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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

Commission File Number   0-11242  

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

                    724-349-7220                   
(Registrant's telephone number, including area code)

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

Indicate a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    X     No      .

Number of shares outstanding of issuer's common stock, $1.00 Par Value as of May 12, 2003, was 59,004,133.

     FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

PART I - FINANCIAL INFORMATION

PART II - OTHER INFORMATION

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

  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)

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

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

5

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

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







6

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)

NOTE 1 Management Representation

The consolidated financial statements include the accounts of First Commonwealth Financial Corporation and its subsidiaries ("the Corporation").  All significant intercompany transactions and balances have been eliminated.  The accounting and reporting policies of the Corporation conform with accounting principles generally accepted in the United States of America.  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes.  Actual realized amounts could differ from those estimates.  In the opinion of management, the unaudited interim consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of financial position as of March 31, 2003 and the results of operations for the three month periods ended March 31, 2003 and 2002, and statements of cash flows and changes in shareholders' equity for the three month periods ended March 31, 2003 and 2002.  The results of operations for the three months ended March 31, 2003 and 2002 are not necessarily indicative of the results that may be expected for the full year or any other interim period.  These interim financial statements should be read in conjunction with the Corporation's 2002 Annual Report on Form 10-K which is available on the Corporation's website at http://www.fcbanking.com.  The Corporation's website also provides additional information of interest to investors and clients, including other regulatory filings made to the Securities and Exchange Commission, press releases, historical stock prices, dividend declarations and corporate governance, as well as information about products and services offered through the Corporation's banking, insurance, trust and financial management subsidiaries.

NOTE 2 Cash Flow Disclosures (dollar amounts in thousands)

7

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)

NOTE 3 Comprehensive Income Disclosures

The following table identifies the related tax effects allocated to each component of other comprehensive income in the Statements of Changes in Shareholder's Equity: (dollar amounts in thousands)

NOTE 4 Accounting for Stock Options Granted

In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("FAS No. 148").  FAS No. 148 amended FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("FAS No. 123") to provide alternative methods of a voluntary transition to FAS No. 123's fair value method of accounting for stock-based employee compensation.  FAS No. 148 also amended the disclosure provisions of FAS No. 123 and APB Opinion No. 28, "Interim Financial Reporting" ("APB 28"), to require disclosure in the summary of significant accounting policies the effects of the entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements.  FAS No. 148 does not amend FAS No. 123 to require companies to account for employee stock options using the fair value method, but the disclosure provisions of the statement apply to all companies with stock-based compensation, regardless of whether they account for that compensation using the fair value method of FAS No. 123 or the intrinsic value method of APB Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25").  FAS No. 148 amendments to the transitional and annual disclosure requirements of FAS No. 123 were effective for fiscal years ending after December 15, 2002, while the interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002.  Implementation of FAS No. 148 did not have a material impact on the Corporation's financial condition or results of operations.

FAS No. 123 defines a method of measuring stock-based compensation, such as stock options granted, at an estimated fair value but also permits the continued measurement of stock based compensation under the provisions of APB 25.  As permitted under FAS No. 123, the Corporation has elected to use the intrinsic value method to measure stock based compensation under APB 25.  No stock-based employee compensation expense is reflected in the Corporation's net income as reported in the Consolidated Statements of Income because all stock options granted under the Corporation's plan had an exercise price equal to the market value of the underlying common stock on the date of grant.
8

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)

NOTE 4 Accounting for Stock Options Granted (continued)

The following table illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of FAS No. 123 to stock-based employee compensation:

Note 5 Restructuring Charges

The Corporation incurred restructuring charges of $6,140 thousand during the second, third and fourth quarters of 2002 in accordance with EITF 94-3.  These restructuring charges resulted from the merger of the charters of the Corporation's two commercial banks (First Commonwealth Bank and Southwest Bank) and the adoption of a new common brand and identity for all financial services subsidiaries.  The largest component of these charges was $4,652 thousand of employee separation costs consisting of severance packages for 95 employees from various affiliates of the Corporation including all levels of staff from the executive management level to back office support staff.  Restructuring charges during 2002 also included $1,068 thousand related to realignment of the various Boards of Directors and Board committees and $420 thousand primarily related to the write-off of obsolete signage and supplies.  These amounts were included as restructuring charges, a component of Other Expenses on the Consolidated Statements of Income during 2002.

During 2002 actual termination benefits paid and charged against the total severance liability were $1,263 thousand, leaving a remaining unpaid liability for severance costs of $3,389 thousand at December 31, 2002.  During the first quarter of 2003, monthly severance payments totaling $929 thousand were made, reducing the outstanding severance liability to $2,460 thousand at March 31, 2003.  No additional severance accruals or adjustments were recorded during the first quarter of 2003.





9

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)

NOTE 6 New Accounting Pronouncements

In July 2002, the FASB issued statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("FAS No. 146").  FAS No. 146 replaced EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)."  The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan.  Statement 146 is to be applied to exit or disposal activities initiated after December 31, 2002.  Adoption of FAS No. 146 did not have a material impact on the Corporation's financial condition or results of operations.

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees of Indebtedness of Others".  The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002, and require disclosure of the nature of the guarantee, the maximum potential of future payments the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the guarantor's obligation under the guarantee.  The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified after December 31, 2002.  This interpretation expands the disclosures to be made by the guarantor in its financial statements about its obligation under certain guarantees and requires the guarantor to recognize a liability for the fair value of an obligation assumed under a guarantee.  FIN 45 clarifies the requirements of FASB Statement No. 5 ("FAS No. 5") "Accounting for Contingencies", relating to guarantees.  In general, FIN 45 applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or equity security of the guaranteed party.  Certain guarantee contracts are excluded from both the disclosure and recognition requirements of this interpretation, including, but not limited to, guarantees related to employee compensation, residual value guarantees under capital lease arrangements, commercial letters of credit, loan commitments, subordinated interests in special purpose entities and guarantees of a company's own future performance.  Other guarantees are subject to the disclosure requirements of FIN 45 but not the recognition provisions and include, among others, a guarantee accounted for as a derivative instrument under FAS No. 133, a parent's guarantee of debt owed to a third party by its subsidiary or vice versa and a guarantee which is based on performance not price.  Guarantees that have been entered into by the Corporation are disclosed in NOTE 7.  The adoption of FIN 45 did not have a material impact on the Corporation's financial condition or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities", the provisions of which became effective upon issuance.  As defined by FIN 46 a variable interest entity ("VIE") is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity

10

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(Unaudited)

NOTE 6 New Accounting Pronouncements (continued)

investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities.  This interpretation also defines when the assets, liabilities, noncontrolling interest and results of operations of a VIE should be included in a company's consolidated financial statements.  Companies that hold variable interests in an entity will need to consolidate that entity if the company's interest in the VIE is such that the company will obtain a majority of the entity's expected residual returns, should such occur.  The Corporation has reviewed its current business interests in order to determine the impact of FIN 46 and has determined that no additional business interests require consolidation in the Corporation's financial statements.  The adoption of FIN 46 therefore did not have any impact on the Corporation's financial condition or results of operations.

In April 2003, the FASB issued Statement No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("FAS No. 149").  FAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133.  In particular, FAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows.  This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003.  The adoption of FAS No. 149 is not expected to have a material impact on the Corporation's financial condition or results of operations.

NOTE 7 Guarantees

Standby letters of credit are conditional commitments issued by the Corporation to guarantee the performance of a customer to a third party.  The contract or notional amount of these instruments reflects the maximum amount of future payments that could be lost under the guarantees if there were a total default by the guaranteed parties without consideration of possible recoveries under recourse provisions or from collateral held or pledged.  In addition, many of these commitments are expected to expire without being drawn upon, therefore the total commitment amounts do not necessarily represent future cash requirements.  The table below identifies the notional amounts of these guarantees at March 31, 2003:

The current notional amounts outstanding above include financial standby letters of credit of $565 thousand and performance standby letters of credit of $123 thousand issued during the first quarter of 2003.  There is currently no liability recorded on the Corporation's balance sheet related to the above letters of credit.


11

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)

RESULTS OF OPERATIONS

First Three Months of 2003 as Compared to the First Three Months of 2002

This discussion and the related financial data are presented to assist in the understanding and evaluation of the consolidated financial condition and results of operations of First Commonwealth Financial Corporation including its subsidiaries (the "Corporation").  In addition to historical information, this discussion and analysis contains forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995), which reflect management's beliefs and expectations based on information currently available and may contain the words "expect," "estimate," "project," "anticipate," "should," "intend," "probability," "risk," "target," and similar expressions.  These forward-looking statements are inherently subject to significant risks and uncertainties, including but not limited to:  changes in general economic and financial market conditions, the Corporation's ability to effectively carry out its business plans, changes in regulatory or legislative requirements, changes in competitive conditions and continuing consolidation of the financial services industry.  Although management believes the expectations reflected in such forward-looking statements are reasonable, actual results could differ materially.  Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof.  The Corporation undertakes no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.

Net income for the first three months of 2003 was $13.3 million reflecting an increase of $5.7 million compared to 2002 results of $7.6 million.  Net income for the 2002 period included an $8.0 million litigation settlement ($5.2 million net of tax) while the 2003 period includes a partial recovery from insurance for that claim in the amount of $610 thousand ($397 thousand net of tax).  This settlement related to a lender liability action filed in 1994 against one of the Corporation's subsidiary banks and followed an adverse pre-trial judgment by the trial judge on procedural grounds.  The first quarter of 2003 includes securities gains of $2.2 million compared to securities gains of $39 thousand for the first quarter of 2002.  Diluted earnings per share were $0.23 for the first quarter of 2003 compared to $0.13 for the first quarter of 2002. 

The following is an analysis of the impact of changes in net income on diluted earnings per share:

12

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

RESULTS OF OPERATIONS(continued)

First Three Months of 2003 as Compared to the First Three Months of 2002
(continued)

Return on average assets was 1.19% and return on average equity was 13.15% for the first quarter of 2003 compared to 0.68% and 8.09%, respectively, for the first quarter of 2002.

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 declined $1.2 million for the first quarter of 2003 compared to the first quarter of 2002, primarily as earning asset yields declined faster than funding costs.  Net interest margin (net interest income, on a tax-equivalent basis, as a percentage of average earning assets) was 3.78% for the three months of 2003 compared to 3.82% for the three months of 2002.  Continued low or declining interest rates would tend to further strain net interest income due to low reinvestment rates and accelerated prepayments of certain loans and investments.

The following table shows the effect of changes in volumes and rates on interest income and interest expense:

Interest and fees on loans declined $3.3 million for the first quarter of 2003 compared to 2002 levels as loan yields declined in the lower interest rate environment.  The total yield on loans for the first quarter of 2003 was 6.70%, compared to loan yields of 7.30% for the first quarter of 2002.  Average loans for the first three months of 2003 rose $64.1 million compared to averages for the first three months of 2002 as increases in commercial loans, municipal loans and indirect installment loans were partially offset by decreases in average mortgage loans.  The Corporation


13

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

RESULTS OF OPERATIONS(continued)

First Three Months of 2003 as Compared to the First Three Months of 2002
(continued)

has continued to capitalize on lending opportunities with small to mid-sized commercial borrowers, including loans generated through its preferred Small Business Administration ("SBA") lender status.  The Corporation was one of the top small business lenders in Pennsylvania during the past two years.  The Corporation continues to take advantage of the lower interest rate cycle to change the mix of its loan portfolio.  Average mortgage loans declined during 2003 as consumers refinanced their loans at near record levels.  The Corporation continued to offer competitive mortgage loans but generally sold them immediately after origination along with the related servicing rights.

Interest income on investments declined $4.9 million for the first quarter of 2003 compared to the first quarter of 2002 reflecting decreases due to interest rates of $3.4 million combined with decreases due to investment volumes of $1.5 million.  Total yield on investments was 5.29% for the first three months of 2003 compared to 6.14% for the same period of 2002.  Declines in interest income due to rate for U.S. government agency securities were $2.9 million as yields on U.S. government agency securities decreased 112 basis points (1.12%) for the 2003 period compared to the corresponding period of 2002.  Average investments for the first quarter of 2003 included decreases in average U.S. government agencies of $51.2 million and average asset backed securities of $73.3 million which reduced interest income for the first quarter of 2003 by $760 thousand and $1.1 million compared to 2002 levels.

