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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q

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      .

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes    X    No       

Number of shares outstanding of issuer's common stock, $1.00 Par Value as of April 30, 2004, was 61,194,334.

     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.






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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.

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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 CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)

6

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.




7

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(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, 2004, and the results of operations for the three month periods ended March 31, 2004 and 2003, and statements of cash flows and changes in shareholders' equity for the three month periods ended March 31, 2004 and 2003.  The results of operations for the three months ended March 31, 2004 and 2003, 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 2003 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)

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FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(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 Shareholders' Equity (Dollar amounts in thousands):

NOTE 4 Accounting for Stock Options Granted

Current accounting guidelines permit two alternative methods of accounting for stock-based compensation, the intrinsic value method of APB Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB 25") and the fair value method of FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("FAS No. 123").  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 did not amend FAS No. 123 to require companies to account for employee stock options using the fair value method but required all companies with stock-based compensation to provide additional disclosures, regardless of whether they account for that compensation using the fair value method of FAS No. 123 or the intrinsic value method of APB No. 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 and to disclose in a footnote to the financial statements, net income and earnings per share on a pro forma basis as if the fair value methodology of FAS No. 123 had been implemented.  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 the grant.





9

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(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 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.  These amounts were included with restructuring charges, a component of Other Expenses on the Consolidated Statements of Income during 2002.

During 2003 and 2002 actual termination benefits paid and charged against the total severance liability were $2,823 thousand and $1,263 thousand, respectively, leaving a remaining unpaid liability for severance costs of $566 thousand at December 31, 2003.  During the first quarter of 2004, monthly severance payments totaling $465 thousand were made, reducing the outstanding severance liability to $101 thousand at March 31, 2004.  No additional severance accruals or adjustments related to the restructuring charges were recorded during the first quarter of 2004.






10

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited)

NOTE 6 Merger and Integration Charges

In the first quarter of 2004, the Corporation recorded merger and integration charges totaling $1,291 thousand ($839 thousand, net of taxes).  The merger and integration charges related to the acquisition of Pittsburgh Financial Corp. ("PFC").  The charges included $485 thousand related to the write-off of the unamortized capitalized costs for the subordinated debentures that were previously issued by PFC to Pittsburgh Home Capital Trust I and were called and paid off in January of 2004.  Also included in the merger and integration charges were $806 thousand in salary and benefit severance expenses that were accrued during the first quarter of 2004.  The severance costs were for 22 employees whose positions were eliminated as part of the acquisition.

NOTE 7 New Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities," and in December 2003, issued FIN 46 (Revised 2003) ("FIN 46R").  FIN 46R clarified some of the provisions of FIN 46 and exempted certain entities from the original requirements of FIN 46.  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 investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities.  Under FIN 46R, an entity that holds a variable interest in a VIE is required to consolidate the VIE if the entity is subject to a majority of the risk of loss from the VIE's activities, is entitled to receive a majority of the entity's residual returns or both.  FIN 46R was to be applied no later than the end of the first reporting period that ended after March 31, 2004; and therefore, has been implemented with the filing of this quarterly report on Form 10-Q.

As part of its community reinvestment initiatives, the Corporation invests in qualified affordable housing projects as a limited partner.  The Corporation receives federal affordable housing tax credits and rehabilitation tax credits for these limited partnership investments.  The Corporation's maximum potential exposure to these partnerships is $3,562 thousand, consisting of the limited partnership investments as of March 31, 2004.  The Corporation has determined that these investments will not be consolidated but continue to be accounted for under the equity method whereby the Corporation's portion of partnership losses are recognized as incurred.  The adoption of FIN 46 or FIN 46R has not had a material impact on the Corporation's financial condition or results of operations.

In March 2004, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 105 ("SAB 105"), "Application of Accounting Principles to Loan Commitments."  SAB 105 was issued to inform the SEC's registrants of the SEC Staff's view that the fair value of the recorded loan commitments that are required to follow derivative accounting under FASB Statement No. 133 ("FAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities," should not consider the expected future cash flows related to the associated servicing of the future loan.  The SEC staff believes that incorporating expected future cash flows related to the associated servicing of the loan essentially results in the

11

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited)

NOTE 7 New Accounting Pronouncements (continued)

immediate recognition of a servicing asset, which is only appropriate once the servicing asset has been contractually separated from the underlying loan by sale or by securitization of the loan with servicing retained.  The provisions of SAB 105 were to be applied to loan commitments accounted for as derivatives that were entered into after March 31, 2004; and therefore, has been implemented with the filing of this quarterly report on Form 10-Q.  The adoption of SAB 105 has not and is not expected to have a material impact on the Corporation's financial condition or results of operations.

NOTE 8 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, 2004 (Dollar amounts in thousands):

The current notional amounts outstanding above include financial standby letters of credit of $1,944 thousand and performance standby letters of credit of $721 thousand issued during the first quarter of 2004.  There is currently no liability recorded on the Corporation's balance sheet related to the above letters of credit.

NOTE 9 Pending Business Combination

In December 2003, the Corporation signed a definitive agreement to acquire GA Financial, Inc. ("GAF"), an $890 million asset federally chartered savings and loan holding company operating a twelve branch network in Allegheny County in Pennsylvania as of December 31, 2003.  Under terms of the agreement, the shareholders of GAF can elect to receive $35.00 in cash or an equivalent of First Commonwealth common stock for each GAF share owned, subject to proration as provided in the definitive agreement to ensure that 40% of the aggregate merger consideration will be paid in cash and 60% in First Commonwealth common stock.  Common stock received by GAF shareholders is expected to qualify as a tax-free exchange.  Completion of this transaction is subject to shareholder approval.  The special shareholders meeting to vote on the merger, as previously announced, is scheduled for May 24, 2004.  If shareholder approval is obtained and the other conditions to the merger have been satisfied, the parties expect to complete the transaction at the close of business on May 24, 2004.



12

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited)

NOTE 10 Post Retirement Benefit Plan of Acquired Company

In December 2003, the FASB issued Statement No. 132(R) "Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS No. 132(R)").  In addition to annual disclosures that have already been implemented, the statement requires interim reporting of the components of the net periodic benefit cost recognized, which are included in this footnote.   Disclosure requirements for future benefit payments are effective for fiscal years ending after June 15, 2004.

Employees of Southwest Bank, an acquired company, were covered by a post retirement benefit plan.  The net periodic benefit cost of this plan as of March 31 was as follows (Dollar amounts in thousands):

This is an unfunded post retirement plan.  Future payments will only consist of benefit payments for life and health insurance premiums for plan participants.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act") introduces a prescription drug benefit under Medicare Part D.  The Act also introduces a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.   The preceding measures of the net periodic postretirement benefit cost do not reflect the effects of the Act on the Corporation's plan.  The Corporation has elected to defer recognizing the effects of the Act in accounting and reporting for its plan until authoritative accounting guidance, including guidance on accounting for the federal subsidy is issued.  That guidance, when issued, could impact reported calculations.

















13

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

RESULTS OF OPERATIONS

First Three Months of 2004 as Compared to the First Three Months of 2003

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 2004 and 2003 was $13.3 million.  Basic and diluted earnings were $0.22 for the first quarter of 2004 compared to basic and diluted earnings per share of $0.23 for the same period of 2003. 

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

Return on average assets was 1.04% and return on average equity was 12.12% for the first quarter of 2004 compared to 1.19% and 13.15%, respectively, for the first quarter of 2003.





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 2004 as Compared to the First Three Months of 2003
(continued)

Net Interest Income

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 $39 thousand for the first quarter of 2004 compared to the first quarter of 2003, even as average earning assets were 14% more in the 2004 period. Both interest income and interest expense declined compared to 2003 levels primarily as a result of the dramatic decrease in interest rates that began in 2001 and have continued into 2004.  During this unparalleled period of low interest rates, the Corporation, as well as the financial services industry in general, has been challenged by margin compression, as the cost of funds has not declined in the same magnitude or at the same pace as asset yields.  Additionally, the Corporation has incurred interest expense on long-term debt issued in anticipation of payment to GAF shareholders electing cash pursuant to the pending merger that is expected to consummate in the second quarter of 2004.   Net interest margin (net interest income, on a fully tax-equivalent basis, as a percentage of average earning assets) was 3.27% for the three months of 2004 compared to 3.78% for the same period of 2003.  Continued low or declining interest rates would tend to continue to 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 $644 thousand for the first quarter of 2004 compared to 2003 levels as loan yields continued to decline in the lower interest rate environment.  The total yield on loans for the first quarter of 2004 was 6.06%, compared to loan yields of 6.70% for the first quarter of 2003.  Average total loans for the first three months of 2004 rose $210.9 million compared to averages for the first three months of 2003 as increases in commercial loans, installment loans, mortgage loans and

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 2004 as Compared to the First Three Months of 2003
(continued)

home equity loans were slightly offset by decreases in average municipal loans and leases.  The increases in average loan volumes are largely due to the acquisition of PFC during December 2003.  The Corporation 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 has consistently been one of the top small business lenders in Pennsylvania.  In the past, the Corporation generally sold mortgage loans and the related servicing rights immediately after origination.  However, the Corporation has recently started to retain fixed rate mortgages with maturities of 15 years or less as well as adjustable rate mortgages.

Interest income on investments increased $297 thousand for the first quarter of 2004 compared to the first quarter of 2003. Increases due to volume of $4.6 million were almost eliminated by the decreases due to the decline in interest rates.  Average investments increased $402.9 million for the first quarter of 2004 compared to the same period of 2003.  The biggest increase was in U.S. government agency securities.  The increases in U.S. government agency securities were slightly offset by decreases in corporate bonds and asset-backed securities.  The total yield on investments was 4.32% for the first three months of 2004 compared to 5.29% for the same period of 2003.  Declines in interest income due to rate for U.S. government agency securities were $3.5 million as yields on U.S. government agency securities decreased 94 basis points (0.94%) for the 2004 period compared to the corresponding period of 2003. 

Interest on deposits declined $2.3 million for the first quarter of 2004 compared to the same period of 2003 primarily due to decreases in interest expense due to continued declines in interest rates.  Deposit costs were 1.66% for the first quarter of 2004 compared to 2.09% for the first quarter of 2003, a decrease of 43 basis points (0.43%).  The rate on time deposits fell 49 basis points (0.49%) resulting in a decrease to interest expense of $1.8 million for the first three months of 2004 compared to the first three months of 2003.  The rate on savings deposits for 2004 also declined, down 11 basis points (0.11%) compared to 2003 levels, resulting in a decrease to interest expense of $382 thousand for the first quarter of 2004.  Interest on deposits also reflected a slight decrease due to volumes for 2004 as average deposits for the first quarter of 2004 declined $215.1 million compared to the first quarter of 2003.  The Corporation's deposit mix continued to change during the first quarter of 2004 as clients registered a preference for savings deposits during continuing economic uncertainties.  Average savings deposits increased $264.6 million for 2004 compared to 2003 averages while average time deposits dropped $93.2 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.  Average noninterest bearing demand deposits increased $43.7 million in the 2004 quarter over the average balance for the first quarter of 2003.

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 2004 as Compared to the First Three Months of 2003
(continued)

Interest expense on short-term borrowings increased $183 thousand for the three months of 2004 compared to the three months of 2003 as increases in interest expense due to volume increases were partially offset by decreases in interest expense due to declining rates.  The average balance of short-term borrowings for the first quarter of 2004 increased $186.9 million over averages for the prior year.  The increase in short-term borrowings can be attributed to an ALCO strategy implemented to mitigate the risk of further declines in net interest income resulting from a low or declining interest rate environment.  The increase in short-term borrowings funded the purchase of U.S. government agency securities maturing in approximately 3.5 years.  The cost of short-term borrowings for the 2004 period decreased by 31 basis points (0.31%) compared to 2003 costs of 1.40%.

Interest expense on long-term debt increased $1.8 million for the first quarter of 2004 compared to the corresponding period of 2003, primarily as a result of volume increases.  Average long-term debt for the first three months of 2004 increased by $211.2 million compared to 2003 averages.  Approximately $34 million of the average increase was due to additional debt in the form of subordinated debentures that were acquired in December of 2003 and March of 2004, with the face amounts of $30.9 million and $41.3 million, respectively.  Interest expense for the first quarter of 2004 included $372 thousand on the additional subordinated debentures.  This debt was issued in anticipation of the acquisition of GA Financial, Inc., which is expected to consummate in the second quarter of 2004, pending their shareholder approval.  The remaining increase in long-term debt was due to debt that was acquired in the PFC acquisition in December of 2003.  The Corporation continues to analyze its exposure to any concentration of maturities of long-term debt in any one year and the associated risks.

Provision for Credit Losses

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 $2.1 million for the three months of 2004 compared to $3.5 million for the three months of 2003.  Net charge-offs against the allowance for credit losses were $2.0 million, reflecting a decrease of $662 thousand compared to net charge-offs for the 2003 period.  The most significant components of this year-to-year change were decreases in the following categories: commercial loans (down $436 thousand) and construction loans secured by real estate (down $378 thousand.)  These decreases in net charge-offs for the first quarter of 2004 were partially offset by increases in net charge-offs for residential real estate loans of $164 thousand compared to the corresponding period of 2003.  Annualized net charge-offs as a percent of average loans outstanding were 0.28% for the first quarter of 2004 compared to 0.41% for the first quarter of 2003.  The provision for credit losses as a percent of net charge-offs was 106.44% at March 31, 2004, compared to 131.31% at March 31, 2003.  See the "Credit Review" section for any analysis of the quality of the loan portfolio.

