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

FORM 10-K

Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003 commission file number 0-11242

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

Securities registered pursuant to Section 12(b) of the Act:

Indicate by 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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes XX No   .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K.  [   ]

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock.

The aggregate market value of the voting common stock, par value $1 per share, held by non-affiliates of the registrant (based upon the closing sale price on March 2, 2004), was approximately $823,705,576.

The aggregate market value of the voting common stock, par value $1 per share, held by non-affiliates of the registrant (based upon the closing sale price on June 30, 2003), was approximately $706,151,494.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement related to the annual meeting of security holders to be held April 19, 2004 are incorporated by reference into Part III.

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-K
INDEX

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

PART I

ITEM 1.  Business

Description of Business

First Commonwealth Financial Corporation (the "Corporation") was incorporated as a Pennsylvania business corporation on November 15, 1982 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended.  The Corporation has one chartered bank affiliate which operates under the First Commonwealth Bank name.  Personal financial planning and other financial services and insurance and products are also provided through First Commonwealth Trust Company, First Commonwealth Financial Advisors and First Commonwealth Insurance Agency.  The Corporation also operates through First Commonwealth Systems Corporation, a data processing subsidiary and First Commonwealth Professional Resources Inc., a subsidiary providing professional services to affiliated organizations.

In October 2002, the Corporation brought all of the community bank offices and the other affiliates under a common brand, First Commonwealth.  The Corporation unveiled a new logo, colors, and signage through an aggressive marketing strategy to reintroduce First Commonwealth to the marketplace.  A unified brand yields important benefits for our clients.  All of First Commonwealth Bank's community offices have the same identity, products, and professional service that provide a consistent experience throughout the office network.  The insurance, trust, and financial planning affiliates are now clearly linked with First Commonwealth Bank to provide integrated solutions to meet any client need.

First Commonwealth Bank ("FCB"), a Pennsylvania-chartered banking corporation headquartered in Indiana, Pennsylvania operated through divisions doing business under the following names:  NBOC Bank, Deposit Bank, Cenwest Bank, First Bank of Leechburgh, Peoples Bank, Central Bank, Peoples Bank of Western Pennsylvania, Unitas Bank and Reliable Bank.  In October 2002, these banking divisions as well as the Corporation's other chartered bank (Southwest Bank) were merged under the First Commonwealth name.  This enhancement has provided our clients with greater flexibility, efficiency and seamless service throughout our market footprint.

During 2003, the Corporation took steps to increase its presence in the Pittsburgh, Pennsylvania market by acquiring Pittsburgh Financial Corp. ("PFC").  Effective December 5, 2003, the Corporation completed the transaction to acquire 100% of the outstanding shares of PFC. PFC was a financial holding company that was headquartered in Wexford, Pennsylvania, and was the parent company of Pittsburgh Savings Bank (d/b/a BankPittsburgh).  The branches that were acquired as part of the PFC acquisition are continuing to operate as BankPittsburgh, a division of First Commonwealth Bank, and will continue to do so until the deposit and loan systems are converted during 2004.

Also as a step to increase its presence in the Pittsburgh, Pennsylvania market, the Corporation announced plans to acquire GA Financial, Inc. ("GAF") pending approval from GAF shareholders and various regulatory agencies.  In December 2003, the Corporation signed a definitive agreement to acquire 100% of the outstanding shares of GAF, a savings and loan holding company that is headquartered in Whitehall, Pennsylvania.


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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 1.  Business (Continued)

Description of Business (Continued)

Through FCB, the Corporation traces its banking origins to 1866.  FCB conducts business through 91 community banking offices in the counties of Allegheny (10), Armstrong (2), Beaver (1), Bedford (4), Blair (8), Butler (2), Cambria (10), Centre (1), Clearfield (5), Elk (3), Huntingdon (5), Indiana (9), Jefferson (3), Lawrence (5), Somerset (5), Washington (1), and Westmoreland (17).  FCB engages in general banking business and offers a full range of financial services including such general retail banking services including savings and time deposits and mortgage, consumer installment and commercial loans.

FCB operates a network of 91 automated teller machines ("ATMs") which permit customers to conduct routine banking transactions 24 hours a day.  Of the ATMs, 70 are located on the premises of branch offices and 21 are in remote locations.  All the ATMs are part of the STAR network which consists of over 250,000 ATMs owned by numerous banks, savings and loan associations and credit unions from coast to coast.  STAR serves more than 132 million ATM/debit cardholders and more than 6,100 financial institution members.  The ATMs operated by FCB are also part of the global MasterCard/Cirrus network which is comprised of more than 900,000 ATMs located in the United States, Canada and 120 other countries and territories, which services over 632 million card holders.  Such networks allow FCB clients to withdraw cash and in certain cases conduct other banking transactions from ATMs of all participating financial institutions.

Along with the PFC acquisition, FCB became a member of the Freedom ATM Alliance.  The Freedom ATM Alliance will give cardholders of the First Commonwealth Check Card access to a network of more than 440 surcharge-free ATMs that are located in 41 counties, extending north into New York, and west into Ohio, with a majority of the ATMs located in southwestern Pennsylvania.

In addition to the access of funds through the use of ATMs, the STAR debit card offered to FCB's deposit clients may be used at over 1 million point-of-sale retail locations on the STAR system as well as being used on the global MasterCard system for the purchase of goods and services.  The STAR debit card provides clients with almost universal acceptability of a credit card combined with the convenience of direct debit to the clients' checking account.

First Commonwealth Systems Corporation ("FCSC") was incorporated as a Pennsylvania business corporation in 1984 by the Corporation to function as its data processing subsidiary and it has its principal place of business in Indiana, Pennsylvania.  Before August 1984, it had operated as the data processing department.  FCSC provides on-line general ledger accounting services and bookkeeping services for deposit and loan accounts to the Corporation, FCB and its other nonbank subsidiaries.  FCSC also acts as a centralized purchasing agent for the purchase of computer hardware and software products by the Corporation and subsidiaries as well as providing technical support for the installation and use of these products.  It competes, principally with data processing subsidiaries of other, mostly larger, banks, on the basis of the price and quality of its services and the speed with which such services are delivered. 



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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 1.  Business (Continued)

Description of Business (Continued)

First Commonwealth Trust Company ("FCTC") was incorporated on January 18, 1991 as a Pennsylvania chartered trust company to render general trust services.  The corporate headquarters are located in Indiana, Pennsylvania.  FCTC has five branch offices in the service areas of FCB and offers personal and corporate trust services, including administration of estates and trusts, individual and corporate investment management and custody services and employee benefit trust services.

First Commonwealth Insurance Agency ("FCIA") was incorporated as a Pennsylvania business corporation with its principal place of business in Indiana, Pennsylvania.  FCIA began operations in January 1998 as a wholly-owned subsidiary of FCB and provides a full range of insurance and annuity products to retail and commercial clients.

First Commonwealth Financial Advisors ("FCFA") was formed in 2002 as the result of an acquisition.  FCFA offers financial planning, asset management and consulting services to individuals, businesses, retirement plans, trusts and estates.  FCFA also offers insurance products through FCIA.  FCFA's office is located in Allegheny County in Pennsylvania.

FraMal Holdings Corporation ("FraMal") is a wholly-owned subsidiary of the Corporation that was incorporated under the laws of the state of Delaware for the purpose of providing investment services.  FraMal was acquired with the PFC acquisition.

On June 1, 1989, Commonwealth Trust Credit Life Insurance Company ("Commonwealth Trust") began operations.  The Corporation owns 50% of the voting common stock of Commonwealth Trust.  Commonwealth Trust provides reinsurance for credit life and credit accident and health insurance sold by the subsidiaries of the two unrelated holding company owners under a joint venture arrangement whereby the net income derived from such reinsurance inures proportionally to the benefit of the holding company selling the underlying insurance to its banks' customers.

First Commonwealth Capital Trust I and First Commonwealth Capital Trust II are business trusts created under the laws of the state of Delaware.  The trusts were formed in September 1999 and December 2003, respectively.  The trusts were formed for the exclusive purposes of issuing trust preferred securities, using the proceeds from the sale of the trust preferred securities to acquire subordinated debentures issued by the Corporation and engaging in only those activities necessary or incidental thereto.  Based on criteria established in FASB Interpretation No. 46 "Consolidation of Variable Interest Entities," the business trusts are unconsolidated subsidiaries of the Corporation.



 




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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 1.  Business (Continued)

Description of Business (Continued)

The Corporation operates and manages all client services in an integrated fashion through what is referred to as the "Growth Unit."  The Growth Unit is comprised of the four revenue-producing subsidiaries of the Corporation, which include FCB, FCTC, FCIA and FCFA.  The other subsidiaries serve as support affiliates of the Corporation.  Through the Growth Unit, the Corporation delivers our core competencies of banking, insurance, trust, financial management and investment services. 

The Corporation and its subsidiaries employed approximately 1,474 (full-time equivalents) at December 31, 2003.  The Corporation does not engage in any significant business activities other than holding the stock of its subsidiaries.  The Corporation does not currently have any plans to expand or modify its business or that of its subsidiaries, other than as described herein.  Nevertheless, it will be receptive to and may actively seek out mergers and acquisitions in the event that opportunities which management considers advantageous to the development of the Corporation's business arise, and may otherwise expand or modify its business as management deems necessary to respond to changing market conditions or the laws and regulations affecting the business of banking.

Competition

FCB, FCTC, FCFA and FCIA face intense competition, both from within and out of their service areas, in all aspects of business.  FCB competes for deposits, in such forms as checking, savings and NOW (negotiable order of withdrawal) accounts, MMDA (money market deposit accounts) and certificates of deposit, and in making consumer loans and loans to smaller businesses, with numerous other commercial banks and savings banks doing business within its service area.  FCB also competes, primarily in making consumer loans and for deposits, with state and federally chartered savings and loan associations and with credit unions.  In recent years, FCB has encountered significant competition for deposits from money market funds, mutual funds and institutions that offer annuities located throughout the United States.  Money market funds pay dividends to their shareholders (which are the equivalent of the interest paid by banks on deposits) and they are able to offer services and conveniences similar to those offered by FCB.  Annuities accumulate interest on the amounts deposited over a predetermined time period.  The depositor is then entitled to withdraw their funds for a fixed period of time or until death.  The effect of such competition has been to increase the costs of the rest of deposits, which provide the funds with which loans are made.  In addition to savings and loan associations and credit unions, FCB also competes for consumer loans with local offices of national finance companies and finance subsidiaries of automobile manufacturers and with national credit card companies such as MasterCard and VISA, whose cards, issued through financial institutions, are held by consumers throughout its service area.  FCB believes that the principal means by which it may compete for deposits and consumer and smaller commercial loans are the number and desirability of the locations of its offices and ATMs, the sophistication and quality of its services and the

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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 1.  Business (Continued)

Competition (Continued)

prices (primarily interest rates) of its services.  Additionally, FCB intends to remain competitive by offering financial services that target specific client needs.  Development of an integrated advisory sales model to integrate products between our bank, insurance agency, trust company and financial advisory affiliates as well as utilization of an employee team to deliver products and services to our commercial clients through our "Total Solutions Financial Management" approach have been positively received by our customers.  Specific client needs are also met through an enhanced client delivery system that includes telephone banking, which provides convenient access to financial services and hours of operation that extend past those of the FCB branch offices.  The Corporation also remains competitive by providing clients with Internet-based banking solutions through "WebBank" and "BillPay."  WebBank provides clients with access to bank account information via the Internet 24 hours a day, 7 days a week.  Features of WebBank include the ability to monitor account balances and transaction history, transfer funds between accounts, issue stop payments and request online customer service such as copies of checks or statements.  BillPay is an Internet bill payment and presentment service that allows clients to pay bills online. 

Supervision and Regulation

The Corporation is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended ("the Bank Holding Company Act") and is registered as such with the Federal Reserve Board.  As a registered bank holding company ("BHC"), the Corporation is required to file an annual report and other information with the Federal Reserve Board.  The Federal Reserve Board is also empowered to make examinations and inspections of the Corporation and its subsidiaries.

The Bank Holding Company Act and Regulation Y of the Federal Reserve Board require every bank holding company to obtain prior approval of the Federal Reserve Board before it may acquire direct or indirect ownership or control of more than 5% of the outstanding voting shares or substantially all of the assets of a bank or merge or consolidate with another bank holding company.  The Federal Reserve Board may not approve acquisitions by the Corporation of such percentage of voting shares or substantially all the assets of any bank located in any state other than Pennsylvania unless the laws of such state specifically authorize such an acquisition.

The Bank Holding Company Act generally prohibits a bank holding company from engaging in a nonbank business or acquiring direct or indirect ownership or control of more than 5% of the outstanding voting shares of any nonbank corporation subject to certain exceptions.  The principal exception is where the business activity in question is determined by the Federal Reserve Board to be closely related to banking or to managing or controlling banks to be a proper incident thereto.  The Bank Holding Company Act does not place territorial restrictions on the activities of such banking related subsidiaries of bank holding companies.




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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 1.  Business (Continued)

Supervision and Regulation (Continued)

Under the Federal Reserve Act, subsidiary banks of a bank holding company are subject to certain restrictions on extensions of credit to the bank holding company or any of its subsidiaries, investments in the stock or other securities thereof, or acceptance of such stock or securities as collateral for loans to any one borrower.  Under the Pennsylvania Banking Code, there is no limit on the number of Pennsylvania banks that may be owned or controlled by a Pennsylvania bank holding company.

Sarbanes-Oxley Act of 2002

On July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act of 2002, which generally established a comprehensive framework to modernize and reform the oversight of public company auditing, improve the quality and transparency of financial reporting by those companies and strengthen the independence of auditors.  Certain of the legislation's more significant reforms are noted below:

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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 1.  Business (Continued)

Supervision and Regulation (Continued)

The Corporation has a new Code of Conduct and Ethics and a Financial Disclosure Committee.  Members of the Financial Disclosure Committee include the Chief Executive Officer, Chief Financial Officer and other key members of the Corporation's management team.  The Corporation also requires validation of controls and signed certifications from managers who are responsible for internal controls throughout the Company as to the integrity of the information they prepare.

The Gramm-Leach-Bliley Act ("GBLA") of 1999 revolutionized the regulation of financial services companies.  GBLA amended the Bank Holding Company Act of 1956 to create a new type of bank holding company, a financial holding company ("FHC"), which is permitted to engage in all activities permitted by a bank holding company as well as securities, merchant banking and insurance activities that were prohibited to BHCs.  GLBA also repealed Section 20 and 32 of the Glass-Steagall Act, which prohibited affiliations between a member bank and a company principally engaged in securities activities.  The activities of a BHC that do not qualify as activities of a FHC will be limited to those that the Federal Reserve Board had, prior to enactment of GBLA, deemed closely related to banking.  In order to qualify as a FHC, each depository institution subsidiary of a BHC must be well capitalized, well managed and if insured, have a satisfactory or better rating under the Community Reinvestment Act of 1977 ("CRA") as of its most recent examination.  The BHC must file an election with the Federal Reserve Board certifying that it meets the requirements of a FHC.  GBLA expanded the range of business opportunities for commercial banking organizations and enabled banking companies and other types of financial companies such


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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 1.  Business (Continued)

Supervision and Regulation (Continued)

as securities, insurance and financial technology companies to combine more readily.  A FHC does not need to obtain prior Federal Reserve Board approval in order to engage in, or acquire a nonbank company that engages in financial activities.  The FHC only needs to provide notice to the Federal Reserve Board, describing the activity commenced or conducted by the acquired company, within 30 days after commencing the activity or consummating the acquisition.

Subsidiary Bank

FCB is a Pennsylvania-chartered bank and is subject to the supervision of and regularly examined by the Pennsylvania Department of Banking and the Federal Deposit Insurance Corporation ("FDIC").  FCB is also subject to certain regulations of the Federal Reserve Board.  The areas of operation that are subject to regulation by Federal and Pennsylvania laws, regulations and regulatory agencies include reserves against deposits, maximum interest rates for specific classes of loans, truth-in-lending disclosures, permissible types of loans and investments, trust operations, mergers and acquisitions, issuance of securities, payment of dividends, Community Reinvestment Act evaluations, mandatory external audits, establishment of branches and other aspects of operations.  Under the Pennsylvania Banking Code, a state bank located in Pennsylvania may establish branches anywhere in the state.

Effects of Governmental Policies

The business and earnings of the Corporation are affected not only by general economic conditions, but also by the monetary and fiscal policies of the United States Government and its agencies, including the Federal Reserve Board.  An important function of the Federal Reserve Board is to regulate the national supply of bank credit.  Among the instruments of monetary policy used by the Federal Reserve Board to implement these objectives are open market operations in United States government securities, changes in the discount rate on borrowings by member banks and savings institutions from the Federal Reserve System and changes in reserve requirements against bank and savings institution deposits.  These instruments, together with fiscal and economic policies of various governmental entities, influence overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans, received on investments or paid for deposits.

The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of bank holding companies and their subsidiary banks in the past and are expected to continue to do so in the future.  In view of changing conditions in the national and Pennsylvania economies and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the Federal Reserve Board, no prediction can be made as to possible future changes in interest rates, deposit levels and loan demand or the effect of such changes on the business and earnings of the Corporation or its subsidiaries.



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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 1.  Business (Continued)
 
Changes in Regulations

Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress, in the state legislatures and before the various bank regulatory agencies.  The likelihood and timing of any proposals or legislation and the impact they might have on the Corporation and its subsidiaries cannot be determined at this time.

Availability of Financial Information

The Corporation files reports with the SEC. Those reports include the annual report on Form 10-K, quarterly reports on Form 10-Q, current event reports on Form 8-K and proxy statements, as well as any amendments to those reports. The public may read and copy any materials that the Corporation files with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains quarterly and annual reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The Corporation's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are also accessible at no cost on the Corporation's web site at http://www.fcbanking.com.  Printed copies are also available upon request to the Corporation, to the attention of the Corporate Secretary.

Furthermore, the Corporation also makes available on its website, and in print to any shareholder who requests it, the Corporation's Corporate Governance Guidelines, the committee charters for its Audit, Executive Compensation, and Governance Committees, as well as the Code of Conduct and Ethics that applies to all directors, officers and employees of the Corporation.  Amendments to these documents or waivers related to the Code of Conduct and Ethics will be made available on the Corporation's website as soon as practicable after their execution.

ITEM 2.  Properties

The Corporation's principal office is located in the Old Indiana County Courthouse complex.  This certified Pennsylvania and national historic landmark was built in 1870 and restored by the Corporation in the early 1970's.  The Corporation occupies this building, which provides 32,000 square feet of floor space, under a 25-year restoration lease agreement with Indiana County.  The Corporation entered into the lease agreement in 1973 and renewed the agreement in 1998 for an additional 25 years.  In order to support future expansion needs and centralization of various functional areas, the Corporation owns two additional structures in Indiana, Pennsylvania, in close proximity to the Corporation's principal office.  The Corporation also leases additional office space in Indiana, Pennsylvania.  FCB has 91 banking facilities of which 25 are leased and 66 are owned.  Management presently expects that such facilities will be adequate to meet the anticipated needs of the Corporation and its subsidiaries for the immediate future.


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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 3.  Legal Proceedings

There are no material proceedings to which the Corporation or its subsidiaries are a party, or of which their property is the subject, except proceedings which arise in the normal course of business and, in the opinion of management, will not have a material adverse effect on the consolidated operations or financial position of the Corporation and its subsidiaries.

ITEM 4.  Submission of Matters to Vote of Security Holders

There were no matters submitted to vote by security holders in the fourth quarter of 2003.

Executive Officers of the Registrant

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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Executive Officers of the Registrant (Continued)

 
PART II

ITEM 5.  Market for Registrant's Common Stock and Related Security Holder
         Matters

First Commonwealth Financial Corporation (the "Corporation") is listed on the New York Stock Exchange under the symbol "FCF."  The approximate number of holders of record of the Corporation's common stock is 15,500.  The table below sets forth the high and low sales prices per share and cash dividends declared per share for common stock of the Corporation.

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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 6.  Selected Financial Data (Dollar Amounts in Thousands,
         except per share data)

The following selected financial data is not covered by the auditor's report and should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, which follows, and with the consolidated financial statements and related notes.  Financial statement amounts for prior periods have been reclassified to conform to the presentation format used in 2003.  The reclassifications had no effect on the Corporation's financial condition or results of operations.

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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

Introduction

This discussion and the related financial data are presented to assist in the understanding and evaluation of the consolidated financial condition and the results of operations of First Commonwealth Financial Corporation including its subsidiaries (the "Corporation") for the years ended December 31, 2003, 2002 and 2001 and are intended to supplement, and should be read in conjunction with, the consolidated financial statements and related footnotes.

Sections of this financial review, 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," "objective," and similar expressions or variations on such 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.

Effective December 5, 2003, the Corporation acquired all of the outstanding shares of Pittsburgh Financial Corporation ("PFC").  In addition, the Corporation acquired all of the outstanding shares of Strategic Capital Concepts, Inc. ("SCC") and Strategic Financial Advisors, Inc. ("SFA"), effective March 1, 2002.  As required under the purchase method of accounting, the results of PFC, SCC and SFA have been included in the Corporation's financial statements since their respective acquisition dates.  In October 2002, SFA was merged into SCC and the name was changed to First Commonwealth Financial Advisors, Inc.

Financial statement amounts in prior periods have been reclassified to conform to the presentation format used in 2003.  The reclassifications had no effect on the Corporation's financial condition or results of operations.










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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Critical Accounting Policies and Significant Estimates

The Corporation considers accounting policies and estimates to be critical to reported financial results if (1) the estimate requires management to make assumptions about matters that are highly uncertain and (2) the different estimates that management reasonably could have used for the accounting estimate in the current period or the changes in the accounting estimates from period to period could have a material impact on the Corporation's financial condition or results of operations.  Accounting policies related to the allowance for credit losses are considered to be critical because they are highly dependent on subjective or complex judgments, assumptions and estimates by management. 

The allowance for credit losses is a reserve established through a provision for credit losses charged to expense, which represents management's best estimate of probable losses that are inherent in the existing loan portfolio as of the balance sheet date.  The allowance includes amounts calculated in accordance with FASB Statement No. 114 "Accounting by Creditors for Impairment of a Loan" as amended by FASB Statement No. 118, and amounts determined in accordance with FASB Statement No. 5 "Accounting for Contingencies."

The Corporation's methodology for assessing the appropriateness of the allowance for credit losses consists of several key elements including a specific allowance for primary watch list classified loans, a formula allowance based on historical trends and an allowance for special circumstances.  These key elements are described in detail in the "Statement of Accounting Policies" in NOTE 1 to the "Consolidated Financial Statements."  The Corporation also maintains an unallocated allowance to cover any factors or conditions that may cause a credit loss but are not specifically identifiable and to account for imprecision.  These factors include (1) delays in obtaining information, including unfavorable information about a borrower's financial condition and (2) changes in the composition of the loan portfolio that may reduce the correlation between historical loss and delinquency statistics used to establish allocation estimates and credit losses inherent to the current portfolio.

Results of Operations

Net income was $53.3 million in 2003, an increase of $9.8 million from the 2002 results of $43.5 million.  This compared to $50.2 million that was registered in 2001.

The change in net income for the 2003 period reflected an increase in security gains compared to the corresponding period of 2002 and a gain on the sale of two branches in the 2003 period.  In addition, the effects of restructuring costs and a litigation settlement negatively impacted net income for 2002.  The restructuring charges consisted principally of severance amounts paid to employees as part of the plan to consolidate the





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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

multiple bank charters and develop the First Commonwealth brand and identity for all of the financial services subsidiaries.  Payments to retiring directors as part of the realignment for the Corporation's new vision on corporate governance were also included in restructuring charges.  The litigation 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.  A partial recovery from insurance for the claim related to the litigation settlement was received in 2003.   

In addition to the restructuring and litigation expenses that were incurred during 2002, the decrease in net income from the 2001 period to the 2002 period included a decrease in security gains. 

Diluted earnings per share was $0.90 for 2003 compared to $0.74 and $0.86 for 2002 and 2001, respectively.  Return on average assets was 1.12% and return on equity was 12.95% during 2003 compared to 0.96% and 11.09%, respectively for 2002 and 1.11% and 13.85%, respectively for 2001.

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

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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

Net Interest Income

Net interest income, the engine that powers revenue growth for the Corporation, is defined as the difference between income on earning assets and the cost of funds supporting those assets.  Net interest income declined to $143.5 million in 2003 compared to $152.9 million in 2002 and $141.7 million in 2001.  Both interest income and interest expense declined compared to 2002 levels primarily as a result of the dramatic decrease in interest rates that began in 2001 and continued through 2002 into 2003.  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.  The following is an analysis of the average balance sheets and net interest income for each of the three years in the period ended December 31, 2003:




































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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

          (Continued)

Results of Operations (Continued)

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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

          (Continued)

Results of Operations (Continued)

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FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

Net Interest Income (Continued)

Earning assets yields, on a tax-equivalent basis, declined 95 basis points (0.95%) during 2003 to 5.71% from 6.66% registered in 2002, after decreasing from 7.43% in 2001.  The cost of funds for 2003 dropped 72 basis points (0.72%) below 2002 costs of 3.27%, after decreasing 117 basis points (1.17%) from 2001 costs of 4.44%.  Average earning assets were $4,474.6 million and average interest-bearing liabilities were $3,923.6 million for 2003, compared to $4,294.5 million and $3,746.9 million, respectively in 2002.  2002 averages were basically flat when compared to 2001 averages in both components.

Interest and fees on loans declined $15.5 million for 2003 compared to 2002 after declining $22.3 million for 2002 compared to 2001 levels.  The decreases are primarily the result of declining yields in a lower interest rate environment.  Tax-equivalent loan yields fell 67 basis points (0.67%) during 2003 to 6.46% from 7.13% after a decline of 98 basis points (0.98%) during 2002 from the 2001 levels.  Installment loan yields fell 92 basis points (0.92%) and the yields on home equity lines of credit declined 81 basis points (0.81%) compared to the prior year.

The increase in average loan volumes was not enough to offset the reduced interest income caused by declining yields.  During 2003, the Corporation took advantage of the lower interest rate cycle and continued to change the mix of the 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.  The Corporation has recently started to retain fixed rate mortgages with maturities of 15 years or less as well as adjustable rate mortgages.  Average commercial and municipal loans offset the decline in 1-4 family mortgage loans and grew $142.9 million, primarily in shorter term and variable rate lending.  In addition, 2003 included increases in average installment loans of $41.4 million over 2002 levels.  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.

Interest income on investments declined $16.3 million for 2003 compared to 2002 primarily due to interest rate decreases.  Interest rate decreases were also the primary cause of the decline of $10.5 million in interest income on investments in 2002 compared to 2001 levels.  Yields on investments for 2003 continued to decline, falling to 4.64% compared to 5.95% for 2002 and 6.45% for 2001.  As with the loan category, the increase in average investment security volumes was not enough to offset the reduced interest income caused by declining yields.  All categories of interest income on investments were negatively impacted by interest rate changes with the largest decline being registered in the U.S. government agency category, declining $20.4 million due to interest rates declining 162 basis points (1.62%) for 2003 compared to 2002.  This decline was partially offset by an increase of $10.4 million in interest income on U.S.

20

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

Net Interest Income (Continued)

government agency securities as a result of average volume increases from 2003 to 2002.  Prepayment speeds of mortgage backed securities ("MBS") continued to accelerate in 2003 as interest rates continued to decline.  Interest rate changes have a direct impact on prepayment speeds.  As interest rates increase, prepayments tend to decline and average lives of MBS increase.  As interest rates decrease, prepayment speeds tend to increase and average lives of MBS decline, which accelerates the amount of premium amortization that is realized, further reducing the yields in current periods.  Using computer simulation modeling, the Corporation tests the average life and yield volatility of all MBS under various interest rate scenarios on a continuing basis to insure that volatility falls within acceptable limits.  The Corporation holds no "high risk" securities nor does the Corporation own any securities of a single issuer exceeding 10% of shareholders' equity other than U.S. government and agency securities.

Interest on deposits dropped $18.5 million for 2003 compared to 2002 primarily as a result of decreases due to interest rates of $16.9 million.  The Corporation also registered decreases in interest expense of $1.6 million due to declines in average volumes of deposits in 2003 compared to 2002. The rate on savings deposits fell 40 basis points (0.40%) resulting in a decrease to interest expense of $3.2 million for 2003 compared to 2002, while the rate on time deposits for 2003 also declined, down 76 basis points (0.76%), compared to 2002 resulting in a decrease to interest expense of $11.6 million.  The deposit mix changed in 2003 as clients registered a preference for savings products, which jumped $64.8 million or 8.9%, while time deposits dropped $67.6 million or 4.2% due to continued economic uncertainties.  Average interest-bearing demand deposit balances for 2003 also advanced, up $41.1 million over 2002 balances.  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 rose $726 thousand during 2003 primarily as a result of volume increases of $3.8 million which were partially offset by rate decreases of $3.1 million.  Average short-term borrowings rose by $214.2 million for 2003 compared to 2002 while the cost of short-term borrowings fell by 55 basis points (0.55%) compared to the prior year.  All categories of short-term borrowing costs declined from year-to-year.  The increase in short-term borrowings is due in part to $100 million of long-term debt that matured during the fourth quarter of 2002 and was replaced with short-term borrowings.  In addition, 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.



21

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

Net Interest Income (Continued)

Interest expense on long-term debt declined $4.7 million for 2003 compared to the 2002 period as decreases due to volume of $4.3 million were further reduced by decreases due to rate of $376 thousand.  Average long-term debt for 2003 decreased by $75.9 million compared to 2002.  This was due in part to the $100 million of long-term debt that matured during the fourth quarter of 2002 that was replaced by short-term borrowings.  Long-term debt includes additional subordinated debentures in the amount of $30.9 million, which were issued during 2003, bearing an adjustable interest rate based upon the three-month LIBOR and maturing in 30 years.  The proceeds will be used by the Corporation to partially fund the pending acquisition of GA Financial, Inc. ("GAF").  Refer to NOTE 17 for further discussion of subordinated debentures that are included in long-term debt.

Net interest margin (net interest income, on a tax-equivalent basis as a percentage of average earning assets) declined to 3.47% for 2003, a decrease of 33 basis points (0.33%) compared to 2002.  The year-to-year decrease in the margin was due to asset yields declining more quickly than the cost of funds as interest rates fell to historic lows.  Continued pressure on net interest income is anticipated by the Corporation, despite active management of interest rate risk.  The Corporation's use of computer simulation to manage interest rate risk is described in the "Interest Sensitivity" section of this discussion.

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

Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate variances due to interest sensitivity of consolidated assets and liabilities.




22

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

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 $12.8 million in 2003 compared to $12.2 million in 2002 and $11.5 million in 2001.  The allowance for credit losses was $37.4 million at December 31, 2003, which represents a ratio of 1.42% of average loans outstanding, slightly up from the 1.33% reported at December 31, 2002. 

Net charge-offs for 2003 rose $1.1 million over 2002 levels.  The most significant components of this year-to-year change were increases in net charge-offs in the following categories:  commercial loans not secured by real estate (up $579 thousand), loans secured by 1-4 family real estate (up $1.1 million) and construction loans (up $381 thousand).  These increases in net charge-offs were partially offset by decreases in commercial real estate loans of $204 thousand, loans to individuals of $683 thousand and lease financing receivables of $103 thousand.  Net charge-offs as a percent of average loans outstanding at December 31, 2003 were 0.49% compared to 0.46% and 0.43% at December 31, 2002 and 2001, respectively.  For an analysis of credit quality, see the "Credit Review" section of this discussion.




























23

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

The following table presents an analysis of the consolidated allowance for credit losses for the five years ended December 31, 2003 (Dollar Amounts in Thousands):

24

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

Noninterest Income

Net securities gains increased $5.2 million during 2003 to $5.9 million from the $642 thousand reported in 2002 and compared to $3.3 million in 2001.  The securities gains during the 2003 period resulted primarily from the sales of Pennsylvania bank stocks with book values of $7.6 million and fixed rate corporate bonds classified as securities "available for sale" with book values of $35 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.  The securities gains during 2002 resulted primarily from the sales of Pennsylvania bank stocks, U.S. Treasury securities and fixed rate corporate bonds classified as securities "available for sale" with book values of $1.1 million, $1.5 million and $3.0 million, respectively.  The securities gains during 2001 resulted primarily from the sales of fixed rate corporate bonds classified as "available for sale" and Pennsylvania bank stocks with book values of $37.4 million and $12.7 million, respectively.

Trust income of $5.1 million for 2003 was relatively flat compared to 2002 and 2001 where the reported amount was $5.0 million for both years.  Although fee revenue continues to be negatively impacted due to low market values, the market value of the assets managed has started to rebound during the fourth quarter of 2003.  The enhanced referral programs and integrated growth plans for financial affiliates continue to help 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 most significant component of noninterest income and increased $1.5 million for 2003 compared to 2002.  Increases in nonsufficient funds fees ("NSF") of $2.1 million helped to pace the year-to-year rise.  NSF charges were partially offset by decreases in account maintenance fees on deposit accounts of $424 thousand compared to 2002 levels.  Standardization of service fee routines accomplished during conversion of the Corporation's deposit system during 2001 and added emphasis on collection of fees had positive effects on fee revenue for 2003 and 2002.  Management strives to implement reasonable fees for services and closely monitors collection of those fees.

The 2003 period included a $3.0 million gain which occurred when First Commonwealth Bank, a wholly-owned subsidiary of the registrant, sold two of its branch offices.  The sale included $29.2 million in deposit liabilities and $4.4 million in loans associated with the two offices.  The 2001 period included a $777 thousand gain on the sale of one branch.  The sale included $10.4 million in deposit liabilities.

25

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

Noninterest Income (Continued)

Insurance commissions decreased $326 thousand for 2003 after increasing $439 thousand for 2002 from 2001 commissions of $3.2 million.  Decreases in 2003 were primarily due to decreases in annuity commissions.  Insurance commissions for 2002 included increases in personal lines, annuities and employee benefit plans compared to 2001.  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.  This category should also be favorably impacted by the integration of First Commonwealth Financial Advisors into these advisory models.

Income from bank owned life insurance was $4.3 million for 2003 compared to $4.7 million for 2002 and compared to $4.6 million for 2001.  The 2002 period included an additional investment in bank owned life insurance of $5.0 million and the 2001 period included an additional investment of $15.0 million. 

Other income for 2003 was $10.2 million, representing a $1.2 million increase compared to 2002, which followed a $596 thousand decrease from the $9.6 million achieved in 2001.  The increase in other income for 2003 over 2002 levels includes increases in STAR interchange fees and income from the increase in cash surrender value of split dollar life insurance of $629 thousand and $248 thousand, respectively.  Other income for 2002 included an increase in interchange income of $164 thousand.  The 2001 period included a gain related to the sale of a block of 30 year mortgages as well as a gain from the termination of a subsidiary's defined benefit pension plan.   

Noninterest Expense

Total other expenses for 2003 decreased $13.6 million to $112.7 million compared to $126.3 million in 2002.  The 2002 amount represented an increase of $20.4 million compared to $105.9 million reported in 2001.  The decrease in other expenses for 2003 and the increase in other expenses for 2002 were primarily the result of nonrecurring charges that were incurred during 2002 for the previously described litigation settlement and corporate restructuring of $8.0 million and $6.1 million, respectively.  These restructuring charges resulted from the merger of the Corporation's banking subsidiaries, Southwest Bank and First Commonwealth Bank, which occurred in October 2002.  Because of this merger, there was a consolidation of support functions with some staff positions being eliminated.  The personnel within the branches and relationship managers in

26

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

Noninterest Expense (Continued)

corporate services continued to serve in the same capacity in order to ensure a smooth transition.  Also, related to the merger, the structures of all of the Boards of Directors and Board committees for the Corporation were realigned.  As a result of these activities, restructuring charges of $6.1 million are reported on the income statement for the 2002 period.  Ongoing savings from the restructuring were reflected in the 2003 period.  Other charges incurred during 2002 as a part of the restructuring, related principally to writing off obsolete signs and supplies due to the name change under one charter and amounted to $420 thousand.  Also impacting other operating expense for the period were $1.8 million of costs incurred principally in the fourth quarter of 2002 associated with development of the First Commonwealth brand.  Total noninterest expense as a percent of average assets was 2.38% for 2003 compared to 2.76% for 2002 and 2.32% for 2001. 

Employee costs were $61.1 million in 2003, representing 1.29% of average assets compared to $58.1 million and 1.28% of average assets for 2002.  Employee costs for 2001 were $54.5 million and 1.21% of average assets.  Salary costs for the 2003 period increased $1.6 million compared to 2002, while salary costs for the 2002 period increased $2.2 million compared to 2001 levels.  Employee benefit costs rose $1.4 million for 2003 compared to 2002 and also rose $1.4 million for 2002 compared to 2001.  Hospitalization costs continue to reflect the largest increases in employee benefit costs with increases of $1.1 million or 23.1% in 2003 and $943 thousand or 24.7% in 2002.  The Corporation strives to provide quality employee benefits while effectively managing costs.

Net occupancy expense increased $706 thousand during 2003 compared to expenses of $6.8 million during 2002 and $6.5 million for 2001.  The 2003 period included increases in building repairs and maintenance, net rental expense and utilities compared to 2002 costs.  Much of these increases were due to increased utility costs and snow removal expenses resulting from the harsh winter.  The 2003 period also included an increase in the amortization of the purchase accounting adjustments related to premises of $328 thousand over the 2002 period.  An adjustment of $291 thousand was taken during the 2003 period for the write-off of the remaining purchase accounting adjustment for three branch offices that were closed during 2003.  These branch offices were closed and their clients are served at nearby existing branch offices.  The Corporation continues to actively evaluate its branch delivery network to optimize client service in existing branch offices and to continue expansion into growth markets.  The execution of these initiatives may continue to impact occupancy and other expenses in future periods.  Increases in building insurance, building rental costs and building repairs and maintenance in 2002 were only partially offset by declines in most other building expense categories. 

27

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

Noninterest Expense (Continued)

Furniture and equipment expenses increased $126 thousand to $10.1 million in 2003.  Increases were largely due to continued increases in depreciation expense.  Furniture and equipment expenses of $10.0 million for 2002 reflected increases of $920 thousand over 2001 levels resulting primarily from increases in depreciation on computer software and software maintenance offset in part by reduced equipment lease expense.  The 2002 period was also impacted by a full year of depreciation as well as maintenance charges on systems that were placed in service during the later part of 2001.  The systems were replacements of software that is utilized by the Corporation's data processing subsidiary to process loan and deposit accounts.  The new application software has enabled the Corporation's banking subsidiary to provide enhanced products and services, including internet banking.  Technology advances continue to drive the ability of financial services companies to provide expanded services through traditional channels as well as nontraditional and emerging delivery systems to meet the changing needs of our clients.

Outside data processing expense increased $396 thousand for the 2003 period to $2.5 million compared to $2.1 million for the 2002 period and $3.3 million for 2001.  This category was positively impacted in 2002 by the conversion of Southwest Bank from outsourced processing to that provided by a subsidiary of the Corporation.  This category will be unfavorably impacted by the acquisition of PFC until the systems, which are processed through an outsourced processing vendor, are converted to the systems that are provided by a subsidiary of the Corporation.  These conversions are scheduled to be completed by the end of the second quarter of 2004.  Outside data processing costs are managed by the Corporation's data processing subsidiary.  Its needs are evaluated based on technology, efficiency and cost considerations.

Other operating expenses decreased $3.4 million to $27.7 million for 2003.  Other operating expenses for 2002 increased $2.9 million compared to $28.2 million for 2001.  The 2003 period included decreases in other professional fees and services, advertising, expenses related to training and seminars, telephone and loss on the sale of other assets (primarily vehicles previously leased) in the amounts of $1.4 million, $637 thousand, $428 thousand, $420 thousand and $402 thousand, respectively, compared to 2002 costs.  Directors' fees for the 2003 period reflected decreases of $349 thousand resulting from the restructuring of the Corporation's Boards of Directors and committees during 2002. 