Interest on deposits dropped $5.5 million for the 2003 period compared to 2002 primarily due to decreases in interest expense due to interest rates of $5.1 million.  Deposit costs were 2.09% for the first quarter of 2003 compared to 2.80% for the first quarter of 2002.  The rate on savings deposits fell 48 basis points (0.48%) resulting in a decrease to interest expense of $1.3 million for the first three months of 2003 compared to the first three months of 2002.  The rate on time deposits for 2003 also declined, down 94 basis points (0.94%) compared to 2002 levels, resulting in a decrease to interest expense of $3.7 million for the first quarter of 2003.  Interest on deposits also reflected decreases due to volumes for 2003 as average deposits for the first quarter of 2003 declined $19.7 million compared to the first quarter of 2002.  The Corporation's deposit mix also changed for the first quarter of 2003 as clients registered a preference for savings deposits during continuing economic uncertainties.  Average savings deposits increased $73.2 million for 2003 compared to 2002 averages while average time deposits dropped $70.9 million over the same time frame.  During its management of deposit levels and mix the Corporation continues to evaluate the cost of time deposits compared to alternative funding sources as it balances its goals of providing clients with the competitive rates they are looking for while also minimizing the Corporation's cost of funds.

14

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

RESULTS OF OPERATIONS(continued)

First Three Months of 2003 as Compared to the First Three Months of 2002
(continued)

Interest expense on short-term borrowings decreased $213 thousand for the three months of 2003 compared to the three months of 2002 as decreases in interest expense due to rate of $491 thousand were partially offset by increases in interest expense due to volume of $278 thousand compared to 2002 levels.  The cost of short-term borrowings for the 2003 period decreased by 47 basis points (0.47%) compared to 2002 costs of 1.87%.  The average balance of short-term borrowings for the first quarter of 2003 increased by $66.2 million over averages for the prior year, primarily as a result of increased utilization of short-term borrowing from the Federal Home Loan Bank.

Interest expense on long-term debt decreased $1.3 million for the first quarter of 2003 compared to the corresponding period of 2002, primarily as a result of volume decreases.  Average long-term debt for the three months of 2003 decreased by $90.0 million compared to 2002 averages.

The provision for credit losses is an amount added to the allowance against which credit losses are charged.  The amount of the provision is determined by management based upon its assessment of the size and quality of the loan portfolio and the adequacy of the allowance in relation to the risks inherent within the loan portfolio.  The provision for credit losses was $3.5 million for the three months of 2003 compared to $2.9 million for the three months of 2002.  Net charge-offs against the allowance for credit losses were $2.6 million, reflecting a decrease of $361 thousand compared to net charge-offs for the 2002 period.  The most significant components of this year-to-year change were decreases in the following categories: residential mortgages (down $95 thousand), commercial loans not secured by real estate (down $411 thousand) and loans to individuals (down $408 thousand.)  These decreases in net charge-offs for the first quarter of 2003 were partially offset by increases in net charge-offs for construction loans and commercial real estate loans of $377 thousand and $248 thousand, respectively compared to the corresponding period of 2002.  Net charge-offs as a percent of average loans outstanding were 0.10% for the first quarter of 2003 compared to 0.12% for the first quarter of 2002.  The provision for credit losses as a percent of net charge-offs was 131.31% at March 31, 2003 compared to 102.85% at December 31, 2002 and 97.36% at March 31, 2002.  See the "Credit Review" section for any analysis of the quality of the loan portfolio.










15

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

RESULTS OF OPERATIONS(continued)

First Three Months of 2003 as Compared to the First Three Months of 2002
(continued)

Below is an analysis of the consolidated allowance for credit losses for the three month periods ended March 31, 2003 and 2002:

Net securities gains were $2.2 million during the first three months of 2003 compared to $39 thousand for the first three months of 2002.  Securities gains during the 2003 period resulted primarily from the sale of fixed rate corporate bonds classified as securities "available for sale" with book values of $34.5 million and Pennsylvania bank stocks with book values of $1.1 million.  The corporate bonds sold during 2003 had an average remaining life of one year and the proceeds were reinvested in adjustable rate trust preferred securities with maturities of 30 years and mortgage backed securities with an average life of 3.6 years.  This reinvestment strategy was initiated to partially mitigate the Corporation's exposure to low and declining interest rates.