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 2004 as Compared to the First Three Months of 2003
(continued)

Below is an analysis of the consolidated allowance for credit losses for the three month periods ended March 31, 2004 and 2003:

Noninterest Income

Net securities gains were $3.9 million during the first three months of 2004 compared to $2.2 million for the first three months of 2003.  Securities gains during the 2004 period resulted primarily from the sale of Pennsylvania bank stocks with book values of $19.0 million.  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 the 2003 quarter 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.

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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 2004 as Compared to the First Three Months of 2003
(continued)

Trust income for the first quarter of 2004 increased $83 thousand over the same period of 2003.  Although book values of managed assets are down slightly from prior year levels, market values are higher.  The rebound in market values over prior year levels should help to trend trust income in a positive direction.  The referral programs and integrated growth plans for financial affiliates have continued to help grow trust revenues.  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 continue to be the Corporation's most significant component of noninterest fee income and increased $351 thousand for the first three months of 2004 compared to the corresponding period of 2003.  Increases in nonsufficient funds "NSF" fees of $441 thousand for the first quarter of 2004 were partially offset by decreases in account maintenance service charges of $97 thousand.  Management strives to implement reasonable fees for services and closely monitors collection of those fees.  The increase in NSF fees and the decreases in account maintenance service charges are due in large part to the introduction of the High Performance Checking products for consumer and business clients.  The High Performance Checking products have caused existing clients to migrate away from traditional checking products and have drawn new clients to the relatively new product.  In addition, the increase in NSF fees is due in part to better management of the collection process to ensure that fee waivers are kept to a minimum.

Other income for the first three months of 2004 rose $222 thousand from the $2.1 million reported for the first three months of 2003.  Other income for the first quarter of 2004 included increases in fees from the sale of mutual funds, fees on letters of credits, interchange income on debit cards and the income impact from the deconsolidation of the Corporation's Capital Trust subsidiaries.  The increase in fees from letters of credit is due to the centralization of collection efforts, which has improved the process from billing to collection.  The increase in interchange income on debit cards is the result of volume increases, due in part to the acquisition of PFC, which were partially offset by rate decreases.  Also included in other income for the 2004 period was a gain of $234 thousand related to the sale of unused land.











19

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 2004 as Compared to the First Three Months of 2003
(continued)

Noninterest Expense

Noninterest expense was $31.7 million for the three months of 2004 reflecting an increase of $3.9 million from the 2003 level of $27.8 million.  The increase was due in part to the effects of merger related expenses in the 2004 period due to the PFC acquisition and a partial recovery in the 2003 period of a prior year litigation settlement.  The most significant other noninterest expense item that increased was salaries and employee benefit expenses.  These employee costs were $16.7 million for the first three months of 2004, representing an increase of $1.4 million over 2003 levels.  Salary costs for the first quarter of 2004 increased $840 thousand or 7.3% compared to 2003 levels of $11.5 million.  The increase was also due to the increase in the number of employees due to the addition of PFC.  Full time equivalent employees were 1,460 as of the end of the first quarter of 2004 compared to 1,433 for the same time in 2003.  Employee benefit costs rose $529 thousand or 13.8% for the first quarter of 2004 with the largest increase being hospitalization costs, which were up $186 thousand or 12.9%.  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.  The inclusion of PFC employees in the first quarter of 2004 accounted for $571 thousand of the increase to salaries and benefits.

Net occupancy expense increased $215 thousand for the first quarter of 2004 over 2003 levels.  Rental expense accounted for $186 thousand of the increase, primarily due to the addition of the former BankPittsburgh offices.  Additional increases were also recorded in depreciation expense on leasehold improvements and building repairs and maintenance.  Most of the maintenance increases were related to snow removal expenses resulting from the harsh winter.  The Corporation continues to actively evaluate 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.

Data processing expense increased by $286 thousand in the first quarter of 2004 compared to the same period of 2003, due in part to the acquisition of PFC.  Since PFC was processed through an outsourced processing vendor, the Corporation incurred these charges for the first quarter of 2004.  With the exception of one application, all of the systems were converted by the end of the first quarter.  In addition, the data processing expense was unfavorably impacted by a rate increase related to clients using debit and credit cards over the STAR network. 






 
 
20

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 2004 as Compared to the First Three Months of 2003
(continued)

The merger and integration expenses included $485 thousand related to the write-off of the unamortized capitalized costs for the subordinated debentures that were previously issued by PFC to Pittsburgh Home Capital Trust I and were called and paid off in January of 2004.  In addition, the merger related expenses included $806 thousand of severance related salary and benefit expenses that were accrued during the first quarter of 2004 and were related to the integration of PFC into the Corporation.  Future periods could be impacted by similar costs as the PFC integration continues and the pending merger with GAF consummates. 

Other operating expenses for the 2004 period were $7.0 million reflecting an increase of $65 thousand from the 2003 amount of $6.9 million.  The first three months of 2004 included increases in collection and repossession expenses, legal fees and printing expenses, which were partially offset by decreases in operational losses and charge-offs, other professional fees, promotional expenses and stationery and supplies.
 
Income tax expense increased $131 thousand for the first quarter of 2004 compared to the first quarter of 2003.  The Corporation's effective tax rate was 19.6% for the first three months of 2004 compared to 20.3% for the corresponding period of 2003.  The decrease in the effective tax rate was due in large part to additional tax exempt income.

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 Corporation's 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.











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

LIQUIDITY (continued)
 
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 monitoring and measuring liquidity and quantifies minimum liquidity requirements based on board approved limits.  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").

The Corporation's long-term liquidity source is a large core deposit base and a strong capital position.  Core deposits are the most stable source of liquidity a bank can have due to the long-term relationship with a deposit customer.  Total deposits increased $17.1 million for the first three months of 2004 as increases in demand deposits of $16.5 million and total savings deposits of $57.8 million were partially offset by decreases in time deposits of $57.3 million compared to year-end 2003. 

At March 31, 2004, total interest-earning assets were $4,947.7 million, up from the $4,903.7 million recorded at December 31, 2003.  Total loans increased $63.5 million for the first three months of 2004 as commercial and agricultural loans increased by $57.9 million and residential loans increased by $6.7 million compared to year-end 2003.  The Corporation's auto lease portfolio continues to decline since the Corporation discontinued its automobile leasing activities during 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, 2004, securities available for sale had an amortized cost of $1,928.6 million and an approximate fair value of $1,959.9 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.









22

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, can be informative.

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 $620.3 million or 11.87% of total assets at March 31, 2004.  A positive gap tends to indicate that earnings will be impacted favorably if interest rates rise during the period and negatively when interest rates fall during the time period.  A negative gap tends to indicate that earnings will be affected inversely to interest rate changes.  In other words, as interest rates fall, a negative gap should tend to produce a positive effect on earnings, and when interest rates rise, a negative gap should tend to affect earnings negatively.

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























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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, 2004, and December 31, 2003 (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 gradual 200 basis point (2.00%) movement upward or downward over a 12 month time frame which cannot result in more than a 5.0% decline in net interest income when compared to the base case.  The analysis at March 31, 2004, indicated that a 200 basis point (2.00%) increase in interest rates would increase net interest income 214 basis points (2.14%) above the base case scenario and a 200 basis point (2.00%) decrease in interest rates would decrease net interest income by 866 basis points (8.66 %) below the base case scenario, over the next twelve months.  While the 200 basis points (2.00%) declining rate scenario currently exceeds the -5.00% policy limit by 366 basis points (3.66%), it is recognized by the Corporation that this declining rate scenario is unrealistic in the current rate environment with the federal funds rate at only 1.00%.  Using a 100 basis point declining rate scenario, net interest income is projected to decline by 295 basis points (2.95%).

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 strategies are established by the Corporation's senior management. 

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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 Corporation entered into an interest rate swap transaction during the third quarter of 2003.  The swap had an original three-year maturity and involved hedging adjustable LIBOR based commercial loans with a receive-fixed and pay-floating interest rate swap of $25 million notional amount.  The purpose of the swap was to reduce the Corporation's exposure to further declines in interest rates.  The ALCO continues to evaluate the use of additional derivative instruments to protect against the risk of adverse price or interest rate movements on the values of certain assets and liabilities. 

Another strategy aimed at reducing the Corporation's exposure to falling interest rates was implemented during 2003.  U.S. government agency securities maturing in approximately 3.5 years were purchased with short-term borrowings. 

CREDIT REVIEW

The following table identifies amounts of loan losses and nonperforming loans.  A loan is placed in nonaccrual status at the time when ultimate collectibility of principal or interest, wholly or partially, is in doubt.  Past due loans are those which are 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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