                | ______ |  _______ |
|     Total interest income           |    (8,557)               |  2,251 |  (10,808) |
| Interest-bearing  liabilities:                     |  _______                 | ______ |  _______ |
|   Deposits                                    |  (10,736)                |    558 |  (11,294) |
|   Short-term borrowings                       |    (1,759)               |  1,513 |   (3,272) |
|   Long-term debt                              |     128        |    179 |      (51) |
|                 | _______                       | _______ |  _______ |
|     Total interest expense          |  (12,367)                |  2,250 |  (14,617) |
|                                               | _______                       | _______ |  _______ |
|       Net interest income | $ 3,810                       | $    1 |  $ 3,809 |
|                                               | =======                       | ======= |  ======= |
|                                               |                          |   |   |

 

Interestand fees on loans decreased $6.9 million for 2002 over 2001 levels and includeddecreases in interest income due to rate of $8.3 million which were partiallyoffset by increases in interest income due to volume of $1.4 million.  The total yield on loans for the first threemonths of 2002 was 7.31%, compared to loan yields of 8.61% for the first threemonths of 2001.  Average loans for thethree months of 2002 increased $65.7 million compared to averages for the threemonths of 2001 as increases in commercial loans and municipal loans werepartially offset by decreases in average consumer loans.

Interest income on investments decreased $1.4 million for the three months of2002 compared to the corresponding period of 2001 as decreases in interestincome due to rate were only partially offset by increases in interest incomedue to volume.  Total yield oninvestments was 6.14% for the first quarter of 2002 compared to 6.70% for thefirst quarter of 2001.  Decreases ininterest income due to rate for U.S. government agency securities were $1.5million as yields on U.S. government agency securities decreased 54 basis points(0.54%) for the 2002 period compared to 2001. Average investments for the three months of 2002 included an increase of$68.2 million for corporate bonds 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 Three Months of 2002 as Compared to the  First Three Months of 2001**  (continued)

 Interest on deposits decreased $10.7 million for the 2002 period  compared to 2001, as interest on total savings deposits decreased by $2.9 million  and interest on time deposits decreased by $7.8 million for the three months  of 2002 compared to 2001.  Interest expense on deposits for the first quarter  of 2002 reflected decreases due to rate of $11.3 million as the cost of total  savings deposits decreased 127 basis points (1.27%) and the cost of time deposits  decreased 144 basis points (1.44%) compared to costs for the first quarter of  2001.  Average deposits for the first three months of 2002 included decreases  in average time deposits of $147.3 million which were partially offset by increases  in average total savings deposits of $88.1 million over 2001 averages.  Interest expense on short-term borrowings decreased $1.8 million for the three  months of 2002 compared to the three months of 2001 as decreases in interest  expense due to rate of $3.3 million were partially offset by increases in interest  expense due to volume of $1.5 million compared to 2001 levels.  The cost  of short-term borrowings for the 2002 period decreased by 348 basis pints (3.48%)  compared to 2001 costs of 5.35%.  The average balance of short-term borrowings  for the first quarter of 2002 increased by $114.0 million over averages for  the first quarter of 2001.  Interest expense on long-term debt increased $128 thousand for the three months  of 2002 compared to the corresponding period of 2001 as a result of volume increases.   Average long-term debt for the three months of 2002 increased by $12.7 million  compared to 2001 averages as maturities were extended for short term borrowings  from the Federal Home Loan Bank, to take advantage of lower interest rates.  The provision for credit losses was $2.9 million for the three months of 2002  compared to $2.4 million for the three months of 2001.  Net charge-offs  against the allowance for credit losses were $3.0 million in the 2002 period,  reflecting an increase of $1.3 million compared to 2001 levels.    The 2002 period included increases in net charge-offs for commercial loans not  secured by real estate of $1.1 million and increases in net charge-offs for  consumer real estate loans of $130 thousand compared to 2001 net charge-offs.   Net charge-offs as a percent of average loans outstanding were 0.12% for the  first quarter of 2002 compared to 0.07% for the first quarter of 2001.   The provision for credit losses as a percent of net charge-offs was 97.36% at  March 31, 2002 compared to 144.22% at March 31, 2001.  See the "Credit  Review" section for an analysis of the 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 Three Months of 2002 as Compared to the  First Three Months of 2001**  (continued)

 Below is an analysis of the consolidated allowance  for credit losses for the three month periods ended March 31, 2002 and 2001.

|                                          | 2002        ____                         | 2001        ____                              |
|-----------------------------------------------|------------------------------------------|-----------------------------------------------|
|                                          | (amounts in thousands)                   |
|                                          |                                     |                                          |
| Balance January 1,                            | $34,157                                  |  $33,601                                 |
| Loans charged off:                            |                                     |                                          |
|   Commercial, financial and agricultural |    1,231                       |      217                  |
|   Real estate-construction          |       1         |      -0-                  |
|   Real estate-commercial                 |     171                   |      238                  |
|   Real estate-residential                |       434  |      322                  |
|   Loans to individuals              |   1,199                             |    1,057                            |
|   Lease financing receivables            |     144                   |      115                  |
|                                          | _______                                  |   ______                                 |
|     Total loans charged off    | $ 3,180                                  |   $1,949                                 |
|                                          |                                     |                                          |
| Recoveries of previously charged off loans:   |                                     |                                          |
|   Commercial, financial and agricultural |      34              |              66      |
|   Real estate-construction               |     -0-                   |      -0-                  |
|   Real estate-commercial                 |     -0-                   |      -0-                  |
|   Real estate-residential           |       3         |              21      |
|   Loans to individuals                   |     147                   |      188                  |
|   Lease financing receivables            |     -0-                   |               5 |
|                                          | ______                                   |  _______                                 |
|     Total recoveries           |     184                   |      280                  |
|                                          | _______                                  |  _______                                 |
|     Net charge offs            |   2,996                             |    1,669                            |
|                                          | _______                                  |  _______                                 |
| Provision charged to operations               |   2,917                             |    2,407                            |
|                                          | _______                                  |  _______                                 |
| Balance March 31,                             | $34,078                                  |  $34,339                                 |
|                                          | =======                                  |  =======                                 |

Net securities gains were $39 thousand during the first three months of 2002compared to $205 thousand for the first three months of 2001.  Securities gains during the three months of2002 resulted primarily from the sale of fixed rate corporate bonds classifiedas securities "available for sale" with a book value of $3.0million.  The securities gains during2001 resulted primarily from sales and calls of fixed rate U.S. governmentagency securities classified as securities "available for sale" witha book value of $39.9 million.

 

16

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

RESULTSOF OPERATIONS (continued)

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

 Trust income for the first quarter of 2002 decreased  $81 thousand compared to the first quarter of 2001 and included decreases in  income from employee benefit accounts and personal trusts as market values declined.   Service charges on deposits for the first three months of 2002 increased $112  thousand compared to the first three months of 2001.  Insurance commissions  increased $201 thousand for the first quarter of 2002 compared to the first  quarter of 2001, primarily as a result of increased annuity sales.  Income  from bank owned life insurance was $1.1 million for the first three months of  2002 compared to $949 thousand for the first three months of 2001.  The  2002 period included an additional investment in bank owned life insurance of  $5.0 million compared to 2001 levels.Other income for the first three months of 2002 was $2.5 million representing adecrease of $1.1 million compared to $3.6 million reported for the first threemonths of 2001.  The decrease in otherincome for the first quarter of 2002 compared to the first quarter of 2001 wasdue in part to gains on sale of assets included in the 2001 period.  The Corporation sold one of its branchesduring the first quarter of 2001 which resulted in a gain of $777thousand.  The 2001 period also includeda gain of $212 thousand from the sale of $12.9 million of 30 year residentialmortgage loans with significant prepayment exposure during falling interestrates.  Other income for 2002 includeddecreases in ATM fees compared to the corresponding period of 2001.  Fee based revenue, such as insurancecommissions, mutual fund sales fees and investment management fees are expectedto be positively impacted in future periods as the Corporation's newly acquiredsubsidiaries, Strategic Capital Concepts and Strategic Financial Advisors areincorporated into the integrated advisory sales model utilized to integrateproducts between the Corporation's bank, insurance and trust subsidiaries.  Certified financial planners from the newsubsidiaries will also be included on the employee team used to deliverproducts and services to commercial customers through our "Total SolutionsFinancial Management" approach.Noninterest expense was $35.4 million for the three months of 2002 reflectingan increase of $10.0 million over the 2001 level of $25.4 million, primarily asa result of the previously described litigation settlement of $8.0 millionincluded in the 2002 period.  Employeecosts were $14.6 million for the first three months of 2002, representing 1.31%of average assets on an annualized basis compared to $13.7 million or 1.26% ofaverage assets on an annualized basis for 2001.  Salary costs for the first quarter of 2002 increased $514thousand or 4.8% compared to 2001 levels of $10.7 million.  Employee benefit costs for the first threemonths of 2002 reflected increases of $461 thousand over the first three monthsof 2001 and included increases in health insurance costs and increases inexpenses of the Corporation's employee stock ownership plan and 401(k) plan comparedto the first three months of 2001.

 

17

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

RESULTSOF OPERATIONS (continued)

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

 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 will be 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.  This move will affect 50 employees at Southwest Bank.   Employees were notified on April 25 and will continue to work in their current  positions for at least 60 more days.  During this time, they will also  have the opportunity to seek other positions within the Corporation.  Those  employees who do leave after this period will receive liberal separation packages  based on years of service.  A one-time charge for the cost of the separation  package is expected in 2002.  In subsequent years a cost savings will be  recognized.  While the financial impact is not immediately determinable,  it is expected to be positive and will be quantified during the next 90 days.Furniture and equipment expenses of $2.4 million for the first three months of2002 reflected increases of $272 thousand over 2001 levels and includedincreases in computer software depreciation and software maintenance of $231thousand and $181 thousand, respectively, primarily related to the upgrade ofthe core banking software.  Increases incomputer software depreciation and maintenance costs for the 2002 periodcompared to 2001 were partially offset by decreases in outside data processingcosts over the same time period. Outside data processing expense decreased $325 thousand for the firstquarter of 2002 compared to the first quarter of 2001 and was positivelyimpacted by the conversion of Southwest Bank from outsourced processing to thatprovided by a subsidiary of the Corporation. Accounting changes from the adoption of FAS No. 142 resulted in a decrease of$230 thousand of goodwill amortization for the first three months of 2002 comparedto the first three months of 2001. Under the new pronouncement goodwill amortization was discontinuedeffective January 1, 2002.Other operating expenses for the 2002 period were $7.1 million reflecting anincrease of $1.3 million over the 2001 amount of $5.8 million.  The first three months of 2002 includedincreases in legal fees, loss on sale of assets, and telephone expenses of $106thousand, $343 thousand and $120 thousand, respectively compared to 2001levels.  Other professional fees for thefirst quarter of 2002 reflected increases of $372 thousand over the firstquarter of 2001 and included consulting fees related to implementation of theCorporation's "Balanced Scorecard" performance measurement system,enhancements to product and customer profitability systems and corporaterestructuring.  Promotion expense forthe first three months of 2002 reflected an increase of $453 thousand comparedto the first three months of 2001, due in part to expenses incurred in thesuccessful marketing campaign for free checking products introduced during2002.

18

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

RESULTSOF OPERATIONS (continued)

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

 These products are expected to have a favorable  impact on deposit 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 $433 thousand for the first three months of 2002compared to $3.6 million for the first three months of 2001.  The Corporation's effective tax rate was5.4% for the 2002 period compared to 23.1% for the corresponding period of2001.  Income tax expense for the 2002period included the $2.8 million tax benefit resulting from the previouslydescribed litigation settlement.  TheCorporation's effective tax rate for the 2002 period, excluding this one time chargewas 20.1%.LIQUIDITYLiquidity is a measure of the Corporation's ability to efficiently meetnormal cash flow requirements of both borrowers and depositors.  In the ordinary course of business, fundsare generated from deposits (primary source) and the maturity or repayment ofearning assets, such as securities and loans. As an additional secondary source, short-term liquidity needs may beprovided through the use of overnight Federal funds purchased, borrowingsthrough the use of lines available for repurchase agreements and borrowingsfrom the Federal Reserve Bank. Additionally, the banking subsidiaries are members of the Federal HomeLoan Bank and may borrow under overnight and term borrowing arrangements.  The sale of earning assets may also providean additional source of liquidity.The Corporation monitors liquidity through regular computations of prescribedliquidity ratios.  The Corporationactively manages liquidity within a defined range and has developed liquiditycontingency plans, including ensuring availability of alternate funding sourcesto maintain liquidity under a variety of business conditions.  In addition to the previously describedfunding sources, the Corporation also has the ability to access the capitalmarkets.Net loans increased $20.1 million in the first three months of 2002 asincreases in commercial loans, municipal loans and loans to individuals werepartially offset by decreases in residential real estate loans.  Total deposits increased $11.4 million forthe first three months of 2002 as increases in time deposits of $42.7 millionand total savings deposits of $8.0 million were partially offset by decreasesin demand deposits of $39.3 million compared to year-end 2001.  Time deposits for the first three months of2002 were primarily in rising rate certificates of deposits offered for alimited time during 2002.  TheCorporation's commitment to competitive product offerings combined with greaterflexibility and enhanced delivery systems resulting from the replacement of thedeposit software during 2001 should continue to have a favorable impact on thedeposit base. 

19

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

LIQUIDITY (continued)

Marketablesecurities that the Corporation holds in its investment portfolio are anadditional source of liquidity. These securities are classified as"securities available for sale" and while the Corporation does nothave specific intentions to sell these securities, they have been designated as"available for sale" because they may be sold for the purpose ofobtaining future liquidity, for management of interest rate risk or as part ofthe implementation of tax management strategies.  As of March 31, 2002, securities available for sale had anamortized cost of $1,428.2 million and an approximate fair value of $1,437.3million.**Interest Sensitivity**The objective of interest rate sensitivity management is to maintain an appropriatebalance between the stable growth of income and the risks associated withmaximizing income through interest sensitivity imbalances.  While no single number can accuratelydescribe the impact of changes in interest rates on net interest income, interestrate sensitivity positions, or "gaps", when measured over a varietyof time periods, may be helpful.An asset or liability is considered to be interest-sensitive if the rate ityields or bears is subject to change within a predetermined time period.  If interest-sensitive assets("ISA") exceed interest-sensitive liabilities ("ISL")during the prescribed time period, a positive gap results.  Conversely, when ISL exceed ISA during atime period, a negative gap results.A positive gap tends to indicate that earnings will be impacted favorably ifinterest rates rise during the period and negatively when interest rates fallduring the time period.  A negative gaptends to indicate that earnings will be affected inversely to interest ratechanges.  In other words, as interestrates fall, a negative gap should tend to produce a positive effect onearnings, and when interest rates rise, a negative gap should tend to affectearnings negatively.The primary components of ISA include adjustable rate loans and investments,loan repayments, investment maturities and money market investments.  The primary components of ISL includematuring certificates of deposit, money market deposits, savings deposits, NOWaccounts and short-term borrowings.  

  20

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

LIQUIDITY(continued)

**Interest Sensitivity**The following table lists the amounts and ratios of assets and liabilities withrates or yields subject to change within the periods indicated as of March 31,2002 and December 31, 2001.

|                                                     | March  31, 2002  ______________ |
|----------------------------------------------------------|---------------------------------|
|                                                     | 0-90  Days  _____               | 91-180  Days  ______ | 181-365  Days  ________ | Cumulative  0-365 Days  ___________ |
|                                                     |                            |   |   |   |
| Loans                                                    |    $886,824      | $160,749 | $289,173 |  $1,336,746 |
| Investments                                              |  136,679                   |  114,686 |  145,643 |  397,008 |
| Other interest-earning assets                            |    3,429              |      -0- |      -0- |    3,429 |
|                                                     | _________                       | ________ | ________ |   _________ |
|   Total  interest-sensitive assets                  |   1,026,932           |  275,435 |  434,816 |   1,737,183 |
|                                                     | _________                       | ________ | ________ | _________ |
| Certificates of deposit                                  |   388,420                  |  273,563 |  392,366 | 1,054,349 |
| Other deposits                                           | 1,098,118                       |      -0- |      -0- | 1,098,118 |
| Borrowings                                               |   341,800                  |      -0- |      750 |   342,550 |
|                                                     | _________                       | ________ | ________ | _________ |
|   Total  interest-sensitive   liabilities | 1,828,338                       |  273,563 |  393,116 | 2,495,017 |
|                                                     | _________                       | ________ | ________ | _________ |
| Gap.                                                     |  ($801,406)                | $  1,872 | $  41,700 |  ($757,834) |
|                                                     |  ==========                | ======== | ======== | ========== |
| ISA/ISL                                                  |      0.56   |     1.01 |     1.11 |      0.70 |
| Gap/Total Assets                                         |      17.68% |      0.04% |      0.92% |      16.72% |

 

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

**Interest Sensitivity**(continued)

|                                                     | December  31, 2001  __________________ |
|----------------------------------------------------------|----------------------------------------|
|                                                     | 0-90  Days  _____                      | 91-180  Days  ______ | 181-365  Days  ________ | Cumulative  0-365 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 specificpoint in time.  Therefore, to moreprecisely measure the impact of interest rate changes on the Corporation's netinterest income, management simulates the potential effects of changinginterest rates through computer modeling. The income simulation model used by the Corporation captures all assets,liabilities and off-balance sheet financial instruments, accounting forsignificant variables that are believed to be affected by interest rates.  These variables include prepayment speeds onmortgage loans and mortgage backed securities, cash flows from loans, depositsand investments and balance sheet growth assumptions.  The model also captures embedded options, such as interest ratecaps/floors or call options, and accounts for changes in rate relationships asvarious rate indices lead or lag changes in market rates.  The Corporation is then better able toimplement strategies which would include an acceleration of a deposit ratereduction or lag in a deposit rate increase. The repricing strategies for loans 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.  TheCorporation's

22

   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 indicated  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 March 31, 2002 indicated  that a 300 basis point (3.00%) movement in interest rates in either direction  over the next twelve months would not have a significant impact on the Corporation's  anticipated net interest income over that time frame and the Corporation's position  would remain well within current policy guidelines.  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 provide the Corporation with appropriate compensation for the assumption  of those risks.  The ALCO attempts to mitigate interest rate risk through  the use of strategies such as asset disposition, 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.CREDIT REVIEW  The following table identifies amounts of loan losses and nonperforming loans.   Past due loans are those which were contractually past due 90 days or more as  to interest or principal payments but are well secured and in the process of  collection.  Renegotiated loans are those which terms have been renegotiated  to provide a reduction or deferral of principal or interest as a result of deteriorating  financial position of the borrower and are in compliance with the restructured  terms.

 

 23

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

**Interest Sensitivity**(continued)

|                                                                                                | At March 31,  _____________              |
|-----------------------------------------------------------------------------------------------------|------------------------------------------|
|                                                                                                | 2002  ____                               | 2001  _____ |
|                                                                                                | (amounts in thousands)                   |
| Nonperforming  Loans:                                                                               |                                     |   |
|                                                                                                |                                     |   |
|   Loans on nonaccrual basis                                                                    | $   24,589                     | $    9,447 |
|   Past due loans                                                                               |     15,594                |     21,751 |
|   Renegotiated loans                                                                           |        827 |      2,250 |
|                                                                                                | __________                               | __________ |
|     Total Nonperforming Loans                                                        | $   41,010                     | $   33,448 |
|                                                                                                | ==========                               | ========== |
|   Other real estate owned                                                                      | $    2,106                | $    1,475 |
|                                                                                                |                                     |   |
|   Loans outstanding at end of period                                                           | $2,587,925                               | $2,502,629 |
|                                                                                                |                                     |   |
|   Average loans outstanding (year-to-date)                                                     |  $2,568,911                         | $2,503,187 |
|                                                                                                |                                     |   |
|   Nonperforming loans as percent of total  loans                                               |      1.58%           |     1.34% |
|                                                                                                |                                     |   |
|   Provision for credit losses                                                                  | $    2,917                | $   2,407 |
|                                                                                                |                                     |   |
|   Net charge-offs                                                                              | $    2,996                | $   1,669 |
|                                                                                                |                                     |   |
|   Net charge-offs as percent of average    loans outstanding                    |      0.12%           |     0.07% |
|                                                                                                |                                     |   |
|   Provision for credit losses as percent     of net charge-offs                 |     97.36%                |    144.22% |
|                                                                                                |                                     |   |
|   Allowance for credit losses as percent    of average loans outstanding        |      1.33%           |     1.37% |
|                                                                                                |                                     |   |
|   Allowance for credit losses as percent     of end-of-period loans outstanding |      1.32%           |     1.37% |
|                                                                                                |                                     |   |
|   Allowance for credit losses as percent     of nonperforming loans             |     83.10%                |   102.66% |

 

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 collateral dependent.  Payments received on impaired loans areapplied against the recorded investment in the loan.  For loans other than those that the Corporation expects repaymentthrough liquidation of the collateral, when the remaining recorded investmentin the impaired loan is less than or equal to the present value of the expectedcash flows, income is recorded on a cash basis.  Impaired loans include loans on a nonaccrual basis andrenegotiated loans.

24

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 March 31, 2002 and March 31, 2001.

|                                                                         | 2002  ____              | 2001  _____       |
|------------------------------------------------------------------------------|-------------------------|-------------------|
|                                                                         | (amounts  in thousands) |
|                                                                         |                    |              |
| Recorded investment in impaired loans at end of  period                      | $25,416                 | $11,697           |
|                                                                         |                    |              |
| Year to date average balance of impaired loans                               | $24,532                 | $12,171           |
|                                                                         |                    |              |
| Allowance for credit losses related to impaired  loans                       | $ 4,480                 | $ 2,373           |
|                                                                         |                    |              |
| Impaired loans with an allocation of the allowance  for   credit losses | $13,816                 | $ 3,730           |
|                                                                         |                    |              |
| Impaired loans with no allocation of the allowance  for  credit losses  | $11,600                 | $ 7,967           |
|                                                                         |                    |              |
| Year to date income recorded on impaired loans on  a cash basis              | $   134       | $   194 |

 

Otherthan those described above, there are no material credits that management hasserious doubts as to the borrower's ability to comply with the present loanrepayment terms.  Additionally, theportfolio is well diversified and as of March 31, 2002, there were nosignificant concentrations of credit.Nonperforming loans at March 31, 2002 increased $7.6 million compared to March31, 2001 levels as increases in nonaccrual loans were only partially offset bydecreases in past due loans and renegotiated loans.  The increase in nonaccrual loans compared to 2001 levels resultedprimarily because of the inclusion of two loans during the third quarter of2001.  One is a $6.5 million credit thatis not past due and carries an 80% guaranty of a U.S. governmental agency butis experiencing cash flow difficulties and has therefore been placed innonaccrual status.  A resolution of thiscredit is expected in the third quarter of 2002.  The second credit, which was $5.9 million at year-end 2001,continues to be resolved through liquidation of collateral and otherremedies.  The balance outstanding atMarch 31, 2002 related to this credit is $4.6 million.  The Corporation anticipates final resolutionof this credit during 2002 without additional losses in excess of amountscurrently reserved.  Nonperforming loansat March 31, 2002 reflected a decrease of $502 thousand compared to December31, 2001 levels.  Nonperforming loans asa percent of total loans was 1.58% at March 31, 2002 compared to 1.62% atDecember 31, 2001, and 1.34% at March 31, 2001, while the allowance for creditlosses as a percent of nonperforming loans was 83.10%, 82.28% and 102.66%,respectively for the same periods.  Pastdue loans as of March 31, 2002 reflected decreases in all loan categoriescompared to March 31, 2001 levels. 

 

25

   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.   The Corporation also requires an additional level of approval for credit relationships  between $500 thousand and $1.0 million.  This procedure requires approval  of those credits by a committee consisting of senior lenders of the Corporation.   Management also attempts to minimize loan losses by analyzing and modifying  collection techniques on a periodic basis.  The Corporation feels that  the allowance for credit losses is adequate at this time.  The uncertain  economic conditions present a risk to the industry, but management feels that  its risk management process is thorough and serves as an early warning system  so that an appropriate response will be promptly implemented.  CAPITAL RESOURCES  Equity capital decreased $1.8 million in the first three months of 2002.   Dividends declared reduced equity by $8.8 million during the 2002 period.   Dividends declared exceeded earnings for the first quarter of 2002, primarily  as a result of the one-time litigation settlement included in earnings for the  first quarter.  The Corporation's capital base remains strong and the one-time  charge will not impact the Corporation's ability to fund future growth and expansion.   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 Unearned  ESOP shares, increased equity by $268 thousand.  Amounts paid to fund the  discount on reinvested dividends reduced equity by $157 thousand.  The  market value adjustment to securities available for sale decreased equity by  $2.8 million.  Proceeds from the reissuance of treasury shares to fund  stock options exercised increased equity by $1.2 million during 2002.   Equity capital during 2002 also reflected an increase of $812 thousand from  the reissuance of treasury shares to fund first quarter acquisitions.  A capital base can be considered adequate when it enables the Corporation to  intermediate funds responsibly and provide related services, 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 caliber.  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.

 

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

CAPITALRESOURCES (continued)

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 March 31, 2002:

|                          | Amount  (in thousands) | Percent  of Adjusted  Assets |
|-------------------------------|------------------------|------------------------------|
|                          |                   |                         |
| Tier  I Capital               | $389,010               |  12.9%                  |
| Risk-Based  Requirement       |   120,459    |  4.0                    |
|                          |                   |                         |
| Total  Capital                |  423,088          | 14.1                         |
| Risk-Based  Requirement       |  240,918          |  8.0                    |
|                          |                   |                         |
| Minimum  Leverage Capital     |  389,010          |  8.6                    |
| Minimum  Leverage Requirement |  135,957          |  3.0                    |

At March 31, 2002, the Corporation's banking subsidiaries  are considered well capitalized as defined by the Federal Deposit Insurance  Corporation Improvement Act of 1991.

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK

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

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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.            See NOTE 5 to the consolidated  financial statements for            additional information related  to the litigation settlement            included in results of operations  for the first quarter of 2002.

ITEM 2.   CHANGES IN SECURITIES

            Not applicable

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

           Not applicable

ITEM 4.   SUBMISSION OF MATTERS TO  A VOTE OF SECURITY HOLDERS

           Not applicable

ITEM 5.   OTHER INFORMATION

           Not applicable

ITEM 6.   EXHIBITS AND REPORTS ON  FORM 8-K

          (a) Exhibits                 None

                       (b) Reports  on Form 8-K                None

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  SIGNATURES 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

FIRST COMMONWEALTH FINANCIAL CORPORATION(Registrant)

  DATED:  MAY 14, 2002       /S/Joseph E. O'Dell

                             ____________________________________                             Joseph E. O'Dell, President and                             Chief Executive Officer

DATED:  May 14, 2002        /S/John J. Dolan

                             _____________________________________                             John J. Dolan, Executive Vice                             President and Chief Financial Officer

 

 

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