16

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

RESULTS OF OPERATIONS(continued)
 
First Three Months of 2003 as Compared to the First Three Months of 2002
(continued)

Trust income for the first quarter of 2003 was relatively stable when compared to the first quarter of 2002 and although fee revenue continues to be negatively impacted by low market values, the enhanced referral programs and integrated growth plans for financial affiliates that have been initiated have helped to offset this trend.  The Corporation's continued success in building relationships with commercial clients provides fee based affiliates with additional sales opportunities through the "Total Solutions Financial Management" ("TSFM") process.  This strategy combines products, services and professional staff from the Corporation's trust, insurance, financial advisory and banking affiliates and partners them in providing comprehensive financial services offerings.

Service charges on deposits are the Corporation's most significant component of non-interest income and increased $156 thousand for the first three months of 2003 compared to the corresponding period of 2002.  Increases in insufficient funds fees "NSF" of $353 thousand for the first quarter of 2003 were partially offset by decreases in selected fees related to certain transaction accounts compared to 2002 levels.  Management strives to implement reasonable fees for services and closely monitors collection of those fees.

Insurance commissions fell $59 thousand for the 2003 period as decreases in annuity and credit insurance revenues were larger than the increases that were generated in all other insurance categories.  As part of the previously discussed TSFM process the Corporation's insurance subsidiary will continue to have expanded opportunities to meet the insurance needs of commercial clients.  In addition, the Corporation has developed "FOCUS" a financial planning tool designed to help clients prioritize and assess their financial needs.  The "FOCUS" concept results in a systematic approach covering a wide range of personal financial goals including appropriate insurance coverage.

Other income for the first three months of 2003 rose $441 thousand from the $2.5 million reported for the first three months of 2002.  Other income for the first quarter of 2003 included increases in STAR interchange fees, merchant discount and gains on sale of mortgages of $387 thousand, $198 thousand and $109 thousand, respectively versus 2002 results.  Other income for the 2003 period included decreases in debit card interchange fees, and gains on sale of foreclosed property.









17

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

RESULTS OF OPERATIONS(continued)

First Three Months of 2003 as Compared to the First Three Months of 2002
(continued)

Noninterest expense was $27.8 million for the three months of 2003 reflecting a decrease of $7.6 million from the 2002 level of $35.4 million, primarily reflecting the effects of the previously mentioned litigation settlement.  The 2002 period includes the $8.0 million litigation charge while the 2003 period includes a $610 thousand recovery from insurance coverage related to the settlement.  Employee costs were $15.3 million for the first three months of 2003, representing an increase of $692 thousand  over 2002 levels.  Salary costs for the first quarter of 2003 increased $302 thousand or 2.7% compared to 2002 levels of $11.2 million.  Salary costs for 2003 include on-going savings resulting from the merger of the Corporation's banking subsidiaries under one charter and the consolidation of support functions which caused some staff positions to be eliminated during 2002.  These staffing reductions were part of the corporate restructuring initiative which also provided severance benefits to affected employees.  Severance costs were expensed as incurred during 2002 while monthly cash payments for some individuals continue during 2003.  Employee benefit costs rose $390 thousand or 11.4% for the first quarter of 2003 with the largest increase being hospitalization costs, which were up $257 thousand or 21.7%.  The Corporation continues to evaluate its current menu of employee benefits to provide a competitive benefits package while also managing costs.  Current benefit options include coverages fully paid for by the employer, as well as voluntary benefits whereby employees have the option of purchasing additional benefits at reduced group rates.

Net occupancy expense increased $288 thousand for the first quarter of 2003 and included increases in building repairs and maintenance, utilities and net rental expense compared to 2002 costs.  Much of these increases were due to increased utility costs and snow removal expenses resulting from the harsh winter.  The Corporation is actively evaluating its branch delivery network to optimize client service in existing branches and to continue expansion into growth markets.  The execution of these initiatives may impact occupancy and other expenses in future periods.  Increases in furniture and equipment expenses of $154 thousand for the first quarter of 2003 resulted primarily from increases in computer software depreciation and software maintenance combined with increases in depreciation on furniture and equipment














18

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

RESULTS OF OPERATIONS (continued)

First Three Months of 2003 as Compared to the First Three Months of 2002
(continued)

Other operating expenses for the 2003 period were $6.9 million reflecting a decrease of $232 thousand (3.2%) from the 2002 amount of $7.2 million.  The first three months of 2003 included decreases in loss on sale of assets (primary lease vehicles), other professional fees and telephone expenses of $144 thousand, $191 thousand and $160 thousand, respectively compared to 2003 costs.  Directors' fees for the 2003 period reflected decreases of $118 thousand resulting from the restructuring of the Corporation's Boards of Directors and committees during 2002.  The first quarter of 2003 included an increase in charge card interchange charges of $174 thousand compared to the first quarter of 2002.  Advertising and promotion costs for 2003 reflected increases totaling $189 thousand, primarily as a result of continued promotion of the Corporation's brand and identity launched during the fourth quarter of 2002, as well as on-going marketing campaigns for free checking products introduced during 2002.  These free checking 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 increased $2.9 million for the first quarter of 2003 compared to the first quarter of 2002.  The 2002 period included a $2.8 million tax effect related to the $8.0 million litigation settlement recorded during 2002.  The Corporation's effective tax rate was 20.3% for the first three months of 2003 compared to 5.4% for the corresponding period of 2002.

LIQUIDITY

Liquidity is a measure of the Corporation's ability to efficiently meet normal cash flow requirements of both borrowers and depositors.  In the ordinary course of business, funds are generated from the banking subsidiary's core deposit base and the maturity or repayment of earning assets such as securities and loans.  As an additional secondary source, short-term liquidity needs may be provided through the use of overnight Federal funds purchased, borrowings through use of lines available for repurchase agreements, and borrowings from the Federal Reserve Bank.  Additionally, the banking subsidiary is a member of the Federal Home Loan Bank and may borrow under overnight and term borrowing arrangements.  The sale of earning assets may also provide an additional source of liquidity.  In addition to the previously described funding sources, the Corporation also has the ability to access the capital markets.

Liquidity risk stems from the possibility that the Corporation may not be able to meet current or future financial obligations, or the Corporation may become overly reliant on alternative funding sources.  The Corporation maintains a liquidity management policy to manage this risk.  This policy identifies the primary sources of liquidity, establishes procedures for

19

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

LIQUIDITY (continued)

monitoring and measuring liquidity and quantifies minimum liquidity requirements which comply with regulatory requirements.  The policy also includes a liquidity contingency plan to address funding needs to maintain liquidity under a variety of business conditions.  The Corporation's liquidity position is monitored by the Asset/Liability Management Committee ("ALCO").

At March 31, 2003 total earning assets were $4,340.4 million, up from the $4,291.2 million recorded at December 31, 2002.  Net loans increased $40.4 million for the first three months of 2003 as commercial loans increased by $38.2 million and municipal loans increased by $25.1 million compared to year-end 2002, while loans to individuals increased by $8.2 million over the same time frame.  The first quarter of 2003 reflected decreases of $31.1 million in residential real estate loans, due in part to the continued run-off of the existing portfolio and sale of new loan production as the Corporation continues to change its loan mix.  The Corporation's auto lease portfolio also continues to decline as focus shifts from indirect leasing to indirect lending activities.  Total deposits increased $103.0 million for the first three months of 2003 as increases in time deposits of $112.9 million and total savings deposits of $3.1 million were partially offset by decreases in demand deposits of $13.0 million compared to year-end 2002.  Included in time deposits for the first quarter of 2003 were $100 million of brokered deposits with a weighted average term of 27 months.  Proceeds from the issuance of brokered deposits were utilized to pay down short-term borrowings, which declined $60.3 million during the first quarter of 2003 to $408.7 million at March 31, 2003.

Marketable securities that the Corporation holds in its investment portfolio are an additional source of liquidity.  These securities are classified as "securities available for sale" and while the Corporation does not have specific intentions to sell these securities they have been designated as "available for sale" because they may be sold for the purpose of obtaining future liquidity, for management of interest rate risk or as part of the implementation of tax management strategies.  As of March 31, 2003, securities available for sale had an amortized cost of $1,477.3 million and an approximate fair value of $1,518.0 million.

Interest Sensitivity

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, currency exchange rates or equity prices.  The Corporation's market risk is composed primarily of interest rate risk.  Interest rate risk results principally from timing differences in the repricing of assets and liabilities, changes in the relationship of rate indices and the potential exercise of free standing or embedded options.






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

Interest Sensitivity (continued)

The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances.  While no single number can accurately describe the impact of changes in interest rates on net interest income, interest rate sensitivity positions, or "gaps", when measured over a variety of time periods, may be helpful.

An asset or liability is considered to be interest-sensitive if the rate it yields or bears is subject to change within a predetermined time period.  If interest-sensitive assets ("ISA") exceed interest-sensitive liabilities ("ISL") during the prescribed time period, a positive gap results.  Conversely, when ISL exceed ISA during a time period, a negative gap results.

The cumulative gap at the 365 day repricing period was negative in the amount of $156.4 million or 3.42% of total assets at March 31, 2003.  A positive gap tends to indicate that earnings will be impacted favorably if interest rates rise during the period and negatively when interest rates fall during the time period.  A negative gap tends to indicate that earnings will be affected inversely to interest rate changes.  In other words, as interest rates fall, a negative gap should tend to produce a positive effect on earnings, and when interest rates rise, a negative gap should tend to affect earnings negatively.

The primary components of ISA include adjustable rate loans and investments, loan repayments, investment maturities and money market investments.  The primary components of ISL include maturity certificates of deposit, money market deposits, savings deposits, NOW accounts and short-term borrowings.























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

Interest Sensitivity (continued)
 
The following table lists the amounts and ratios of assets and liabilities with rates or yields subject to change within the periods indicated as of March 31, 2003, and December 31, 2002 (dollar amounts in thousands):

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

Interest Sensitivity (continued)

Although the periodic gap analysis provides management with a method of measuring current interest rate risk, it only measures rate sensitivity at a specific point in time, and as a result may not accurately predict the impact of changes in general levels of interest rates or net interest income.  This is exemplified as the gap analysis shows the Corporation's earnings to be negatively impacted by rising rates, but computer modeling indicates that rising rates would have a favorable impact on earnings.  Therefore, to more precisely measure the impact of interest rate changes on the Corporation's net interest income, management simulates the potential effects of changing interest rates through computer modeling.  The income simulation model used by the Corporation captures all assets, liabilities, and off-balance sheet financial instruments, accounting for significant variables that are believed to be affected by interest rates.  These variables include prepayment speeds on mortgage loans and mortgage backed securities, cash flows from loans, deposits and investments and balance sheet growth assumptions.  The model also captures embedded options, such as interest rate caps/floors or call options, and accounts for changes in rate relationships as various rate indices lead or lag changes in market rates.  The Corporation is then better able to implement strategies which would include an acceleration of a deposit rate reduction 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 interest rate risk exposure for the succeeding twelve month period.  Simulations are prepared under the base case where interest rates remain flat and most likely case where interest rates are defined using projections of economic factors.  Additional simulations are produced estimating the impact on net interest income of a 300 basis point (3.00%) movement upward or a 100 basis point movement downward which cannot result in more than a 7.5% change or 5.0% change, respectively, in net interest income when compared to the base case, without Board approval and a strategy in place to reduce interest rate risk below the established maximum level.  The analysis at March 31, 2003 indicated that a 300 basis point (3.00%) increase in interest rates would increase net interest income 318 basis points (3.18%) above the base case scenario and a 100 basis point (1.00%) decline in interest rates would decrease net interest income by 315 basis points (3.15%) below the base case scenario, over the next twelve months, both within policy limits.

The Corporation's "Asset/Liability Management Committee" ("ALCO") is responsible for the identification, assessment 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 sales, asset and liability pricing and matched maturity funding.  The ALCO



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

Interest Sensitivity (continued)

strategies are established by the Corporation's senior management.  The ALCO continues to evaluate the use of derivative instruments to protect against the risk of adverse price or interest rate movements on the values of certain assets and liabilities, although none are being utilized currently. 

CREDIT 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 loans which terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deteriorating financial position of the borrower and are in compliance with the restructured terms.

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

CREDIT REVIEW (continued)

The Corporation considers a loan to be impaired when, based on current information and events, it is probable that the Corporation will be unable to collect principal or interest due according to the contractual terms of the loan.  Loan impairment is measured based on the present value of expected cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent.  Payments received on impaired loans are applied against the recorded investment in the loan.  For loans other than those that the Corporation expects repayment through liquidation of the collateral, when the remaining recorded investment in the impaired loan is less than or equal to the present value of the expected cash flows, income is recorded on a cash basis.  Impaired loans include loans on a nonaccrual basis and renegotiated loans.

The following table identifies impaired loans, and information regarding the relationship of impaired loans to the reserve for credit losses at March 31, 2003 and March 31, 2002: