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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      .

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 July 31, 2004, was 69,449,688.

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

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

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
June 30, 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 June 30, 2004 and the results of operations for the three month and six month periods ended June 30, 2004 and 2003, and statements of cash flows and changes in shareholders' equity for the six month periods ended June 30, 2004 and 2003.  The results of operations for the three month and six month periods ended June 30, 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
June 30, 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 Shareholder's 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" ("FASB 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 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
June 30, 2004
(Unaudited)

NOTE 4 Accounting for Stock Options Granted (continued)

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

 



10

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)

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 as 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 half of 2004, monthly severance payments totaling $467 thousand were made, reducing the outstanding severance liability to $99 thousand at June 30, 2004.  No additional severance accruals or adjustments relating to the 2002 restructuring charges were recorded during the first half of 2004.

NOTE 6 Merger and Integration Charges

In the first six months of 2004, the Corporation recorded merger and integration charges totaling $2,164 thousand ($1,406 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 $1,679 thousand in salary and benefit severance expenses that were accrued during the first six months of 2004.  The severance costs were for 25 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 implemented for the quarter ended March 31, 2004.

11

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)

NOTE 7 New Accounting Pronouncements (continued)

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 $5,257 thousand, consisting of the limited partnership investments as of June 30, 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 operation.

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 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, was implemented during the second quarter of 2004.  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.

In May 2004, the FASB issued FASB Staff Position No. FAS 106-2 ("FSP FAS 106-2"), "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003."  FSP FAS 106-2 supersedes the FASB Staff Position No. FAS 106-1, which has the same title as FSP FAS 106-2.  FSP FAS 106-2 provides guidance on the accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 ("the Act") for employers that sponsor postretirement health care plans that provide prescription drug benefits.  FSP FAS 106-2 also requires employers to provide certain disclosures regarding the effect of the federal subsidy provided by the Act.  This FSP is effective for the first interim or annual period beginning after June 15, 2004.  The disclosure requirements of FSP FAS 106-2 can be found in NOTE 9 (Post Retirement Benefit Plan of Acquired Company) of this report.






12

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)

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 June 30, 2004:  (Dollar amounts in thousands)

The current notional amounts outstanding above include financial standby letters of credit of $4,537 thousand and performance standby letters of credit of $2,012 thousand issued during the first half of 2004.  There is currently no liability recorded on the Corporation's balance sheet related to the above letters of credit.

NOTE 9 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 for the quarter ended June 30 was as follows (Dollar amounts in thousands):

The net periodic benefit cost of this plan for the six months ended June 30 was as follows (Dollar amounts in thousands):

13

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)

NOTE 9 Post Retirement Benefit Plan of Acquired Company (continued)

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 prescription drug benefit that is at least actuarially equivalent to Medicare Part D.  As of the filing date of this quarterly report on Form 10-Q, the Corporation has not been able to determine whether the prescription drug benefits provided by the Corporation's postretirement plan are actuarially equivalent to Medicare Part D.  As a result, the preceding measures of the net periodic postretirement benefit cost do not reflect any amounts associated with the federal subsidy.  The impact of the Act, once determined, could affect reported calculations. 

NOTE 10 Business Combination

Effective May 24, 2004, the Corporation acquired 100% of the outstanding shares of GA Financial, Inc. ("GAF"), a savings and loan holding company, which was headquartered in Whitehall, Pennsylvania.  GAF was the parent company of Great American Federal.  As a result of the acquisition, GAF merged into First Commonwealth Financial Corporation and Great American Federal merged into First Commonwealth Bank. 

The acquisition of GAF is another significant step for the Corporation to implement its strategy for expansion into the Pittsburgh, Pennsylvania market.  The acquisition of Great American Federal adds an additional customer base, which presents the opportunity for First Commonwealth Bank to offer insurance, trust and financial planning services to a larger base of customers.

Shareholders of GAF elected to receive $35.00 in cash or an equivalent of First Commonwealth common stock for each GAF share owned.  The aggregate purchase price of the transaction was $176.6 million, which included cash in the amount of $71.4 million and common stock valued at $105.2 million.  The value of the 8,274,123 issued shares of First Commonwealth common stock was based on the average market price of First Commonwealth's common stock over the ten-day period ending three trading days prior to consummation of the acquisition.  As of June 30, 2004, the Corporation had a remaining liability for the cash settlement of the transaction in the amount of $2.4 thousand. 

The merger was accounted for as a purchase transaction whereby the identifiable tangible and intangible assets and liabilities of GAF have been recorded at their fair values as of the acquisition date.  Purchase accounting valuation adjustments, which represent the difference between the carrying value and the fair value of identifiable tangible and intangible assets and liabilities, were recorded in the Consolidated Balance Sheet as of June 30, 2004.  Preliminary goodwill in the amount of $99.5 million was recorded as a result of the transaction. 

14

FIRST COMMONWEALTH FINANCIAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2004
(Unaudited)

NOTE 10 Business Combination (continued)

As prescribed under the purchase method of accounting, the results of GAF's operations have been included in the consolidated financial statements since the acquisition date. 

The customer deposit base of $15.7 million was the only amortizing intangible that was recorded with the transaction.  Amortization expense in the amount of $1.1 million will be recorded in the Consolidated Income Statement throughout 2004.  The weighted-average useful life of the customer deposit base intangible is 8 years.  The goodwill that was recorded with the transaction is not deductible for tax purposes.

NOTE 11 Subsequent Event

At its regularly scheduled meeting in July, the Board of Directors of the Corporation's banking subsidiary, First Commonwealth Bank, authorized the company to restructure certain Federal Home Loan Bank advances (which we will refer to as FHLB advances) during the third quarter of 2004.  Recent acquisitions increased the Corporation's FHLB advances to $918 million, of which $516 million is scheduled to mature in 2008.  On July 23, 2004, First Commonwealth prepaid approximately $440 million of its FHLB advances primarily with maturities in 2008 and a weighted average rate of 5.43%. 

The Corporation incurred penalties in connection with the prepayment of the FHLB advances, which resulted in a one-time charge of approximately $29.5 million ($19.2 million after tax) or approximately $0.28 per share in the third quarter of 2004.  The FHLB advances were replaced with other borrowings having maturities ranging from overnight to 2010 and having an average interest rate of 2.5% based on current rates.

The transaction is intended to expand the maturity distribution of the Corporation's FHLB advances to minimize the impact on any one year.  The Corporation expects that the transaction will result in an increase in net interest income over the remaining term of the original advances in excess of the amount of the prepayment penalties, which should result in an increase in earnings per share in future periods.  While the transaction is projected to produce significantly higher levels of net interest income in future periods, the bank's interest rate risk profile will move to a slightly liability sensitive position.
















15

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

RESULTS OF OPERATIONS

First Six Months of 2004 as Compared to the First Six 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, as well as the notes to the consolidated financial statements, contain 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 six months of 2004 was $24.9 million reflecting a decrease of $1.8 million compared to 2003 results of $26.7 million.  Security gains in the 2004 period were less than that of the 2003 period.  The 2004 period included merger and integration costs that were not present in the 2003 period.  In addition, the 2004 period incorporated the results of GAF since May 24, 2004, as well as the results of PFC for the entire reporting period.  Basic and diluted earnings per share were $0.40 and $0.39, respectively, for the first six months of 2004 compared to $0.46 and $0.45, respectively, for the same period of 2003.

Return on average assets was 0.92% and return on average equity was 10.90% for the first six months of 2004 compared to 1.17% and 13.07%, respectively, for the first six months 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 Six Months of 2004 as Compared to the First Six Months of 2003 (continued)

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

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 increased by $3.0 million for the first half of 2004 over the related period of 2003, as interest-earning assets increased.  This increase was partially offset by a decline in net interest margin of 34 basis points (0.34%), primarily as the interest-earning asset yield declined faster than funding costs.  The reduction of short-term interest rates tends to reduce rates on loan categories and time deposits, but non-maturity deposits (such as savings and NOW accounts) are already at very low levels and therefore decline very little. 

Net interest margin (net interest income, on a tax-equivalent basis, as a percentage of average earning assets) was 3.21% for the six months of 2004 compared to 3.63% for the six months of 2003 reflecting a decrease of 42 basis points (0.42%). 













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

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

Interest and fees on loans increased $1.9 million for the first six months of 2004 compared to 2003 due to volume increases.  The volume increases were offset due to loan yields declining in the lower interest rate environment.  The total yield on loans for the first half of 2004 was 5.95%, compared to loan yields of 6.60% for the first half of 2003.  Average total loans for the first six months of 2004 rose $339.5 million compared to averages for the first six months of 2003 as increases were noted in all loan categories with the exception of leases, since the Corporation has discontinued its leasing activities.  The largest increases were recorded in the commercial and installment loan categories.  The averages include the addition of PFC for the full period of 2004 and GAF since May 24, 2004.  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. 










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

Interest income on investment securities increased $2.0 million for the first half of 2004 compared to the first half of 2003.  Increases due to volume of $8.7 million were almost eliminated by decreases due to the decline in interest rates.  Average investments for the first half of 2004 included increases due to PFC for the full period and increases due to GAF from May 24, 2004.  The most significant increases were in U.S. government securities.  Total yield on investments was 4.27% for the first six months of 2004 compared to 5.02% for the same period of 2003, a decline of 75 basis points (0.75%).  Declines in interest income due to rate for U.S. government agency securities were $5.0 million as yields on these securities decreased 65 basis points (0.65%) for the 2004 period compared to the corresponding period of 2003. 

Interest expense on total deposits dropped $4.3 million for the 2004 period compared to 2003 primarily due to decreases in interest rates.  Deposit costs were 1.62% for the first six months of 2004 compared to 2.05% for the first six months of 2003.  The rate on savings deposits fell 5 basis points (0.05%) resulting in a decrease to interest expense of $465.7 thousand for the first six months of 2004 compared to the first six months of 2003, while the rate on time deposits for 2004 also declined, down 46 basis points (0.46%) compared to 2003 levels, resulting in a decrease to interest expense of $3.6 million for the first six months of 2004.  The Corporation's deposit mix continues to change as clients registered a preference for savings deposits rather than time deposits during continuing economic uncertainties.  Average savings deposits increased $331.9 million for 2004 compared to 2003 averages while average time deposits dropped $111.1 million over the same time frames.  Average deposits included increases in all categories due to PFC for the full period and GAF from May 24, 2004.  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. 

Interest expense on short-term borrowings increased $475 thousand for the first six months of 2004 compared to the same period of 2003 as decreases in interest expense due to rate of $868 thousand were offset by increases in interest expense due to volume of $1.3 million.  The cost of short-term borrowings for the 2004 period decreased by 27 basis points (0.27%) compared to 2003 costs of 1.37%.  The average balance of short-term borrowings for the first six months of 2004 increased by $195.2 million compared to the averages for the prior year. 








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

Interest expense on long-term debt increased $4.8 million for the first six months of 2004 compared to the corresponding period of 2003, primarily as a result of volume increases.  Average long-term debt for the six months of 2004 increased by $274.7 million compared to 2003 averages.  Average long-term debt included increases due to PFC for the full period and GAF from May 24, 2004.  In addition, approximately $53 million of the average increase was due to additional debt in the form of subordinated debentures that were acquired in December 2003 and March 2004, with face amounts of $30.9 million and $41.2 million, respectively.  This debt was issued in anticipation of the acquisition of GAF.  Refer to NOTE 11 for a discussion of the Corporation's plan to reduce interest expense on long-term debt in future periods.

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 $4.6 million for the six months of 2004 compared to $6.9 million for the same period of 2003.  The decrease of $2.3 million was due to improvement in nonperforming loans and net charges offs.  Net charge-offs against the allowance for credit losses were $4.3 million for the 2004 period compared to $5.8 million for the corresponding period of 2003.  Annualized net charge-offs as a percent of average loans outstanding were 0.29% as of June 30, 2004 compared to 0.44% as of June 30, 2003.  The provision for credit losses as a percent of net charge-offs was 106.85% at June 30, 2004 and 119.05% at June 30, 2003.  See the "Credit Review" section for an analysis of the quality of the loan portfolio.


















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

Below is an analysis of the consolidated allowance for credit losses for the six month periods ended June 30, 2004 and 2003: