Results of Operation

Summary of Results

First Commonwealth has experienced the following developments during the first quarter of 2009 compared to the first quarter of 2008.

• Net interest income increased 23.2%.

• Net interest margin, on a tax equivalent basis, improved 44 basis points.

• Total loans increased 14.5% and commercial loans increased 24.9%.

• Average low cost demand and savings deposits increased 13.3%.

• Non-accrual loans decreased 40.5% primarily due to transfers into other real estate owned.

• First Commonwealth Bank opened a new community banking office in Butler and relocated its New Alexandria office to a more visible, high traffic location.

• Impairment losses of $9.9 million were recorded on collateralized debt obligations and bank equity securities.

• Provision for credit losses increased $5.1 million.

Our fundamental operating results were solid although we experienced a significant increase in the provision for credit losses as a result of increased net credit losses and we recorded impairment losses related to trust preferred collateralized debt obligations and bank equity securities. First Commonwealth achieved growth in loans and deposits and improvement in credit quality and remains well-capitalized with significant liquidity.

The banking industry continued to see deterioration in credit quality and investment write-downs. First Commonwealth is not a participant or underwriter in the sub-prime mortgage loan marketplace and therefore does not have any direct exposure to risks associated with this activity. All mortgage backed securities in First Commonwealth's investment portfolio are AAA rated and backed by U.S. Government agencies and U.S. Government sponsored-enterprises.

Net income for the first quarter 2009 was $1.7 million or $0.02 per diluted share, as compared to $11.1 million or $0.15 per diluted share for the same period in 2008. The decrease in net income was primarily the result of non-cash charges of $9.9 million ($6.4 million after tax) for other-than-temporary impairment recorded on four trust preferred collateralized debt obligations and four bank equity securities in addition to the $5.1 million ($3.2 million after tax) increase in the provision for credit losses.

Average diluted shares in the first quarter 2009 were 16.6% greater than the comparable quarter in 2008 primarily due to the issuance of 11.5 million shares of common stock in connection with the capital raising transaction completed on November 5, 2008. First quarter 2009 annualized return on average equity and average assets was 1.03% and 0.11%, respectively, compared to 7.73% and 0.75% for the prior year period.

ITEM 2. Management's Discussion and Analysis of Financial Condition

Results of Operations (Continued)

Summary of Results (Continued)

The following table illustrates the impact on diluted earnings per share of changes in certain components of net income for the first three months of 2009 compared to the first three months of 2008, after adjusting for the affect of the 11.5 million additional shares issued in November 2008:

            Net income per diluted share, prior year period   $  0.15
            Increase (decrease) from changes in:
            Net interest income                                  0.13
            Provision for credit losses                         (0.07 )
            Impairment losses on securities                     (0.13 )
            Net securities gains                                (0.01 )
            Trust income                                        (0.01 )
            Service charges on deposit accounts                 (0.01 )
            Salaries and employee benefits                      (0.03 )
            FDIC insurance                                      (0.02 )
            Provision for income taxes                           0.02

            Net income per diluted share                      $  0.02

Net Interest Income

Net interest income, which is our primary source of revenue, is the difference between interest income from earning assets (loans and securities) and interest expense paid on liabilities (deposits, short-term borrowings and long-term debt). The amount of net interest income is affected by both changes in the level of interest rates and the amount and composition of earning assets and interest-bearing liabilities. The net interest margin is expressed as the percentage of net interest income, on a fully tax equivalent basis, to average earning assets. To compare the tax exempt asset yields to taxable yields, amounts are adjusted to the pretax equivalent amounts based on the marginal corporate Federal income tax rate of 35%. The tax equivalent adjustment to net interest income for the first quarter of 2009 was $3.2 million compared to $3.6 million in the first quarter of 2008.

Net interest income increased $9.5 million, or 23.2%, in the first quarter of 2009 from the first quarter of 2008 as a result of both growth in earning assets and a decline in the cost of interest-bearing liabilities. Interest income decreased $6.9 million, or 8.4%, as the contribution from loan growth was negatively offset by lower interest rates. Interest expense declined $16.4 million, or 40.2%, as a 144 basis point decline on rates paid for interest-bearing liabilities more than offset additional interest expense resulting from a $281.4 million, or 5.8%, increase in average interest-bearing liabilities.

Average interest-earning assets increased $392.2 million, or 7.2%, in the first quarter of 2009 compared to the first quarter of 2008 driven primarily by a $624.8 million, or 16.3%, increase in average loans. This loan growth was partially funded by investment run-off and short-term borrowings. Average investment securities decreased $232.8 million, or 14.2%, and a portion of the increase of $639.7 million in average short-term borrowings was also due to refinancing $190.0 million of longer term Federal Home Loan Bank advances in the fourth quarter of 2008. These advances were due to mature in the first seven months of 2009 and were replaced with lower costing overnight borrowings.

ITEM 2. Management's Discussion and Analysis of Financial Condition

Results of Operations (Continued)

Net Interest Income (Continued)

In the first quarter of 2009, average interest-bearing liabilities increased $281.4 million when compared to the first quarter of 2008. Management continued to supplement deposit growth with wholesale borrowings due to the significant spread between wholesale borrowing costs and rates paid on time deposits. In the first quarter of 2009 compared to the first quarter of 2008, average time deposits decreased $337.8 million, or 15.6%, which were mostly offset with increases in lower costing transaction and savings deposits. Average noninterest-bearing demand deposits increased $50.4 million, or 9.9%, average interest-bearing demand deposits increased $12.1 million, or 2.1%, and average savings deposits increased $226.3 million, or 20.8%.

The net interest margin on a tax equivalent basis for the first quarter 2009 increased 44 basis points to 3.72% compared with 3.28% in the corresponding period last year. The increase in our net interest margin can be attributed to increased loan volume and declines in the cost of interest-bearing liabilities exceeding the declines in yields on total interest-earning assets. The decrease in the cost of interest-bearing liabilities can be attributed to lower interest rates, combined with a shift in the mix of our liabilities to low cost deposits and short-term borrowings from time deposits and long-term debt. First Commonwealth uses simulation models to help manage exposure to changes in interest rates. A discussion of the effects of changing interest rates is included in the "Market Risk" section of this discussion.

Interest and fees on loans decreased $3.8 million, or 6.1%, as the 124 basis point decline in the yield on loans from 6.69% to 5.45% was partially offset by the additional income generated by the growth in average loans. Interest income on investment securities decreased $3.1 million, or 15.6%, primarily as a result of the decline in average investment securities.

Interest on deposits decreased $11.5 million due to declines in both rates paid and balances. The decline in rates was the result of the lower interest rate environment. The decline in balances was primarily due to a reduction in higher yielding time deposits. Interest expense on short-term borrowings decreased $2.4 million, or 63.6%, as the growth in average balances was offset by the 254 basis point decline in rates paid for these borrowings. Interest expense on long-term debt decreased $2.6 million due to a decrease in the average balance of $259.0 million, or 47.2%.

           FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

      ITEM 2. Management's Discussion and Analysis of Financial Condition

                     and Results of Operations (Continued)

Results of Operations (Continued)

Net Interest Income (Continued)



The following is an analysis of the average balance sheets and net interest
income for the three months ended March 31:



                                                 Average Balance Sheets and Net Interest Income Analysis
                                                      2009                                    2008
                                                                 (dollars in thousands)
                                                                   Yield                                   Yield
                                         Average       Income/       or          Average       Income/       or
                                         Balance       Expense    Rate (a)       Balance       Expense    Rate (a)
Assets
Interest-earning assets:
Interest-bearing deposits with banks   $       813     $      1        .50 %   $       546     $      5       3.71 %
Tax-free investment securities             258,227        2,894       6.99         320,191        3,595       6.95
Taxable investment securities            1,150,320       13,771       4.86       1,321,117       16,140       4.91
Federal funds sold                             -0-          -0-       0.00              43          -0-       2.86
Loans, net of unearned income (b)(c)     4,460,337       58,275       5.45       3,835,587       62,067       6.69

Total interest-earning assets            5,869,697       74,941       5.40       5,477,484       81,807       6.27

Noninterest-earning assets:
Cash                                        74,117                                  73,860
Allowance for credit losses                (53,392 )                               (42,358 )
Other assets                               528,270                                 487,546

Total noninterest-earning assets           548,995                                 519,048

Total Assets                           $ 6,418,692                             $ 5,996,532

Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (d)   $   585,270     $    549       0.38 %   $   573,121     $  1,747       1.23 %
Savings deposits (d)                     1,315,349        4,411       1.36       1,089,059        5,348       1.98
Time deposits                            1,826,609       14,616       3.25       2,164,394       23,938       4.45
Short-term borrowings                    1,133,497        1,347       0.48         493,776        3,705       3.02
Long-term debt                             290,013        3,419       4.78         549,016        5,985       4.38

Total interest-bearing liabilities       5,150,738       24,342       1.92       4,869,366       40,723       3.36

Noninterest-bearing liabilities and
capital:
Noninterest-bearing demand deposits
(d)                                        560,577                                 510,150
Other liabilities                           45,381                                  38,054
Shareholders' equity                       661,996                                 578,962

Total noninterest-bearing funding
sources                                  1,267,954                               1,127,166

Total Liabilities and Shareholders'
Equity                                 $ 6,418,692                             $ 5,996,532

Net Interest Income and Net Yield on
Interest-Earning Assets                                $ 50,599       3.72 %                   $ 41,084       3.28 %

(a) Yields on interest-earning assets have been computed on a tax equivalent basis using the 35% Federal income tax statutory rate.

(b) Income on nonaccrual loans is accounted for on the cash basis, and the loan balances are included in interest-earning assets.

(c) Loan income includes loan fees earned.

(d) Average balances do not include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits, which were made for regulatory purposes.

           FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

      ITEM 2. Management's Discussion and Analysis of Financial Condition

                     and Results of Operations (Continued)

Results of Operations (Continued)

Net Interest Income (Continued)



The following table shows the effect of changes in volumes and rates on interest
income and interest expense for the three months ended March 31:



                                                   Analysis of Changes in Net Interest Income
                                                              2009 Change from 2008
                                                             (dollars in thousands)
                                                                     Change                 Change
                                               Total                 Due to                 Due to
                                               Change                Volume                Rate (a)
Interest-earning assets:
Interest-bearing deposits with banks       $           (4 )       $           2         $           (6 )
Tax-free investment securities                       (701 )              (1,071 )                  370
Taxable investment securities                      (2,369 )              (2,085 )                 (284 )
Federal funds sold                                    -0-                   -0-                    -0-
Loans                                              (3,792 )              10,392                (14,184 )

Total interest income                              (6,866 )               7,238                (14,104 )

Interest-bearing liabilities:
Interest-bearing demand deposits                   (1,198 )                  37                 (1,235 )
Savings deposits                                     (937 )               1,111                 (2,048 )
Time deposits                                      (9,322 )              (3,736 )               (5,586 )
Short-term borrowings                              (2,358 )               4,804                 (7,162 )
Long-term debt                                     (2,566 )              (2,823 )                  257

Total interest expense                            (16,381 )                (607 )              (15,774 )

Net interest income                        $        9,515         $       7,845         $        1,670

(a) 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.

Provision for Credit Losses

The provision for credit losses is determined based on management's estimates of the appropriate level of allowance for credit losses needed to absorb probable losses inherent in the loan portfolio, after giving consideration to charge-offs and recoveries for the period. The provision for credit losses is an amount added to the allowance against which credit losses are charged.

The provision for credit losses for the first quarter of 2009 increased $5.1 million compared to the first quarter of 2008 as a result of loan growth, trends in losses and increased allocations for new nonperforming loans.

Net credit losses were $19.5 million in the first quarter of 2009 compared to $4.0 million in the first quarter of 2008. Three commercial credit relationships accounted for $16.3 million, or 83.6%, of the net credit losses in the first quarter of 2009. One of the commercial credit relationships was an out-of-market participation loan that was a real estate-construction loan, while the other two commercial credit relationships were in-market loans secured by equipment and real estate.

ITEM 2. Management's Discussion and Analysis of Financial Condition

Results of Operations (Continued)

Provision for Credit Losses (Continued)

The allowance for credit losses was $41.5 million at March 31, 2009, which represents a ratio of 0.93% of average loans outstanding compared to 1.08% reported at March 31, 2008. Management believes that the allowance for credit losses is at a level deemed sufficient to absorb losses inherent in the loan portfolio at March 31, 2009.

Below is an analysis of the consolidated allowance for credit losses for the three months ended March 31:

                                                        2009            2008
                                                       (dollars in thousands)
      Balance, beginning of year                    $     52,759    $     42,396
      Loans charged off:
      Commercial, financial and agricultural               7,907           1,018
      Loans to individuals                                 1,234             933
      Real estate-construction                             4,326              26
      Real estate-commercial                               5,177           2,029
      Real estate-residential                              1,034             389

      Total loans charged off                             19,678           4,395

      Recoveries of loans previously charged off:
      Commercial, financial and agricultural                  88             153
      Loans to individuals                                   118             138
      Real estate-construction                               -0-             -0-
      Real estate-commercial                                   9             136
      Real estate-residential                                 11               6

      Total recoveries                                       226             433

      Net credit losses                                   19,452           3,962
      Provision charged to expense                         8,242           3,179

      Balance, end of period                        $     41,549    $     41,613

           FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

      ITEM 2. Management's Discussion and Analysis of Financial Condition

                     and Results of Operations (Continued)

Results of Operations (Continued)

Non-Interest Income



The following table presents the components of non-interest income for the three
months ended March 31:



                                                        2009             2008
                                                      (dollars in thousands)
       Non-Interest Income
       Trust income                                 $      1,087       $  1,532
       Service charges on deposit accounts                 3,837          4,425
       Insurance and retail brokerage commissions          1,616          1,277
       Income from bank owned life insurance               1,138          1,487
       Card related interchange income                     1,896          1,753
       Other operating income                              3,008          2,481

       Subtotal                                           12,582         12,955
       Net securities gains                                   24            501
       Net impairment losses                              (9,866 )          -0-

       Total non-interest income                    $      2,740       $ 13,456

Total non-interest income for the first quarter of 2009 decreased $10.7 million, or 79.6%, from the first quarter of 2008, primarily due to impairment losses on securities, reduced service charges on deposit accounts and reduced trust income. These reductions were partially offset by higher insurance and retail brokerage commissions, increases in card related interchange income, and higher letter of credit fees.

The $9.9 million net impairment losses were due to $8.4 million in credit losses recognized on four pooled trust preferred collateralized debt obligations and $1.5 million impairment recognized on four bank equity securities.

Service charges on deposit accounts decreased $588 thousand, or 13.3%, primarily due to reduced overdraft charges as a result of a drop in the frequency of occurrences.

The reduction in trust income was primarily due to a sharp decline in the market value of assets under management.

Insurance and retail brokerage commissions increased $339 thousand, or 26.5%, mainly due to higher sales, additional producers and an enhanced calling program.

Card related interchange income includes income on debit, credit and ATM cards that are issued to consumers and/or businesses. Card related interchange income increased $143 thousand, or 8.2%, primarily due to higher usage.

           FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

      ITEM 2. Management's Discussion and Analysis of Financial Condition

                     and Results of Operations (Continued)

Results of Operations (Continued)

Non-Interest Expense



The following table presents the components of non-interest expense for the
three months ended March 31:



                                                    2009            2008
                                                   (dollars in thousands)
         Non-Interest Expense
         Salaries and employee benefits         $     22,500    $     20,330
         Net occupancy expense                         4,000           3,907
         Furniture and equipment expense               2,975           3,078
         Advertising expense                             513             628
         Data processing expense                       1,132           1,051
         Pennsylvania shares tax expense               1,331           1,271
         Intangible amortization                         743             831
         Collection and repossession expense             901             615
         FDIC insurance                                1,521             123
         Other professional fees and services          1,063             750
         Other operating expenses                      6,669           6,272

         Total non-interest expense             $     43,348    $     38,856

Total non-interest expense for the first quarter of 2009 increased $4.5 million, or 11.6%, over the corresponding period in 2008. This increase was primarily due to higher salaries and benefits and increased FDIC insurance.

Salaries and employee benefits increased $2.2 million, or 10.7%, with salary expense increasing $924 thousand, or 6.1%, and benefit expense increasing $1.2 million, or 24.5%. The salary expense increase was due to a higher number of employees, annual merit increases in the first quarter and a higher accrual for sales related incentive payments. The increase in benefit expense was mainly due to higher hospitalization and 401(K) expenses. Full time equivalent employees were 1,648 at the end of the first quarter of 2009 compared to 1,586 at the end of the first quarter of 2008.

FDIC insurance increased $1.4 million due to higher premiums but does not include any one time proposed assessments by the FDIC.

Other operating expenses increased $397 thousand, or 6.3%, for the first quarter 2009 compared to the same period in 2008 due mainly to increased loan processing fees relating to loan volume, higher telephone related expenses and legal fees.

Pennsylvania shares tax expense increased $60 thousand, or 4.7%, for the first quarter of 2009 compared to the same period in 2008. The Pennsylvania shares tax is imposed annually on the book value of shares of banks and trust companies that conduct business in Pennsylvania. The book value is calculated using a six-year rolling average of the book value of paid-in capital, surplus and undivided profits, with deductions taken for U.S. Government obligations, and beginning on January 1, 2008, goodwill from acquisitions after June 30, 2001. The current tax rate is 1.25 %.

ITEM 2. Management's Discussion and Analysis of Financial Condition

Results of Operations (Continued)

Income Tax

The provision for income taxes for the first quarter of 2009 decreased $1.3 million compared to the same period in 2008 primarily due to the decrease in income before taxes offset by a decline in nontaxable income and tax credits. Our effective tax rate was 3.5% in the first quarter of 2009 compared to 11.1% in the first quarter of 2008. Nontaxable income and tax credits had a greater impact on the effective tax rate during the first quarter of 2009 compared to the first quarter of 2008 due to lower pretax income.

LIQUIDITY

Liquidity refers to our ability to meet the cash flow requirements of depositors and borrowers as well as our operating cash needs with cost-effective funding. We generate funds to meet these needs primarily through the core deposit base of First Commonwealth Bank and the maturity or repayment of loans and other interest-earning assets, including investments. Proceeds from the maturity and . . .