The 2002 period includes increased losses on sale of assets of $472 thousand, due primarily to the loss on sale of vehicles previously leased, compared to 2001.  Other professional fees in 2002 rose by $822 thousand over 2001 and included consulting fees related to implementation of the Corporation's "Balanced Scorecard" performance measurement system, enhancements to product and customer profitability systems, corporate restructuring and common branding and identity.  Consultants were also


28

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Results of Operations (Continued)

Noninterest Expense (Continued)

utilized to assist in the ongoing efforts to develop a world class sales culture and to generate new deposit dollars and relationships.  Corporate restructuring and movement towards a sales culture also impacted the decision to have employee benefit plans reviewed by outside specialists during 2002.  Advertising and promotion expenses rose a combined $2.3 million for the 2002 period due partially to expenditures related to the $1.8 million launch of the new corporate brand and identity.  This exciting campaign was designed to educate and build enthusiasm among current as well as potential clients and the communities we serve.  Also impacting these categories were expenses incurred in the successful marketing campaign for free checking products introduced during 2002.  These products are expected to have a favorable impact on deposit growth, interest expense and service charge revenue in future periods as well as providing potential add-on sales of other financial products and services. 

Income tax expense was $13.3 million during 2003 representing an increase of $4.4 million above the 2002 amount of $8.9 and compared to $15.3 million in 2001.  The Corporation's effective tax rate was 19.9% for 2003 compared to 17.0% for 2002 and 23.3% for 2001.  Although the 2003 effective tax rate was an increase over the 2002 rate, it was still favorable to the statutory tax rate and the 2001 effective rate.  The Corporation's 2003 effective tax rate continues to be favorably impacted by tax-free municipal income.  Pretax income in the 2002 period was reduced by the $8.0 million litigation settlement as well as the $6.1 million restructuring charges.  The decline in pretax income from the 2001 period allowed the effect of nontaxable income to have a greater impact on the effective tax rate in 2002 than in 2001. 

Aggregate Contractual Obligations and Off-Balance Sheet Arrangements

The following table summarizes the Corporation's contractual obligations to make future payments as of December 31, 2003.  Payments for borrowings do not include interest.  Payments related to operating leases are based on actual payments specified in the underlying contracts.

(Dollar Amounts in Thousands)

29

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Aggregate Contractual Obligations and Off-Balance Sheet Arrangements
(Continued)

The preceding table excludes unamortized premiums and discounts on Federal Home Loan Bank advances because these premiums and discounts do not represent future cash obligations.  The preceding table also excludes the Corporation's cash obligations upon maturity of certificates of deposit whose maturities are described in NOTE 15 to the "Consolidated Financial Statements."  Subordinated debentures in the amount of $8,292 thousand previously issued by PFC and due in 2028 were called and subsequently paid in full in January 2004 and are included as due within 1 year above. 

The following table summarizes the Corporation's off-balance sheet commitments as of December 31, 2003.  Commitments to extend credit and standby letters of credit are presented at contractual amounts; however, since many of these commitments are expected to expire unused or only partially used, the total amounts of these commitments do not necessarily reflect future cash requirements.

(Dollar Amounts in Thousands)

Commitments to extend credit include unfunded loan commitments as well as the undrawn portions of revolving and closed-end lines of credit as of December 31, 2003.  The contractual provisions of these commitments normally include fixed expiration dates or termination clauses, specific interest rates and clauses indicating that funding is contingent upon borrowers maintaining stated credit standards at the time of loan funding. 

Standby letters of credit are written conditional commitments issued by the Corporation to guarantee the performance of a client to a third party.  In the event the client does not perform in accordance with the terms of the agreement with the third party, the Corporation would be required to fund the commitment.  The maximum potential amount of future payments the Corporation could be required to make is represented by the contractual amount of the commitment.  If the commitment is funded, the Corporation would be entitled to seek repayment from the client.  The Corporation's policies generally require that standby letter of credit arrangements contain security and debt convenants similar to those contained in loan agreements. 









30

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

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 deposits (primary source) and the maturity or repayment of earning assets, such as securities and loans.  As an additional secondary source, short-term liquidity needs may be provided through the use of overnight Federal funds purchased, borrowings through the use of lines available for repurchase agreements and borrowings from the Federal Reserve Bank.  Additionally, the 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.

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 risk 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.  Deposits increased $244.2 million in 2003 and included increases in savings and noninterest-bearing demand deposits, which were partially offset by decreases in time deposits.  Deposits in the amount of $190.4 million were acquired with the BankPittsburgh acquisition.  Noncore deposits, which are time deposits in denominations of $100 thousand or more, represented 12.1% of total deposits at December 31, 2003.  Noncore deposits decreased by $91.0 million in 2003 and $7.6 million in 2002 due in part to changes in public funds balances. 
















31

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Liquidity (Continued)

Although the Corporation's primary source of funds remains traditional deposits from within the communities served by its banking subsidiary, future sources of deposits utilized could include the use of brokered time deposits offered outside the Corporation's traditional market area.  Time deposits of $100 thousand or more at December 31, 2003, 2002 and 2001 had remaining maturities as follows:

Loans, net of unearned income and the allowance for credit losses, increased $213.4 million during 2003 as increases were noted in all categories with the exception of leases.  Most notable were increases in commercial loans secured by real estate of $108.6 million and increases in residential loans secured by real estate of $82.1 million compared to year-end 2002.  Net loans in the amount of $245.8 million were acquired with the BankPittsburgh acquisition.
























32

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations (Continued)

Liquidity (Continued)

Below is a schedule of loans by classification for the five years ended December 31, 2003: