UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

ý			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

Or

☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number 001-11138

First Commonwealth Financial Corporation

(Exact name of registrant as specified in its charter)

Pennsylvania									25-1428528
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)
601 Philadelphia Street
Indiana			PA						15701
(Address of principal executive offices)									(Zip Code)

724-349-7220

(Registrant’s telephone number, including area code)

N/A

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

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

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock, $1.00 par value			FCF			New York Stock Exchange

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer  ¨    Smaller reporting company ☐ Emerging growth company  ☐

Non-accelerated filer  ¨ (Do not check if a smaller reporting company) 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No x

The number of shares outstanding of issuer’s common stock, $1.00 par value, as of May 6, 2022, was 94,316,777.

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Table of Contents

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

FORM 10-Q

INDEX

 

						PAGE
PART I.			Financial Information
ITEM 1.			Financial Statements and Supplementary Data
			Included in Part I of this report:
			First Commonwealth Financial Corporation and Subsidiaries
			Consolidated Statements of Financial Condition (Unaudited)			3
			Consolidated Statements of Income (Unaudited)			4
			Consolidated Statements of Comprehensive Income (Unaudited)			6
			Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)			7
			Consolidated Statements of Cash Flows (Unaudited)			8
			Notes to the Unaudited Consolidated Financial Statements			9
ITEM 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			47
ITEM 3.			Quantitative and Qualitative Disclosures About Market Risk			66
ITEM 4.			Controls and Procedures			66
PART II.			Other Information
ITEM 1.			Legal Proceedings			67
ITEM 1A.			Risk Factors			67
ITEM 2.			Unregistered Sales of Equity Securities and Use of Proceeds			67
ITEM 3.			Defaults Upon Senior Securities			67
ITEM 4.			Mine Safety Disclosures			67
ITEM 5.			Other Information			67
ITEM 6.			Exhibits			68
			Signatures			69

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Table of Contents

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)

			March 31, 2022						December 31, 2021
			(dollars in thousands, except share data)
Assets
Cash and due from banks			$	120,289					$	84,738
Interest-bearing bank deposits			404,516						310,634
Securities available for sale, at fair value			933,204						1,041,380
Securities held to maturity, at amortized cost (Fair value of $477,088 and $536,651 at March 31, 2022 and December 31, 2021, respectively)			512,911						541,311
Other investments			13,142						12,838
Loans held for sale			10,506						18,583
Loans and leases:
Portfolio loans and leases			6,952,112						6,839,230
Allowance for credit losses			(91,188)						(92,522)
Net loans and leases			6,860,924						6,746,708
Premises and equipment, net			121,470						120,775
Other real estate owned			667						642
Goodwill			303,328						303,328
Amortizing intangibles, net			10,738						11,188
Bank owned life insurance			225,811						224,700
Other assets			124,618						128,268
Total assets			$	9,642,124					$	9,545,093
Liabilities
Deposits (all domestic):
Noninterest-bearing			$	2,719,645					$	2,658,782
Interest-bearing			5,452,202						5,323,716
Total deposits			8,171,847						7,982,498
Short-term borrowings			95,748						138,315
Subordinated debentures			170,815						170,775
Other long-term debt			5,398						5,573
Capital lease obligation			5,799						5,921
Total long-term debt			182,012						182,269
Other liabilities			124,898						132,639
Total liabilities			8,574,505						8,435,721
Shareholders’ Equity
Preferred stock, $1 par value per share, 3,000,000 shares authorized, none issued			—						—
Common stock, $1 par value per share, 200,000,000 shares authorized; 113,914,902 shares issued at March 31, 2022 and December 31, 2021, and 94,299,039 and 94,233,152 shares outstanding at March 31, 2022 and December 31, 2021, respectively			113,915						113,915
Additional paid-in capital			496,627						496,121
Retained earnings			708,149						691,260
Accumulated other comprehensive loss, net			(68,160)						(8,768)
Treasury stock (19,615,863 and 19,681,750 shares at March 31, 2022 and December 31, 2021, respectively)			(182,912)						(183,156)
Total shareholders’ equity			1,067,619						1,109,372
Total liabilities and shareholders’ equity			$	9,642,124					$	9,545,093

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

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Table of Contents

ITEM 1. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

									For the Three Months Ended
									March 31,
															2022						2021
															(dollars in thousands, except share data)
Interest Income
Interest and fees on loans and leases															$	64,394					$	68,313
Interest and dividends on investments:
Taxable interest															6,478						5,364
Interest exempt from federal income taxes															126						164
Dividends															135						143
Interest on bank deposits															111						77
Total interest income															71,244						74,061
Interest Expense
Interest on deposits															813						2,052
Interest on short-term borrowings															21						31
Interest on subordinated debentures															2,129						2,128
Interest on other long-term debt															52						346
Interest on lease obligations															57						62
Total interest expense															3,072						4,619
Net Interest Income															68,172						69,442
Provision for credit losses															1,964						(4,390)
Net Interest Income after Provision for Credit Losses															66,208						73,832
Noninterest Income
Net securities gains															2						6
Trust income															2,713						2,516
Service charges on deposit accounts															4,615						4,047
Insurance and retail brokerage commissions															2,272						2,172
Income from bank owned life insurance															1,508						1,951
Gain on sale of mortgage loans															1,282						5,046
Gain on sale of other loans and assets															2,319						1,690
Card-related interchange income															6,490						6,427
Derivatives mark to market															347						1,430
Swap fee income															453						146
Other income															1,975						1,924
Total noninterest income															23,976						27,355
Noninterest Expense
Salaries and employee benefits															30,932						28,671
Net occupancy															4,787						4,773
Furniture and equipment															3,730						3,948
Data processing															3,188						3,052
Advertising and promotion															1,226						1,324
Pennsylvania shares tax															1,005						832
Intangible amortization															862						866
Other professional fees and services															1,221						751
FDIC insurance															698						696
Loss on sale or write-down of assets															75						9
Litigation and operational losses															600						479
COVID-19 related															17						74
Branch consolidation															98						40
Other operating															7,285						6,344
Total noninterest expense															55,724						51,859
Income Before Income Taxes															34,460						49,328
Income tax provision															6,734						9,558
Net Income															$	27,726					$	39,770
Average Shares Outstanding															94,078,699						96,026,866

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

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Average Shares Outstanding Assuming Dilution															94,311,324						96,233,647
Per Share Data: Basic Earnings per Share															$	0.29					$	0.41
Diluted Earnings per Share															$	0.29					$	0.41
Cash Dividends Declared per Common Share															$	0.115					$	0.110

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

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Table of Contents

ITEM 1. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

									For the Three Months Ended
									March 31,
															2022						2021
															(dollars in thousands)
Net Income															$	27,726					$	39,770
Other comprehensive loss, before tax benefit:
Unrealized holding losses on securities arising during the period															(57,251)						(15,804)
Less: reclassification adjustment for gains on securities included in net income															(2)						(6)
Unrealized holding (losses) gains on derivatives arising during the period															(17,926)						1,842
Total other comprehensive loss, before tax benefit															(75,179)						(13,968)
Income tax benefit related to items of other comprehensive loss															15,787						2,933
Total other comprehensive loss															(59,392)						(11,035)
Comprehensive (Loss) Income															$	(31,666)					$	28,735

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

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ITEM 1. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

			Shares Outstanding						Common Stock						Additional Paid-in- Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss), net						Treasury Stock												Total Shareholders’ Equity
			(dollars in thousands, except share and per share data)
Balance at December 31, 2021			94,233,152						$	113,915					$	496,121					$	691,260					$	(8,768)					$	(183,156)											$	1,109,372
Net income																					27,726																								27,726
Other comprehensive loss																											(59,392)																		(59,392)
Cash dividends declared ($0.115 per share)																					(10,837)																								(10,837)
Treasury stock acquired			(90,614)																														(1,488)												(1,488)
Treasury stock reissued			157,251												499						—												1,448												1,947
Restricted stock			(750)						—						7						—												284												291
Balance at March 31, 2022			94,299,039						$	113,915					$	496,627					$	708,149					$	(68,160)					$	(182,912)											$	1,067,619

			Shares Outstanding						Common Stock						Additional Paid-in- Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss), net						Treasury Stock												Total Shareholders’ Equity
			(dollars in thousands, except share and per share data)
Balance at December 31, 2020			96,130,751						$	113,915					$	494,683					$	596,614					$	17,233					$	(153,828)											$	1,068,617
Net income																					39,770																								39,770
Other comprehensive loss																											(11,035)																		(11,035)
Cash dividends declared ($0.110 per share)																					(10,578)																								(10,578)
Treasury stock acquired			(123,395)																														(1,643)												(1,643)
Treasury stock reissued			158,531												681						—												1,360												2,041
Restricted stock			82,589						—						356						—												(48)												308
Balance at March 31, 2021			96,248,476						$	113,915					$	495,720					$	625,806					$	6,198					$	(154,159)											$	1,087,480

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

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Table of Contents

ITEM 1. Financial Statements and Supplementary Data (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

			For the Three Months Ended
			March 31,
			2022						2021
Operating Activities			(dollars in thousands)
Net income			$	27,726					$	39,770
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses			1,964						(4,390)
Deferred tax expense			1,807						3,859
Depreciation and amortization			2,560						3,003
Net gains on securities and other assets			(3,908)						(8,452)
Net amortization of premiums and discounts on securities			635						1,268
Income from increase in cash surrender value of bank owned life insurance			(1,508)						(1,621)
Decrease in interest receivable			45						1,899
Mortgage loans originated for sale			(51,833)						(121,280)
Proceeds from sale of mortgage loans			58,198						140,780
Increase in interest payable			1,282						1,128
(Decrease) increase in income taxes payable			(4,137)						5,626
Other-net			(1,632)						(10,360)
Net cash provided by operating activities			31,199						51,230
Investing Activities
Transactions with securities held to maturity:
Proceeds from maturities and redemptions			28,369						28,936
Purchases			(200)						(135,130)
Transactions with securities available for sale:
Proceeds from maturities and redemptions			50,521						206,993
Purchases			—						(435,563)
Purchases of FHLB stock			(505)						(1,558)
Proceeds from the redemption of FHLB stock			201						340
Proceeds from bank owned life insurance			—						2,931
Proceeds from sale of loans			21,767						15,483
Proceeds from sale of other assets			1,461						2,226
Net (increase) decrease in loans and leases			(133,137)						2,970
Purchases of premises and equipment and other assets			(4,419)						(2,322)
Net cash used in investing activities			(35,942)						(314,694)
Financing Activities
Net decrease in other short-term borrowings			(42,566)						(6,611)
Net increase in deposits			189,364						430,633
Repayments of other long-term debt			(175)						(169)
Repayments of capital lease obligation			(122)						(115)
Dividends paid			(10,837)						(10,578)
Purchase of treasury stock			(1,488)						(1,643)
Net cash provided by financing activities			134,176						411,517
Net increase in cash and cash equivalents			129,433						148,053
Cash and cash equivalents at January 1			395,372						356,581
Cash and cash equivalents at March 31			$	524,805					$	504,634

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

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Basis of Presentation

The accounting and reporting policies of First Commonwealth Financial Corporation and its subsidiaries (“First Commonwealth” or the “Company”) conform with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements and accompanying notes. Actual realized amounts could differ from those estimates. In the opinion of management, the unaudited interim consolidated financial statements include all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of First Commonwealth’s financial position, results of operations, comprehensive income, cash flows and changes in shareholders’ equity as of and for the periods presented. Certain information and Note disclosures normally included in Consolidated Financial Statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC.

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and interest-bearing bank deposits. Generally, federal funds are sold for one-day periods.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full year of 2022. These interim financial statements should be read in conjunction with First Commonwealth’s 2021 Annual Report on Form 10-K.

Note 2 Supplemental Comprehensive Income Disclosures

The following table identifies the related tax effects allocated to each component of other comprehensive income (“OCI”) in the unaudited Consolidated Statements of Comprehensive Income. Reclassification adjustments related to securities available for sale are included in the "Net securities gains" line in the unaudited Consolidated Statements of Income.

			For the Three Months Ended March 31,
			2022																		2021
			Pretax Amount						Tax (Expense) Benefit						Net of Tax Amount						Pretax Amount						Tax (Expense) Benefit						Net of Tax Amount
			(dollars in thousands)
Unrealized losses on securities:
Unrealized holding losses on securities arising during the period			$	(57,251)					$	12,023					$	(45,228)					$	(15,804)					$	3,319					$	(12,485)
Reclassification adjustment for gains on securities included in net income			(2)						—						(2)						(6)						1						(5)
Total unrealized losses on securities			(57,253)						12,023						(45,230)						(15,810)						3,320						(12,490)
Unrealized (losses) gains on derivatives:
Unrealized holding (losses) gains on derivatives arising during the period			(17,926)						3,764						(14,162)						1,842						(387)						1,455
Total unrealized (losses) gains on derivatives			(17,926)						3,764						(14,162)						1,842						(387)						1,455
Total other comprehensive loss			$	(75,179)					$	15,787					$	(59,392)					$	(13,968)					$	2,933					$	(11,035)

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table details the change in components of OCI for the three months ended March 31:

			2022															2021
			Securities Available for Sale			Post-Retirement Obligation			Derivatives			Accumulated Other Comprehensive Income (Loss)						Securities Available for Sale			Post-Retirement Obligation			Derivatives			Accumulated Other Comprehensive Income (Loss)
			(dollars in thousands)
Balance at December 31			$	(3,317)		$	95		$	(5,546)		$	(8,768)					$	20,310		$	(182)		$	(2,895)		$	17,233
Other comprehensive loss before reclassification adjustment			(45,228)			—			(14,162)			(59,390)						(12,485)			—			1,455			(11,030)
Amounts reclassified from accumulated other comprehensive (loss) income			(2)			—			—			(2)						(5)			—			—			(5)
Net other comprehensive loss during the period			(45,230)			—			(14,162)			(59,392)						(12,490)			—			1,455			(11,035)
Balance at March 31			$	(48,547)		$	95		$	(19,708)		$	(68,160)					$	7,820		$	(182)		$	(1,440)		$	6,198

Note 3 Supplemental Cash Flow Disclosures

The following table presents information related to cash paid during the period for interest and income taxes, as well as detail on non-cash investing and financing activities for the three months ended March 31:

			2022						2021
			(dollars in thousands)
Cash paid during the period for:
Interest			$	1,755					$	3,483
Income taxes			9,020						32
Non-cash investing and financing activities:
Loans transferred to other real estate owned and repossessed assets			647						944
Loans transferred from held to maturity to held for sale			18,627						17,749
Gross decrease in market value adjustment to securities available for sale			(57,254)						(15,810)
Gross (decrease) increase in market value adjustment to derivatives			(17,926)						1,842
Noncash treasury stock reissuance			1,947						2,041
Proceeds from death benefit on bank owned life insurance not received			397						(384)

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4 Earnings per Share

The following table summarizes the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computations:

									For the Three Months Ended March 31,
															2022						2021
Weighted average common shares issued															113,914,902						113,914,902
Average treasury stock shares															(19,654,309)						(17,718,410)
Average deferred compensation shares															(55,684)						(55,544)
Average unearned nonvested shares															(126,210)						(114,082)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share															94,078,699						96,026,866
Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share															176,913						151,200
Additional common stock equivalents (deferred compensation) used to calculate diluted earnings per share															55,712						55,581
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share															94,311,324						96,233,647
Basic Earnings per Share															$	0.29					$	0.41
Diluted Earnings per Share															$	0.29					$	0.41

The following table shows the number of shares and the price per share related to common stock equivalents that were not included in the computation of diluted earnings per share for the three months ended March 31 because to do so would have been antidilutive.

			2022																		2021
									Price Range																		Price Range
			Shares						From						To						Shares						From						To
Restricted Stock			23,621						$	15.81					$	16.25					79,497						$	13.72					$	14.22
Restricted Stock Units			12,793						$	21.08					$	21.08					16,730						$	16.41					$	16.41

Note 5 Commitments and Contingent Liabilities

Commitments and Letters of Credit

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

The following table identifies the notional amount of those instruments at:

			March 31, 2022						December 31, 2021
			(dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit			$	2,376,865					$	2,353,991
Financial standby letters of credit			17,985						18,824
Performance standby letters of credit			17,584						10,663
Commercial letters of credit			975						975

 

The notional amounts outstanding as of March 31, 2022 include amounts issued in 2022 of $7.0 million in performance standby letters of credit. There were no financial standby letters of credit or commercial letters of credit issued in 2022, however there was a change in terms for one letter of credit which increased its commitment amount. A liability of $0.1 million has been

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

recorded as of both March 31, 2022 and December 31, 2021, which represents the estimated fair value of letters of credit issued. The fair value of letters of credit is estimated based on the unrecognized portion of fees received at the time the commitment was issued.

Unused commitments and letters of credit provide exposure to future credit loss in the event of nonperformance by the borrower or guaranteed parties. Management’s evaluation of the credit risk related to these commitments resulted in the recording of a liability of $8.6 million and $6.4 million as of March 31, 2022 and December 31, 2021, respectively. This liability is reflected in "Other liabilities" in the unaudited Consolidated Statements of Financial Condition. The credit risk evaluation incorporates the expected loss percentage calculated for comparable loan categories as part of the allowance for credit losses for loans as well as estimated utilization for each loan category.

Legal Proceedings

First Commonwealth and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. As of March 31, 2022, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against First Commonwealth or its subsidiaries will be material to First Commonwealth’s consolidated financial position. On at least a quarterly basis, First Commonwealth assesses its liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that First Commonwealth will incur losses and the amounts of the losses can be reasonably estimated, First Commonwealth records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability (if any), is between $0 and $1 million. Although First Commonwealth does not believe that the outcome of pending litigation will be material to First Commonwealth’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations and cash flows for a particular reporting period in the future.

Note 6 Investment Securities

Securities Available for Sale

Below is an analysis of the amortized cost and estimated fair values of securities available for sale at:

			March 31, 2022																								December 31, 2021
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
			(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential			$	4,884					$	198					$	(16)					$	5,066					$	5,242					$	420					$	—					$	5,662
Mortgage-Backed Securities – Commercial			350,918						25						(21,715)						329,228						365,024						1,725						(4,459)						362,290
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential			596,272						504						(39,517)						557,259						632,687						6,308						(9,021)						629,974
Other Government-Sponsored Enterprises			1,000						—						(65)						935						1,000						—						(19)						981
Obligations of States and Political Subdivisions			9,515						21						(614)						8,922						9,538						89						(103)						9,524
Corporate Securities			32,068						488						(762)						31,794						32,088						973						(112)						32,949
Total Securities Available for Sale			$	994,657					$	1,236					$	(62,689)					$	933,204					$	1,045,579					$	9,515					$	(13,714)					$	1,041,380

12

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Mortgage-backed securities include mortgage-backed obligations of U.S. Government agencies and obligations of U.S. Government-sponsored enterprises. These obligations have contractual maturities ranging from less than one year to approximately 30 years, with lower anticipated lives to maturity due to prepayments. All mortgage-backed securities contain a certain amount of risk related to the uncertainty of prepayments of the underlying mortgages. Interest rate changes have a direct impact upon prepayment speeds; therefore, First Commonwealth uses computer simulation models to test the average life and yield volatility of all mortgage-backed securities under various interest rate scenarios to monitor the potential impact on earnings and interest rate risk positions.

Expected maturities will differ from contractual maturities because issuers may have the right to call or repay obligations with or without call or prepayment penalties. Other fixed income securities within the portfolio also contain prepayment risk.

The amortized cost and estimated fair value of debt securities available for sale at March 31, 2022, by contractual maturity, are shown below.

			Amortized Cost						Estimated Fair Value
			(dollars in thousands)
Due within 1 year			$	4,998					$	5,053
Due after 1 but within 5 years			8,878						8,915
Due after 5 but within 10 years			28,707						27,683
Due after 10 years			—						—
			42,583						41,651
Mortgage-Backed Securities (a)			952,074						891,553
Total Debt Securities			$	994,657					$	933,204

 

(a)Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds. Mortgage-Backed Securities include an amortized cost of $355.8 million and a fair value of $334.3 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $596.3 million and a fair value of $557.3 million for Obligations of U.S. Government-sponsored enterprises issued by Fannie Mae and Freddie Mac.

 

Proceeds from sales, gross gains (losses) realized on sales and maturities related to securities held to maturity and securities available for sale were as follows for the three months ended March 31:

			2022						2021
			(dollars in thousands)
Proceeds from sales			$	—					$	—
Gross gains (losses) realized:
Sales transactions:
Gross gains			$	—					$	—
Gross losses			—						—
			—						—
Maturities
Gross gains			2						6
Gross losses			—						—
			2						6
Net gains			$	2					$	6

Securities available for sale with an estimated fair value of $675.5 million and $759.1 million were pledged as of March 31, 2022 and December 31, 2021, respectively, to secure public deposits and for other purposes required or permitted by law.

13

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Securities Held to Maturity

Below is an analysis of the amortized cost and fair values of debt securities held to maturity at:

			March 31, 2022																								December 31, 2021
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
			(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential			$	2,305					$	—					$	(41)					$	2,264					$	2,409					$	101					$	—					$	2,510
Mortgage-Backed Securities- Commercial			86,281						—						(6,284)						79,997						91,439						305						(1,939)						89,805
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential			366,380						76						(26,251)						340,205						387,848						2,800						(5,758)						384,890
Mortgage-Backed Securities – Commercial			6,672						8						—						6,680						7,309						148						—						7,457
Other Government-Sponsored Enterprises			21,983						—						(2,124)						19,859						21,904						—						(625)						21,279
Obligations of States and Political Subdivisions			28,290						76						(1,272)						27,094						29,402						414						(103)						29,713
Debt Securities Issued by Foreign Governments			1,000						—						(11)						989						1,000						—						(3)						997
Total Securities Held to Maturity			$	512,911					$	160					$	(35,983)					$	477,088					$	541,311					$	3,768					$	(8,428)					$	536,651

The amortized cost and estimated fair value of debt securities held to maturity at March 31, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.

			Amortized Cost						Estimated Fair Value
			(dollars in thousands)
Due within 1 year			$	706					$	709
Due after 1 but within 5 years			7,007						6,997
Due after 5 but within 10 years			42,998						39,752
Due after 10 years			562						484
			51,273						47,942
Mortgage-Backed Securities (a)			461,638						429,146
Total Debt Securities			$	512,911					$	477,088

(a)Mortgage-backed and collateralized mortgage securities, which have prepayment provisions, are not assigned to maturity categories due to fluctuations in their prepayment speeds. Mortgage-Backed Securities include an amortized cost of $88.6 million and a fair value of $82.3 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $373.0 million and a fair value of $346.9 million for Obligations of U.S. Government-sponsored enterprises issued by Fannie Mae and Freddie Mac.

Securities held to maturity with an amortized cost of $347.6 million and $313.9 million were pledged as of March 31, 2022 and December 31, 2021, respectively, to secure public deposits and for other purposes required or permitted by law.

Other Investments

As a member of the Federal Home Loan Bank ("FHLB"), First Commonwealth is required to purchase and hold stock in the FHLB to satisfy membership and borrowing requirements. The level of stock required to be held is dependent on the amount of First Commonwealth's mortgage-related assets and outstanding borrowings with the FHLB. This stock is restricted in that it can

14

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

only be sold to the FHLB or to another member institution, and all sales of FHLB stock must be at par. As a result of these restrictions, FHLB stock is unlike other investment securities insofar as there is no trading market for FHLB stock and the transfer price is determined by FHLB membership rules and not by market participants. As of March 31, 2022 and December 31, 2021, our FHLB stock totaled $12.0 million and $11.7 million, respectively, and is included in “Other investments” on the unaudited Consolidated Statements of Financial Condition.

FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value. First Commonwealth evaluates impairment quarterly and has concluded that the par value of its investment in FHLB stock will be recovered. Accordingly, no impairment charge was recorded on these securities during the three months ended March 31, 2022.

As of both March 31, 2022 and December 31, 2021, "Other investments" also includes $1.2 million in equity securities. These securities do not have a readily determinable fair value and are carried at cost. During the three-months ended March 31, 2022 and 2021, there were no gains or losses recognized through earnings on equity securities. On a quarterly basis, management evaluates equity securities by reviewing the severity and duration of decline in estimated fair value, research reports, analysts’ recommendations, credit rating changes, news stories, annual reports, regulatory filings, impact of interest rate changes and other relevant information.

Impairment of Investment Securities

We review our investment portfolio on a quarterly basis for indications of impairment. For available for sale securities, the

review includes analyzing the financial condition and near-term prospects of the issuer, including any specific events which

may influence the operations of the issuer and whether we are more likely than not to sell the security. We evaluate whether we

are more likely than not to sell debt securities based upon our investment strategy for the particular type of security and our cash flow needs, liquidity position, capital adequacy, tax position and interest rate risk position. Held-to-maturity securities are

evaluated for impairment on a quarterly basis using historical probability of default and loss given default information specific

to the investment category. If this evaluation determines that credit losses exist an allowance for credit loss is recorded and

included in earnings as a component of credit loss expense.

First Commonwealth utilizes the specific identification method to determine the net gain or loss on debt securities and the average cost method to determine the net gain or loss on equity securities.

The following table presents the gross unrealized losses and estimated fair values at March 31, 2022 for both available for sale and held to maturity securities by investment category and time frame for which securities have been in a continuous unrealized loss position:

 

			Less Than 12 Months															12 Months or More															Total
			Estimated Fair Value						Gross Unrealized Losses									Estimated Fair Value						Gross Unrealized Losses									Estimated Fair Value						Gross Unrealized Losses
			(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential			$	4,672					$	(57)								$	—					$	—								$	4,672					$	(57)
Mortgage-Backed Securities – Commercial			355,202						(24,189)									42,690						(3,810)									397,892						(27,999)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential			622,340						(36,828)									254,048						(28,940)									876,388						(65,768)
Other Government-Sponsored Enterprises			—						—									20,794						(2,189)									20,794						(2,189)
Obligations of States and Political Subdivisions			21,606						(1,618)									2,637						(268)									24,243						(1,886)
Debt Securities Issued by Foreign Governments			589						(11)									—						—									589						(11)
Corporate Securities			13,311						(688)									5,027						(74)									18,338						(762)
Total Securities			$	1,017,720					$	(63,391)								$	325,196					$	(35,281)								$	1,342,916					$	(98,672)

    

At March 31, 2022, fixed income securities issued by the U.S. Government and U.S. Government-sponsored enterprises comprised 97% of total unrealized losses. All unrealized losses are the result of changes in market interest rates. At March 31, 2022, there are 165 debt securities in an unrealized loss position.

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the gross unrealized losses and estimated fair values at December 31, 2021 by investment category and time frame for which securities have been in a continuous unrealized loss position:

			Less Than 12 Months															12 Months or More															Total
			Estimated Fair Value						Gross Unrealized Losses									Estimated Fair Value						Gross Unrealized Losses									Estimated Fair Value						Gross Unrealized Losses
			(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Commercial			$	320,414					$	(6,398)								$	—					$	—								$	320,414					$	(6,398)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential			658,965						(14,779)									—						—									658,965						(14,779)
Other Government-Sponsored Enterprises			22,261						(644)									—						—									22,261						(644)
Obligation of States and Political Subdivisions			11,213						(206)									—						—									11,213						(206)
Debt Securities Issued by Foreign Governments			997						(3)									—						—									997						(3)
Corporate Securities			19,013						(112)									—						—									19,013						(112)
Total Securities			$	1,032,863					$	(22,142)								$	—					$	—								$	1,032,863					$	(22,142)

As of March 31, 2022, our corporate securities had an amortized cost and an estimated fair value of $32.1 million and $31.8 million, respectively. As of December 31, 2021, our corporate securities had an amortized cost and estimated fair value of $32.1 million and $32.9 million, respectively. Corporate securities are comprised of debt issued by large regional banks. There were four corporate securities in an unrealized loss position as of March 31, 2022 and December 31, 2021. When unrealized losses exist, management reviews each of the issuer’s asset quality, earnings trends and capital position to determine whether the unrealized loss position is a result of credit losses. All interest payments on the corporate securities are being made as contractually required.

There was no expected credit related impairment recognized on investment securities during the three months ended March 31, 2022 and 2021.

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7 Loans and Leases and Allowance for Credit Losses

Loans and leases are presented in the Consolidated Statements of Financial Condition net of deferred fees and costs, and discounts related to purchased loans. Net deferred fees were $2.9 million and $0.8 million as of March 31, 2022 and December 31, 2021, respectively, and discounts on purchased loans were $6.0 million at both March 31, 2022 and December 31, 2021. The following table provides outstanding balances related to each of our loan types:

 

															March 31, 2022																		December 31, 2021
															(dollars in thousands)
Commercial, financial, agricultural and other															$	1,123,690																	$	1,173,452
Time and demand															992,477																		1,159,524
Commercial credit cards															13,675																		13,928
Equipment finance															2,505
Time and demand other															115,033
Real estate construction															398,988																		494,456
Construction other															307,411
Construction residential															91,577
Residential real estate															2,006,221																		1,920,250
Residential first lien															1,381,742																		1,299,534
Residential junior lien/home equity															624,479																		620,716
Commercial real estate															2,344,281																		2,251,097
Multifamily															401,581																		385,432
Nonowner occupied															1,516,518																		1,465,247
Owner occupied															426,182																		400,418
Loans to individuals															1,078,932																		999,975
Automobile and recreational vehicles															984,001																		901,280
Consumer credit cards															10,675																		11,151
Consumer other															84,256																		87,544
Total loans and leases															$	6,952,112																	$	6,839,230

In the table above, Commercial, financial, agricultural and other loans at March 31, 2022 and December 31, 2021 includes $28.9 million and $71.3 million, respectively, in Paycheck Protection Program ("PPP") loans for small businesses who meet the necessary eligibility requirements. PPP loans are 100% guaranteed by the Small Business Administration ("SBA") under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the PPP requirements. Because PPP loans are fully guaranteed by the SBA, there is no allowance for credit losses recognized for these loans. Although the Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program, there could be risks and liability to the Company associated with participation in the program.

First Commonwealth’s loan portfolio includes five primary loan categories. When calculating the allowance for credit losses these categories are classified into fourteen portfolio segments. The composition of loans by portfolio segment includes:

Commercial, financial, agricultural and other

Time & Demand - Consists primarily of commercial and industrial loans. This category consists of loans that are typically cash flow dependent and therefore have different risk and loss characteristics than other commercial loans. Loans in this category include revolving and term structures with fixed and variable interest rates. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and economic conditions measured by GDP.

Commercial Credit Cards - Consists of unsecured credit cards for commercial customers. These commercial credit cards have separate characteristics outside of normal commercial non-real estate loans, as they tend to have shorter overall duration. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and economic conditions measured by GDP.

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Equipment Finance - Consists of loans and leases to finance the purchase of equipment for commercial customers. The risk and loss characteristics are unique for this group due to the type of collateral. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and economic conditions measured by GDP. There were no equipment finance loans or leases in the portfolio prior to the first quarter of 2022.

Time & Demand Other - Consists primarily of loans to state and political subdivisions and other commercial loans that have different characteristics than loans in the Time and Demand category. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of household debt to income and economic conditions measured by GDP. Prior to the first quarter of 2022, these loans were included in the Time and Demand category. The breakout into a separate category is the result of an annual review of the peer group loss history and loss drivers used in the Allowance for Credit Losses model.

Real estate construction

Construction Other - Consists of construction loans to commercial builders and developers and are secured by the properties under development.

Construction Residential - Consists of loans to finance the construction of residential properties during the construction period. Borrowers are typically individuals who will occupy the completed single family property.

The risk and loss characteristics of these two construction categories are different than other real estate secured categories due to the collateral being at various stages of completion. The nature of the project and type of borrower of the two construction categories provides for unique risk and loss characteristics for each category. The primary macroeconomic drivers for estimating credit losses for construction loans include forecasts of national unemployment and measures of completed construction projects. Prior to the first quarter of 2022, all construction loans were included in one loan category. The breakout into separate construction categories is the result of an annual review of the peer group loss history and loss drivers used in the Allowance for Credit Losses model.

Residential real estate

Residential first lien - Consists of loans with collateral of 1-4 family residencies with a senior lien position. The risk and loss characteristics are unique for this group because the collateral for these loans are the borrower’s primary residence. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and residential property values.

Residential Junior Lien/Home Equity - Consists of loans with collateral of 1-4 family residencies with an open end line of credit or junior lien position. The junior lien position for the majority of these loans provides a higher risk of loss than other residential real estate loans. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and residential property values.

Commercial real estate

Multifamily - Consists of loans secured by commercial multifamily properties. Real estate related to rentals to consumers provide unique risk and loss characteristics. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of commercial real estate values and national unemployment. In the first quarter of 2022, as a result of an annual review of peer group loss history and loss drivers, national unemployment replaced rental vacancy as one of the primary macroeconomic drivers in this category.

Nonowner Occupied - Consists of loans secured by commercial real estate non-owner occupied and provides different loss characteristics than other real estate categories. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and economic conditions measured by GDP.

Owner Occupied - Consists of loans secured by commercial real estate owner occupied properties. The risk and loss characteristics of this category were considered different than other real estate categories because it is owner occupied and would impact the ability to conduct business. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of national unemployment and economic conditions measured by GDP.

Loans to individuals

Automobile and Recreational Vehicles - Consists of both direct and indirect loans with automobiles and recreational vehicles held as collateral. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of consumer sentiment and automobile retention value.

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Consumer Credit Cards – Consists of unsecured consumer credit cards. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of consumer sentiment and economic conditions measured by GDP.

Other Consumer - Consists of lines of credit, student loans and other consumer loans, not secured by real estate or autos. The primary macroeconomic drivers for estimating credit losses for this category include forecasts of consumer sentiment and retail sales. In the first quarter of 2022, as a result of an annual review of peer group loss history and loss drivers, retail sales replaced household debt as one of the primary macroeconomic factors for this category.

The allowance for credit losses is calculated by pooling loans of similar credit risk characteristics and applying a discounted cash flow methodology after incorporating probability of default and loss given default estimates. Probability of default represents an estimate of the likelihood of default and loss given default measures the expected loss upon default. Inputs impacting the expected losses include a forecast of macroeconomic factors, using a weighted forecast from a nationally recognized firm. Our model incorporates a one-year forecast of macroeconomic factors, after which the factors revert back to the historical mean over a one-year period. The most significant macroeconomic factor used in estimating credit losses is the national unemployment rate. The forecasted value for national unemployment at the beginning of the forecast period was 3.87% and during the one-year forecast period it was projected to average 4.36%, with a peak of 4.58%. Current forecast assumptions consider the impact of rising interest rates, global oil prices and supply chain disruption, COVID-19, Russia's invasion of Ukraine and the potential effects of these on the US economy.

Credit Quality Information

As part of the on-going monitoring of credit quality within the loan portfolio, the following credit worthiness categories are used in grading our loans:

Pass						Acceptable levels of risk exist in the relationship. Includes all loans not classified as OAEM, substandard or doubtful.
Other Assets Especially Mentioned (OAEM)						Potential weaknesses that deserve management’s close attention. The potential weaknesses may result in deterioration of the repayment prospects or weaken the Company’s credit position at some future date. The credit risk may be relatively minor, yet constitute an undesirable risk in light of the circumstances surrounding the specific credit. No loss of principal or interest is expected.
Substandard						Well-defined weakness or a weakness that jeopardizes the repayment of the debt. A loan may be classified as substandard as a result of deterioration of the borrower’s financial condition and repayment capacity. Loans for which repayment plans have not been met or collateral equity margins do not protect the Company may also be classified as substandard.
Doubtful						Loans with the characteristics of substandard loans with the added characteristic that collection or liquidation in full, on the basis of presently existing facts and conditions, is highly improbable.

The Company’s internal creditworthiness grading system provides a measurement of credit risk based primarily on an evaluation of the borrower’s cash flow and collateral. Category ratings are reviewed each quarter, at which time management analyzes the results, as well as other external statistics and factors related to loan performance.

The following tables represent our credit risk profile by creditworthiness:

19

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			March 31, 2022
									Non-Pass
			Pass						OAEM						Substandard						Doubtful						Loss						Total Non-Pass						Total
			(dollars in thousands)
Commercial, financial, agricultural and other			$	1,090,034					$	15,396					$	18,260					$	—					$	—					$	33,656					$	1,123,690
Time and demand			959,190						15,396						17,891						—						—						33,287						992,477
Commercial credit cards			13,675						—						—						—						—						—						13,675
Equipment finance			2,505						—						—						—						—						—						2,505
Time and demand other			114,664						—						369						—						—						369						115,033
Real estate construction			398,233						281						474						—						—						755						398,988
Construction other			306,937						—						474						—						—						474						307,411
Construction residential			91,296						281						—						—						—						281						91,577
Residential real estate			1,999,616						523						6,082						—						—						6,605						2,006,221
Residential first lien			1,378,124						455						3,163						—						—						3,618						1,381,742
Residential junior lien/home equity			621,492						68						2,919						—						—						2,987						624,479
Commercial real estate			2,211,496						82,590						50,195						—						—						132,785						2,344,281
Multifamily			361,021						25,588						14,972						—						—						40,560						401,581
Nonowner occupied			1,434,603						52,231						29,684						—						—						81,915						1,516,518
Owner occupied			415,872						4,771						5,539						—						—						10,310						426,182
Loans to individuals			1,078,673						—						259						—						—						259						1,078,932
Automobile and recreational vehicles			983,838						—						163						—						—						163						984,001
Consumer credit cards			10,675						—						—						—						—						—						10,675
Consumer other			84,160						—						96						—						—						96						84,256
Total loans and leases			$	6,778,052					$	98,790					$	75,270					$	—					$	—					$	174,060					$	6,952,112

20

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

			December 31, 2021
									Non-Pass
			Pass						OAEM						Substandard						Doubtful						Loss						Total Non-Pass						Total
			(dollars in thousands)
Commercial, financial, agricultural and other			$	1,121,234					$	33,765					$	18,453					$	—					$	—					$	52,218					$	1,173,452
Time and demand			1,107,306						33,765						18,453						—						—						52,218						1,159,524
Commercial credit cards			13,928						—						—						—						—						—						13,928
Real estate construction			493,913						498						45						—						—						543						494,456
Residential real estate			1,913,064						976						6,210						—						—						7,186						1,920,250
Residential first lien			1,295,524						905						3,105						—						—						4,010						1,299,534
Residential junior lien/home equity			617,540						71						3,105						—						—						3,176						620,716
Commercial real estate			2,113,123						85,324						52,650						—						—						137,974						2,251,097
Multifamily			355,702						14,565						15,165						—						—						29,730						385,432
Nonowner occupied			1,368,922						63,783						32,542						—						—						96,325						1,465,247
Owner occupied			388,499						6,976						4,943						—						—						11,919						400,418
Loans to individuals			999,770						—						205						—						—						205						999,975
Automobile and recreational vehicles			901,132						—						148						—						—						148						901,280
Consumer credit cards			11,151						—						—						—						—						—						11,151
Consumer other			87,487						—						57						—						—						57						87,544
Total loans and leases			$	6,641,104					$	120,563					$	77,563					$	—					$	—					$	198,126					$	6,839,230

The following table summarizes the loan risk rating category by loan type including term loans on an amortized cost basis by origination year:

21

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			March 31, 2022
			Term Loans																																				Revolving Loans
			2022						2021						2020						2019						2018						Prior												Total
			(dollars in thousands)
Time and demand			$	24,040					$	210,288					$	87,599					$	126,639					$	73,613					$	73,454					$	396,844					$	992,477
Pass			24,040						209,897						85,098						110,803						73,326						64,994						391,032						959,190
OAEM			—						391						2,048						2,338						178						7,186						3,255						15,396
Substandard			—						—						453						13,498						109						1,274						2,557						17,891
Commercial credit cards			—						—						—						—						—						—						13,675						13,675
Pass			—						—						—						—						—						—						13,675						13,675
Equipment finance			2,505						—						—						—						—						—						—						2,505
Pass			2,505						—						—						—						—						—						—						2,505
Time and demand other			6,058						20,678						29,228						5,673						3,318						47,566						2,512						115,033
Pass			6,058						20,678						29,228						5,673						3,318						47,397						2,312						114,664
Substandard			—						—						—						—						—						169						200						369
Construction other			5,311						91,272						84,577						100,754						23,806						1,250						441						307,411
Pass			5,311						91,272						84,103						100,754						23,806						1,250						441						306,937
Substandard			—						—						474						—						—						—						—						474
Construction residential			3,265						85,129						2,430						735						18						—						—						91,577
Pass			3,265						85,129						2,149						735						18						—						—						91,296
OAEM			—						—						281						—						—						—						—						281
Residential first lien			80,916						427,539						364,873						117,741						79,385						309,316						1,972						1,381,742
Pass			80,916						427,528						364,854						117,473						78,931						306,527						1,895						1,378,124
OAEM			—						—						—						—						63						315						77						455
Substandard			—						11						19						268						391						2,474						—						3,163
Residential junior lien/home equity			18,665						55,709						1,926						2,922						2,426						5,884						536,947						624,479
Pass			18,665						55,709						1,926						2,848						2,426						5,736						534,182						621,492
OAEM			—						—						—						—						—						58						10						68
Substandard			—						—						—						74						—						90						2,755						2,919
Multifamily			19,494						89,609						78,400						27,474						35,535						149,698						1,371						401,581
Pass			19,494						89,609						78,400						27,474						21,035						123,638						1,371						361,021
OAEM			—						—						—						—						—						25,588						—						25,588
Substandard			—						—						—						—						14,500						472						—						14,972
Nonowner occupied			46,087						194,623						121,039						200,683						185,938						764,263						3,885						1,516,518
Pass			46,087						194,623						121,039						200,683						156,700						712,831						2,640						1,434,603
OAEM			—						—						—						—						15,240						35,903						1,088						52,231
Substandard			—						—						—						—						13,998						15,529						157						29,684
Owner occupied			31,902						85,107						62,071						51,792						32,035						158,206						5,069						426,182
Pass			31,902						85,083						60,575						49,894						31,552						151,909						4,957						415,872
OAEM			—						—						498						845						483						2,912						33						4,771
Substandard			—						24						998						1,053						—						3,385						79						5,539
Automobile and recreational vehicles			173,055						422,172						228,508						106,348						39,116						14,802						—						984,001
Pass			173,055						422,168						228,508						106,278						39,067						14,762						—						983,838
Substandard			—						4						—						70						49						40						—						163
Consumer credit cards			—						—						—						—						—						—						10,675						10,675
Pass			—						—						—						—						—						—						10,675						10,675
Consumer other			1,667						20,590						3,947						6,792						4,065						5,394						41,801						84,256
Pass			1,667						20,590						3,947						6,783						4,065						5,352						41,756						84,160
Substandard			—						—						—						9						—						42						45						96
Total			$	412,965					$	1,702,716					$	1,064,598					$	747,553					$	479,255					$	1,529,833					$	1,015,192					$	6,952,112

22

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			December 31, 2021
			Term Loans																																				Revolving Loans
			2021						2020						2019						2018						2017						Prior												Total
			(dollars in thousands)
Time and demand			$	281,244					$	126,403					$	143,030					$	91,118					$	45,442					$	111,127					$	361,160					$	1,159,524
Pass			280,854						125,728						128,080						83,204						31,472						102,399						355,569						1,107,306
OAEM			390						596						1,125						7,780						13,945						7,126						2,803						33,765
Substandard			—						79						13,825						134						25						1,602						2,788						18,453
Commercial credit cards			—						—						—						—						—						—						13,928						13,928
Pass			—						—						—						—						—						—						13,928						13,928
Real estate construction			202,016						129,298						123,153						38,267						441						841						440						494,456
Pass			201,992						128,824						123,153						38,267						441						796						440						493,913
OAEM			24						474						—						—						—						—						—						498
Substandard			—						—						—						—						—						45						—						45
Residential first lien			376,106						375,904						126,788						84,484						74,268						260,010						1,974						1,299,534
Pass			376,095						375,885						126,618						84,079						74,135						256,815						1,897						1,295,524
OAEM			—						—						—						67						—						761						77						905
Substandard			11						19						170						338						133						2,434						—						3,105
Residential junior lien/home equity			56,861						1,999						3,322						2,684						1,009						5,348						549,493						620,716
Pass			56,861						1,999						3,246						2,684						1,009						5,195						546,546						617,540
OAEM			—						—						—						—						—						61						10						71
Substandard			—						—						76						—						—						92						2,937						3,105
Multifamily			90,062						73,068						16,782						36,523						63,872						103,774						1,351						385,432
Pass			90,062						73,068						16,782						21,846						49,832						102,761						1,351						355,702
OAEM			—						—						—						—						14,040						525						—						14,565
Substandard			—						—						—						14,677						—						488						—						15,165
Nonowner occupied			194,137						98,840						202,236						173,053						177,295						615,943						3,743						1,465,247
Pass			194,137						98,840						202,236						155,293						152,174						563,743						2,499						1,368,922
OAEM			—						—						—						3,723						19,235						39,737						1,088						63,783
Substandard			—						—						—						14,037						5,886						12,463						156						32,542
Owner occupied			77,710						62,380						53,954						34,115						32,989						134,713						4,557						400,418
Pass			77,710						59,973						51,513						33,623						31,644						129,593						4,443						388,499
OAEM			—						2,194						1,220						492						1,321						1,716						33						6,976
Substandard			—						213						1,221						—						24						3,404						81						4,943
Automobile and recreational vehicles			456,730						252,518						122,943						48,375						17,230						3,484						—						901,280
Pass			456,730						252,518						122,867						48,361						17,224						3,432						—						901,132
Substandard			—						—						76						14						6						52						—						148
Consumer credit cards			—						—						—						—						—						—						11,151						11,151
Pass			—						—						—						—						—						—						11,151						11,151
Consumer other			22,156						4,655						8,030						5,084						542						5,503						41,574						87,544
Pass			22,156						4,655						8,030						5,084						542						5,460						41,560						87,487
Substandard			—						—						—						—						—						43						14						57
Total			$	1,757,022					$	1,125,065					$	800,238					$	513,703					$	413,088					$	1,240,743					$	989,371					$	6,839,230

Portfolio Risks

The credit quality of our loan portfolio can potentially represent significant risk to our earnings, capital and liquidity. First Commonwealth devotes substantial resources to managing this risk primarily through our credit administration department that develops and administers policies and procedures for underwriting, maintaining, monitoring and collecting loans. Credit administration is independent of lending departments and oversight is provided by the Credit Committee of the First Commonwealth Board of Directors.

Total net charge-offs for the three months ended March 31, 2022 and 2021 were $1.1 million and $3.3 million, respectively.

23

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Age Analysis of Past Due Loans by Segment

The following tables delineate the aging analysis of the recorded investments in past due loans as of March 31, 2022 and December 31, 2021. Also included in these tables are loans that are 90 days or more past due and still accruing because they are well-secured and in the process of collection.

In the March 31, 2022 table below, $14.5 million in multifamily commercial real estate loans are reflected as 30-59 days past due. This balance relates to one commercial borrower and subsequent to March 31, 2022, the loan was paid off in full.

			March 31, 2022
			30 - 59 days past due						60 - 89 days past due						90 days or greater and still accruing						Nonaccrual						Total past due and nonaccrual						Current						Total
			(dollars in thousands)
Commercial, financial, agricultural and other			$	160					$	86					$	998					$	2,037					$	3,281					$	1,120,409					$	1,123,690
Time and demand			110						30						989						2,037						3,166						989,311						992,477
Commercial credit cards			48						56						9						—						113						13,562						13,675
Equipment finance			—						—						—						—						—						2,505						2,505
Time and demand other			2						—						—						—						2						115,031						115,033
Real estate construction			418						474						—						—						892						398,096						398,988
Construction other			—						474						—						—						474						306,937						307,411
Construction residential			418						—						—						—						418						91,159						91,577
Residential real estate			3,764						568						306						5,500						10,138						1,996,083						2,006,221
Residential first lien			2,268						156						104						2,777						5,305						1,376,437						1,381,742
Residential junior lien/home equity			1,496						412						202						2,723						4,833						619,646						624,479
Commercial real estate			15,140						108						—						22,784						38,032						2,306,249						2,344,281
Multifamily			14,500						—						—						409						14,909						386,672						401,581
Nonowner occupied			511						71						—						21,160						21,742						1,494,776						1,516,518
Owner occupied			129						37						—						1,215						1,381						424,801						426,182
Loans to individuals			1,334						640						617						259						2,850						1,076,082						1,078,932
Automobile and recreational vehicles			803						299						122						163						1,387						982,614						984,001
Consumer credit cards			70						57						68						—						195						10,480						10,675
Consumer other			461						284						427						96						1,268						82,988						84,256
Total loans and leases			$	20,816					$	1,876					$	1,921					$	30,580					$	55,193					$	6,896,919					$	6,952,112

24

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

			December 31, 2021
			30 - 59 days past due						60 - 89 days past due						90 days or greater and still accruing						Nonaccrual						Total past due and nonaccrual						Current						Total
			(dollars in thousands)
Commercial, financial, agricultural and other			$	633					$	987					$	155					$	2,006					$	3,781					$	1,169,671					$	1,173,452
Time and demand			605						972						144						2,006						3,727						1,155,797						1,159,524
Commercial credit cards			28						15						11						—						54						13,874						13,928
Real estate construction			813						—						448						45						1,306						493,150						494,456
Residential real estate			3,393						983						218						5,608						10,202						1,910,048						1,920,250
Residential first lien			1,934						354						51						2,706						5,045						1,294,489						1,299,534
Residential junior lien/home equity			1,459						629						167						2,902						5,157						615,559						620,716
Commercial real estate			—						74						—						40,195						40,269						2,210,828						2,251,097
Multifamily			—						—						—						15,097						15,097						370,335						385,432
Nonowner occupied			—						—						—						23,930						23,930						1,441,317						1,465,247
Owner occupied			—						74						—						1,168						1,242						399,176						400,418
Loans to individuals			1,611						417						785						206						3,019						996,956						999,975
Automobile and recreational vehicles			1,228						175						199						148						1,750						899,530						901,280
Consumer credit cards			36						44						63						—						143						11,008						11,151
Consumer other			347						198						523						58						1,126						86,418						87,544
Total loans and leases			$	6,450					$	2,461					$	1,606					$	48,060					$	58,577					$	6,780,653					$	6,839,230

Nonaccrual Loans

The previous tables summarize nonaccrual loans by loan segment. The Company generally places loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain, when part of the principal balance has been charged off and no restructuring has occurred, or the loans reach a certain number of days past due. Generally, loans 90 days or more past due are placed on nonaccrual status, except for consumer loans, which are placed on nonaccrual status at 150 days past due.

When a loan is placed on nonaccrual, the accrued unpaid interest receivable is reversed against interest income and all future payments received are applied as a reduction to the loan principal. Generally, the loan is returned to accrual status when (a) all delinquent interest and principal becomes current under the terms of the loan agreement or (b) the loan is both well-secured and in the process of collection and collectability is no longer in doubt.

Nonperforming Loans

Management considers loans to be nonperforming when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Nonperforming loans include nonaccrual loans and all troubled debt restructured loans. When management identifies a loan as nonperforming, the credit loss is measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole source for repayment of the loan is the operation or liquidation of collateral. When the loan is collateral dependent, the appraised value less estimated cost to sell is utilized. If management determines that the value of the loan is less than the recorded investment in the loan, a credit loss is recognized through an allowance estimate or a charge-off to the allowance for credit losses.

When the ultimate collectability of the total principal of a nonperforming loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of a nonperforming loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received under the cash basis method.

At March 31, 2022 and December 31, 2021, there were no nonperforming loans held for sale. During the three months ended March 31, 2022 and 2021, there were no gains recognized on the sale of nonperforming loans.

25

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables include the recorded investment and unpaid principal balance for nonperforming loans with the associated allowance amount, if applicable, as of March 31, 2022 and December 31, 2021. Also presented are the average recorded investment in nonperforming loans and the related amount of interest recognized while the loan was considered nonperforming.

26

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Average balances are calculated using month-end balances of the loans for the period reported and are included in the table below based on their period-end allowance position.

			March 31, 2022																		December 31, 2021
			Recorded investment						Unpaid principal balance						Related allowance						Recorded investment						Unpaid principal balance						Related allowance
			(dollars in thousands)
With no related allowance recorded:
Commercial, financial, agricultural and other			$	3,505					$	9,719											$	3,720					$	10,303
Time and demand			3,505						9,719												3,720						10,303
Equipment finance			—						—
Time and demand other			—						—
Real estate construction			—						—												45						53
Construction other			—						—
Construction residential			—						—
Residential real estate			9,161						11,035												9,365						11,294
Residential first lien			5,245						6,327												5,200						6,337
Residential junior lien/home equity			3,916						4,708												4,165						4,957
Commercial real estate			23,425						24,395												40,591						41,525
Multifamily			—						—												14,677						14,677
Nonowner occupied			21,791						22,558												24,581						25,310
Owner occupied			1,634						1,837												1,333						1,538
Loans to individuals			423						542												446						485
Automobile and recreational vehicles			327						441												388						422
Consumer other			96						101												58						63
Subtotal			36,514						45,691												54,167						63,660
With an allowance recorded:
Commercial, financial, agricultural and other			544						572						$	272					327						349						$	307
Time and demand			544						572						272						327						349						307
Equipment finance			—						—						—
Time and demand other			—						—						—
Real estate construction			—						—						—						—						—						—
Construction other			—						—						—
Construction residential			—						—						—
Residential real estate			—						—						—						—						—						—
Residential first lien			—						—						—						—						—						—
Residential junior lien/home equity			—						—						—						—						—						—
Commercial real estate			409						441						79						686						711						88
Multifamily			409						441						79						421						446						88
Nonowner occupied			—						—						—						—						—						—
Owner occupied			—						—						—						265						265						—
Loans to individuals			—						—						—						—						—						—
Automobile and recreational vehicles			—						—						—						—						—						—
Consumer other			—						—						—						—						—						—
Subtotal			953						1,013						351						1,013						1,060						395
Total			$	37,467					$	46,704					$	351					$	55,180					$	64,720					$	395

27

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

															For the Three Months Ended March 31,
															2022																								2021
															Average recorded investment						Interest income recognized																		Average recorded investment						Interest income recognized
															(dollars in thousands)
With no related allowance recorded:
Commercial, financial, agricultural and other															$	3,561					$	29																	$	2,280					$	11
Time and demand															3,561						29																		2,280						11
Equipment finance															—						—
Time and demand other															—						—
Real estate construction															—						—																		54						—
Construction other															—						—
Construction residential															—						—
Residential real estate															9,201						84																		10,892						63
Residential first lien															5,197						62																		5,982						45
Residential junior lien/home equity															4,004						22																		4,910						18
Commercial real estate															24,312						13																		25,739						22
Multifamily															—						—																		—						—
Nonowner occupied															22,714						9																		22,593						7
Owner occupied															1,598						4																		3,146						15
Loans to individuals															435						4																		479						2
Automobile and recreational vehicles															350						4																		437						2
Consumer other															85						—																		42						—
Subtotal															37,509						130																		39,444						98
With an allowance recorded:
Commercial, financial, agricultural and other															384						6																		4,895						18
Time and demand															384						6																		4,895						18
Equipment finance															—						—
Time and demand other															—						—
Real estate construction															—						—																		—						—
Construction other															—						—
Construction residential															—						—
Residential real estate															—						—																		—						—
Residential first lien															—						—																		—						—
Residential junior lien/home equity															—						—																		—						—
Commercial real estate															416						—																		7,462						—
Multifamily															416						—																		464						—
Nonowner occupied															—						—																		6,917						—
Owner occupied															—						—																		81						—
Loans to individuals															—						—																		—						—
Automobile and recreational vehicles															—						—																		—						—
Consumer other															—						—																		—						—
Subtotal															800						6																		12,357						18
Total															$	38,309					$	136																	$	51,801					$	116

Unfunded commitments related to nonperforming loans were $0.2 million at both March 31, 2022 and December 31, 2021. After consideration of the requirements to draw and available collateral related to these commitments, it was determined that no reserve was required at March 31, 2022 and December 31, 2021.

28

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the financial difficulties experienced by the borrower, who could not obtain comparable terms from alternative financing sources. Troubled debt restructured loans are considered to be nonperforming loans.

The following table provides detail as to the total troubled debt restructured loans and total commitments outstanding on troubled debt restructured loans:

			March 31, 2022						December 31, 2021
			(dollars in thousands)
Troubled debt restructured loans
Accrual status			$	6,887					$	7,120
Nonaccrual status			10,090						13,134
Total			$	16,977					$	20,254
Commitments
Letters of credit			$	60					$	60
Unused lines of credit			18						16
Total			$	78					$	76

The following tables provide detail, including specific reserves and reasons for modification, related to loans identified as troubled debt restructurings:

			For the Three Months Ended March 31, 2022
									Type of Modification
			Number of Contracts						Extend Maturity						Modify Rate						Modify Payments						Total Pre-Modification Outstanding Recorded Investment						Post- Modification Outstanding Recorded Investment						Specific Reserve
			(dollars in thousands)
Residential real estate			2						$	—					$	10					$	59					$	69					$	69					$	—
Residential first lien			2						—						10						59						69						69						—
Total			2						$	—					$	10					$	59					$	69					$	69					$	—

			For the Three Months Ended March 31, 2021
									Type of Modification
			Number of Contracts						Extend Maturity						Modify Rate						Modify Payments						Total Pre-Modification Outstanding Recorded Investment						Post- Modification Outstanding Recorded Investment						Specific Reserve
			(dollars in thousands)
Commercial, financial, agricultural and other			2						$	6,373					$	—					$	—					$	6,373					$	6,339					$	1,190
Time and demand			2						6,373						—						—						6,373						6,339						1,190
Residential real estate			3						—						105						14						119						119						—
Residential first lien			2						—						105						—						105						106						—
Residential junior lien/home equity			1						—						—						14						14						13						—
Loans to individuals			2						—						64						—						64						61						—
Automobile and recreational vehicles			2						—						64						—						64						61						—
Total			7						$	6,373					$	169					$	14					$	6,556					$	6,519					$	1,190

29

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The troubled debt restructurings included in the above tables are also included in the nonperforming loan tables provided earlier in this note. Loans defined as modified due to a change in rate may include loans that were modified for a change in rate as well as a re-amortization of the principal and an extension of the maturity. For the three months ended March 31, 2022 and 2021, $10 thousand and $169 thousand, respectively, of total rate modifications represent loans with modifications to the rate as well as payment as a result of re-amortization. For both 2022 and 2021, the changes in loan balances between the pre-modification balance and the post-modification balance are due to customer payments.

A troubled debt restructuring is considered to be in default when a restructured loan is 90 days or more past due. The following table provides information related to loans that were restructured within the past twelve months and that were considered to be in default during the three months ended March 31:

			2022												2021
			Number of Contracts						Recorded Investment						Number of Contracts						Recorded Investment
			(dollars in thousands)
Residential real estate			1						$	17					—						$	—
Residential first lien			1						17						—						—
Total			1						$	17					—						$	—

The following tables provide detail related to the allowance for credit losses:

			For the Three Months Ended March 31, 2022
			Beginning balance						Charge-offs						Recoveries						Provision (credit)a						Ending balance
			(dollars in thousands)
Commercial, financial, agricultural and other			$	18,093					$	(475)					$	80					$	3,023					$	20,721
Time and demand			15,283						(144)						53						3,715						18,907
Commercial credit cards			247						(19)						1						113						342
Equipment finance			—						—						—						31						31
Time and demand other			2,563						(312)						26						(836)						1,441
Real estate construction			4,220						—						—						710						4,930
Construction other			3,278						—						—						(103)						3,175
Construction residential			942						—						—						813						1,755
Residential real estate			12,625						(139)						29						4,213						16,728
Residential first lien			7,459						(40)						23						3,683						11,125
Residential junior lien/home equity			5,166						(99)						6						530						5,603
Commercial real estate			33,376						—						14						314						33,704
Multifamily			3,561						—						—						49						3,610
Nonowner occupied			24,838						—						5						(1,576)						23,267
Owner occupied			4,977						—						9						1,841						6,827
Loans to individuals			24,208						(1,009)						366						(8,460)						15,105
Automobile and recreational vehicles			21,392						(552)						255						(8,460)						12,635
Consumer credit cards			496						(109)						24						(29)						382
Consumer other			2,320						(348)						87						29						2,088
Total loans and leases			$	92,522					$	(1,623)					$	489					$	(200)					$	91,188

a) The provision expense(credit) shown here excludes the provision for off-balance sheet credit exposure included in the income statement.

30

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			For the Three Months Ended March 31, 2022
																					Loans
			Ending balance						Ending balance: individually evaluated for credit losses						Ending balance: collectively evaluated for credit losses						Ending balance						Ending balance: individually evaluated for credit losses						Ending balance: collectively evaluated for credit losses
			(dollars in thousands)
Commercial, financial, agricultural and other			$	20,721					$	272					$	20,449					$	1,123,690					$	3,179					$	1,120,511
Time and demand			18,907						272						18,635						992,477						3,179						989,298
Commercial credit cards			342						—						342						13,675						—						13,675
Equipment finance			31						—						31						2,505						—						2,505
Time and demand other			1,441						—						1,441						115,033						—						115,033
Real estate construction			4,930						—						4,930						398,988						—						398,988
Construction other			3,175						—						3,175						307,411						—						307,411
Construction residential			1,755						—						1,755						91,577						—						91,577
Residential real estate			16,728						—						16,728						2,006,221						253						2,005,968
Residential first lien			11,125						—						11,125						1,381,742						—						1,381,742
Residential junior lien/home equity			5,603						—						5,603						624,479						253						624,226
Commercial real estate			33,704						79						33,625						2,344,281						37,263						2,307,018
Multifamily			3,610						79						3,531						401,581						14,909						386,672
Nonowner occupied			23,267						—						23,267						1,516,518						21,425						1,495,093
Owner occupied			6,827						—						6,827						426,182						929						425,253
Loans to individuals			15,105						—						15,105						1,078,932						—						1,078,932
Automobile and recreational vehicles			12,635						—						12,635						984,001						—						984,001
Consumer credit cards			382						—						382						10,675						—						10,675
Consumer other			2,088						—						2,088						84,256						—						84,256
Total loans and leases			$	91,188					$	351					$	90,837					$	6,952,112					$	40,695					$	6,911,417

31

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			For the Three Months Ended March 31, 2021
			Beginning balance						Charge-offs						Recoveries						Provision (credit)a						Ending balance
			(dollars in thousands)
Commercial, financial, agricultural and other			$	17,187					$	(569)					$	90					$	5,093					$	21,801
Time and demand			16,838						(460)						89						4,960						21,427
Commercial credit cards			349						(109)						1						133						374
Real estate construction			7,966						—						—						(3,945)						4,021
Residential real estate			14,358						(105)						37						(1,461)						12,829
Residential first lien			7,919						(23)						23						(692)						7,227
Residential junior lien/home equity			6,439						(82)						14						(769)						5,602
Commercial real estate			41,953						(1,550)						39						(2,774)						37,668
Multifamily			6,240						(1)						—						(1,988)						4,251
Nonowner occupied			28,414						(1,549)						39						985						27,889
Owner occupied			7,299						—						—						(1,771)						5,528
Loans to individuals			19,845						(1,541)						329						1,811						20,444
Automobile and recreational vehicles			16,133						(680)						181						1,254						16,888
Consumer credit cards			635						(168)						17						205						689
Consumer other			3,077						(693)						131						352						2,867
Total loans and leases			$	101,309					$	(3,765)					$	495					$	(1,276)					$	96,763

a) The provision expense(credit) shown here excludes the provision for off-balance sheet credit exposure included in the income statement.

			For the Three Months Ended March 31, 2021
																					Loans
			Ending balance						Ending balance: individually evaluated for credit losses						Ending balance: collectively evaluated for credit losses						Ending balance						Ending balance: individually evaluated for credit losses						Ending balance: collectively evaluated for credit losses
			(dollars in thousands)
Commercial, financial, agricultural and other			$	21,801					$	2,506					$	19,295					$	1,555,671					$	9,991					$	1,545,680
Time and demand			21,427						2,506						18,921						1,541,280						9,991						1,531,289
Commercial credit cards			374						—						374						14,391						—						14,391
Real estate construction			4,021						—						4,021						404,580						—						404,580
Residential real estate			12,829						—						12,829						1,756,615						1,055						1,755,560
Residential first lien			7,227						—						7,227						1,152,314						512						1,151,802
Residential junior lien/home equity			5,602						—						5,602						604,301						543						603,758
Commercial real estate			37,668						601						37,067						2,167,506						27,413						2,140,093
Multifamily			4,251						115						4,136						363,604						459						363,145
Nonowner occupied			27,889						459						27,430						1,393,968						24,883						1,369,085
Owner occupied			5,528						27						5,501						409,934						2,071						407,863
Loans to individuals			20,444						—						20,444						852,522						—						852,522
Automobile and recreational vehicles			16,888						—						16,888						759,061						—						759,061
Consumer credit cards			689						—						689						10,901						—						10,901
Consumer other			2,867						—						2,867						82,560						—						82,560
Total loans and leases			$	96,763					$	3,107					$	93,656					$	6,736,894					$	38,459					$	6,698,435

Note 8 Leases

First Commonwealth has elected to apply certain practical expedients provided under ASU 2016-02 "Leases" (Topic 842) including (i) to not apply the requirements in the new standard to short-term leases (ii) to not reassess the lease classification for

32

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

any expired or existing lease (iii) to account for lease and non-lease components separately (iv) to not reassess initial direct costs for any existing leases. The impact of this standard primarily relates to operating leases of certain real estate properties, including certain branch and ATM locations and office space. First Commonwealth has no material leasing arrangements for which it is the lessor of property or equipment.

The following table represents the unaudited Consolidated Statements of Condition classification of the Company’s right of use ("ROU") assets and lease liabilities, lease costs and other lease information.

															March 31, 2022			December 31, 2021
Balance sheet:
Operating lease asset classified as premises and equipment															$	40,920		$	40,550
Operating lease liability classified as other liabilities															45,222			44,801
												For the Three Months Ended
															March 31, 2022			March 31, 2021
Income statement:
Operating lease cost classified as occupancy and equipment expense															$	1,216		$	1,208
Weighted average lease term, in years															13.72			14.72
Weighted average discount rate															3.19		%	3.41		%
Operating cash flows															$	1,164		$	1,201

The ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. First Commonwealth's lease agreements often include one or more options to renew at the Company's discretion. If we consider the renewal option to be reasonably certain, we include the extended term in the calculation of the ROU asset and lease liability.

First Commonwealth uses incremental borrowing rates when calculating the lease liability because the rate implicit in the lease is not readily determinable. The incremental borrowing rate used by First Commonwealth is an amortizing loan rate obtained from the Federal Home Loan Bank ("FHLB") of Pittsburgh. This rate is consistent with a collateralized borrowing rate and is available for terms similar to the lease payment schedules.

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2022 were as follows (dollars in thousands):

For the twelve months ended:
March 31, 2023						$	4,854
March 31, 2024						4,822
March 31, 2025						4,714
March 31, 2026						4,390
March 31, 2027						4,039
Thereafter						34,356
Total future minimum lease payments						57,175
Less remaining imputed interest						11,953
Operating lease liability						$	45,222

Note 9 Income Taxes

In accordance with FASB ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes,” at March 31, 2022 and December 31, 2021, First Commonwealth had no material unrecognized tax benefits or accrued interest and penalties. If applicable, First Commonwealth will record interest and penalties as a component of noninterest expense.

33

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

First Commonwealth is subject to routine audits of our tax returns by the Internal Revenue Service (“IRS”) as well as all states in which we conduct business. Generally, tax years prior to the year ended December 31, 2018 are no longer open to examination by federal and state taxing authorities.

Note 10 Fair Values of Assets and Liabilities

FASB ASC Topic 820, “Fair Value Measurements and Disclosures” ("Topic 820"), requires disclosures for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). All non-financial assets are included either as a separate line item on the unaudited Consolidated Statements of Financial Condition or in the “Other assets” category of the unaudited Consolidated Statements of Financial Condition. Currently, First Commonwealth does not have any non-financial liabilities to disclose.

FASB ASC Topic 825, “Financial Instruments” (Topic 825"), permits entities to irrevocably elect to measure select financial instruments and certain other items at fair value. The unrealized gains and losses are required to be included in earnings each reporting period for the items that fair value measurement is elected. First Commonwealth has elected not to measure any existing financial instruments at fair value under Topic 825; however, in the future we may elect to adopt this guidance for select financial instruments.

 

In accordance with Topic 820, First Commonwealth groups financial assets and financial liabilities measured at fair value in three levels based on the principal markets in which the assets and liabilities are transacted and the observability of the data points used to determine fair value. These levels are:

•Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange (“NYSE”). Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

•Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained for observable inputs for identical or comparable assets or liabilities from alternative pricing sources with reasonable levels of price transparency. Level 2 includes Obligations of U.S. Government securities issued by Agencies and Sponsored Enterprises, Obligations of States and Political Subdivisions, corporate securities, FHLB stock, loans held for sale, premise held for sale, interest rate derivatives (including interest rate caps, interest rate collars, interest rate swaps and risk participation agreements), certain other real estate owned and certain nonperforming loans.

Level 2 investment securities are valued by a recognized third party pricing service using observable inputs. The model used by the pricing service varies by asset class and incorporates available market, trade and bid information as well as cash flow information when applicable. Because many fixed-income investment securities do not trade on a daily basis, the model uses available information such as benchmark yield curves, benchmarking of like investment securities, sector groupings and matrix pricing. The model will also use processes such as an option adjusted spread to assess the impact of interest rates and to develop prepayment estimates. Market inputs normally used in the pricing model include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications.

Management validates the market values provided by the third party service by having another source price 100% of the securities on a monthly basis, monthly monitoring of variances from prior period pricing and, on a monthly basis, evaluating pricing changes compared to expectations based on changes in the financial markets.

Other investments recorded in the unaudited Consolidated Statements of Financial Condition are primarily comprised of FHLB stock whose estimated fair value is based on its par value. Additional information on FHLB stock is provided in Note 6, “Investment Securities.”

Loans held for sale include residential mortgage loans originated for sale in the secondary mortgage market. The estimated fair value for these loans was determined on the basis of rates obtained in the respective secondary market. Loans held for sale also include the Small Business Administration guaranteed portion of small business loans. The estimated fair value of these loans is based on the contract with the third party investor. Also included in loans held for sale are commercial loans for which fair value is determined using an executed trade or market bid obtained from potential buyers.

Interest rate derivatives are reported at an estimated fair value utilizing Level 2 inputs and are included in other assets and other liabilities, and consist of interest rate swaps where there is no significant deterioration in the counterparties' and/or loan customers' credit risk since origination of the interest rate swap as well as interest rate caps, interest rate collars and risk

34

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

participation agreements. First Commonwealth values its interest rate swap and cap positions using a yield curve by taking market prices/rates for an appropriate set of instruments. The set of instruments currently used to determine the U.S. Dollar yield curve includes cash LIBOR rates from overnight to one year, Eurodollar futures contracts and swap rates from one year to thirty years. These yield curves determine the valuations of interest rate swaps. Interest rate derivatives are further described in Note 11, “Derivatives.”

For purposes of potential valuation adjustments to our derivative positions, First Commonwealth evaluates the credit risk of its counterparties as well as our own credit risk. Accordingly, we have considered factors such as the likelihood of default, expected loss given default, net exposures and remaining contractual life, among other things, in determining if any estimated fair value adjustments related to credit risk are required. We review our counterparty exposure quarterly, and when necessary, appropriate adjustments are made to reflect the exposure.

Interest rate derivatives also include interest rate forwards entered into to hedge residential mortgage loans held for sale and the related interest-rate lock commitments. This includes forward commitments to sell mortgage loans. The fair value of these derivative financial instruments are based on derivative market data inputs as of the valuation date and the underlying value of mortgage loans for rate lock commitments.

In addition, the Company hedges foreign currency risk through the use of foreign exchange forward contracts. The fair value of foreign exchange forward contracts is based on the differential between the contract price and the market-based forward rate.

The estimated fair value for other real estate owned included in Level 2 is determined by either an independent market-based appraisal less estimated costs to sell or an executed sales agreement.

•Level 3 – Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. If the inputs used to provide the valuation are unobservable and/or there is very little, if any, market activity for the security or similar securities, the securities would be considered Level 3 securities. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. The assets included in Level 3 are non-marketable equity investments, certain interest rate derivatives, certain other real estate owned and certain nonperforming loans.

The estimated fair value of other investments included in Level 3 is based on carrying value as these securities do not have a readily determinable fair value.

The estimated fair value of limited partnership investments included in Level 3 is based on par value.

For interest rate derivatives included in Level 3, the fair value incorporates credit risk by considering such factors as likelihood of default and expected loss given default based on the credit quality of the underlying counterparties (loan customers).

35

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In accordance with ASU No. 2011-4, the following table provides information related to quantitative inputs and assumptions used in Level 3 fair value measurements.

Fair Value (dollars in thousands)

Valuation Technique

Unobservable Inputs

Range / (weighted average)

March 31, 2022

Other Investments

$

1,170

Carrying Value

N/A

N/A

Nonperforming Loans

538

(a)

Gas Reserve Study

Discount rate

10.00%

Gas per MMBTU

$3.00 - $3.00 (b)

Oil per BBL/d

$80.00 - $80.00 (b)

Limited Partnership Investments

15,999

Par Value

N/A

N/A

December 31, 2021

Other Investments

$

1,170

Carrying Value

N/A

N/A

Nonperforming Loans

598

(a)

Gas Reserve Study

Discount rate

10.00%

Gas per MMBTU

$2.00 - $2.00 (b)

Oil per BBL/d

$50.00 - $50.00 (b)

Limited Partnership Investments

14,981

Par Value

N/A

N/A

 

(a)The remainder of nonperforming loans valued using Level 3 inputs are not included in this disclosure as the values of those loans are based on bankruptcy agreement documentation.

(b)Unobservable inputs are defined as follows: MMBTU - one million British thermal units; BBL/d - barrels per day.

The discount rate is the significant unobservable input used in the fair value measurement of nonperforming loans. Significant increases in this rate would result in a decrease in the estimated fair value of the loans, while a decrease in this rate would result in a higher fair value measurement. Other unobservable inputs in the fair value measurement of nonperforming loans relate to gas, oil and natural gas prices. Increases in these prices would result in an increase in the estimated fair value of the loans, while a decrease in these prices would result in a lower fair value measurement.

The tables below present the balances of assets and liabilities measured at fair value on a recurring basis:

			March 31, 2022
			Level 1						Level 2						Level 3						Total
			(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Residential			$	—					$	5,066					$	—					$	5,066
Mortgage-Backed Securities - Commercial			—						329,228						—						329,228
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities - Residential			—						557,259						—						557,259
Other Government-Sponsored Enterprises			—						935						—						935
Obligations of States and Political Subdivisions			—						8,922						—						8,922
Corporate Securities			—						31,794						—						31,794
Total Securities Available for Sale			—						933,204						—						933,204
Other Investments			—						11,972						1,170						13,142
Loans Held for Sale			—						10,506						—						10,506
Other Assets(a)			—						10,326						15,999						26,325
Total Assets			$	—					$	966,008					$	17,169					$	983,177
Other Liabilities(a)			$	—					$	34,496					$	—					$	34,496
Total Liabilities			$	—					$	34,496					$	—					$	34,496

(a)Hedging and non-hedging interest rate derivatives and limited partnership investments

36

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

			December 31, 2021
			Level 1						Level 2						Level 3						Total
			(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Residential			$	—					$	5,662					$	—					$	5,662
Mortgage-Backed Securities - Commercial			—						362,290						—						362,290
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities - Residential			—						629,974						—						629,974
Other Government-Sponsored Enterprises			—						981						—						981
Obligations of States and Political Subdivisions			—						9,524						—						9,524
Corporate Securities			—						32,949						—						32,949
Total Securities Available for Sale			—						1,041,380						—						1,041,380
Other Investments			—						11,668						1,170						12,838
Loans Held for Sale			—						18,583						—						18,583
Other Assets(a)			—						26,805						14,981						41,786
Total Assets			$	—					$	1,098,436					$	16,151					$	1,114,587
Other Liabilities(a)			$	—					$	34,263					$	—					$	34,263
Total Liabilities			$	—					$	34,263					$	—					$	34,263

(a)Hedging and non-hedging interest rate derivatives and limited partnership investments

For the three months ended March 31, changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

									2022
									Other Investments												Other Assets						Total
									(dollars in thousands)
Balance, beginning of period									$	1,170											$	14,981					$	16,151
Total gains or losses
Included in earnings									—												—						—
Included in other comprehensive income									—												—						—
Purchases, issuances, sales and settlements
Purchases									—												1,043						1,043
Issuances									—												—						—
Sales									—												(25)						(25)
Settlements									—												—						—
Transfers from Level 3									—												—						—
Transfers into Level 3									—												—						—
Balance, end of period									$	1,170											$	15,999					$	17,169

37

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

									2021
									Other Investments												Other Assets						Total
									(dollars in thousands)
Balance, beginning of period									$	1,670											$	6,620					$	8,290
Total gains or losses
Included in earnings									—												—						—
Included in other comprehensive income									—												—						—
Purchases, issuances, sales and settlements
Purchases									—												390						390
Issuances									—												—						—
Sales									—												—						—
Settlements									—												—						—
Transfers from Level 3									—												—						—
Transfers into Level 3									—												—						—
Balance, end of period									$	1,670											$	7,010					$	8,680

During the three months ended March 31, 2022 and 2021, there were no transfers between fair value Levels 1, 2 or 3. There were no gains or losses included in earnings for the periods presented that are attributable to the change in realized gains (losses) relating to assets held at March 31, 2022 and 2021.

The tables below present the balances of assets measured at fair value on a nonrecurring basis at:

			March 31, 2022
			Level 1						Level 2						Level 3						Total
			(dollars in thousands)
Nonperforming loans			$	—					$	25,306					$	11,810					$	37,116
Other real estate owned			—						732						—						732
Total Assets			$	—					$	26,038					$	11,810					$	37,848

			December 31, 2021
			Level 1						Level 2						Level 3						Total
			(dollars in thousands)
Nonperforming loans			$	—					$	42,538					$	12,247					$	54,785
Other real estate owned			—						729						—						729
Total Assets			$	—					$	43,267					$	12,247					$	55,514

The following losses were realized on the assets measured on a nonrecurring basis:

									For the Three Months Ended March 31,
															2022						2021
												(dollars in thousands)
Nonperforming loans															$	(171)					$	205
Other real estate owned															(54)						(6)
Total losses															$	(225)					$	199

Nonperforming loans over $250 thousand are individually reviewed to determine the amount of each loan considered to be at risk of non-collection. The fair value for nonperforming loans that are collateral-based is determined by reviewing real property

38

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

appraisals, equipment valuations, accounts receivable listings and other financial information. A discounted cash flow analysis is performed to determine fair value for nonperforming loans when an observable market price or a current appraisal is not available. For real estate secured loans, First Commonwealth’s loan policy requires updated appraisals be obtained at least every twelve months on all nonperforming loans with balances of $250 thousand and over. For real estate secured loans with balances under $250 thousand, we rely on broker price opinions. For non-real estate secured assets, the Company normally relies on third party valuations specific to the collateral type.

The fair value for other real estate owned, determined by either an independent market-based appraisal less estimated costs to sell or an executed sales agreement, is classified as Level 2. The fair value for other real estate owned, determined using an internal valuation, is classified as Level 3. Other real estate owned has a current carrying value of $0.7 million as of March 31, 2022 and consists primarily of residential and commercial real estate properties in Pennsylvania and Ohio. We review whether events and circumstances subsequent to a transfer to other real estate owned have occurred that indicate the balance of those assets may not be recoverable. If events and circumstances indicate further impairment we will record a charge to the extent that the carrying value of the assets exceed their fair values, less estimated cost to sell, as determined by valuation techniques appropriate in the circumstances.

Certain other assets and liabilities, including goodwill, core deposit intangibles and customer list intangibles are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. Additional information related to goodwill is provided in Note 12, “Goodwill.” There were no other assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2022.

FASB ASC 825-10, “Transition Related to FSP FAS 107-1” and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or nonrecurring basis are as discussed above. The methodologies for other financial assets and financial liabilities are discussed below.

Cash and due from banks and interest-bearing bank deposits: The carrying amounts for cash and due from banks and interest-bearing bank deposits approximate the estimated fair values of such assets.

Securities: Fair values for securities available for sale and held to maturity are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. The carrying value of other investments, which includes FHLB stock and other equity investments, is considered a reasonable estimate of fair value.

Loans: The fair values of all loans are estimated by discounting the estimated future cash flows using interest rates currently offered for loans with similar terms to borrowers of similar credit quality adjusted for past due and nonperforming loans.

Loans held for sale: The estimated fair value of loans held for sale is based on market bids obtained from potential buyers.

Off-balance sheet instruments: Many of First Commonwealth’s off-balance sheet instruments, primarily loan commitments and standby letters of credit, are expected to expire without being drawn upon; therefore, the commitment amounts do not necessarily represent future cash requirements. FASB ASC Topic 460, “Guarantees” clarified that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The carrying amount and estimated fair value for standby letters of credit was $0.1 million at both March 31, 2022 and December 31, 2021. See Note 5, “Commitments and Contingent Liabilities,” for additional information.

Deposit liabilities: The estimated fair value of demand deposits, savings accounts and money market deposits is the amount payable on demand at the reporting date because of the customers’ ability to withdraw funds immediately. The carrying value of variable rate time deposit accounts and certificates of deposit approximate their fair values at the report date. Also, fair values of fixed rate time deposits for both periods are estimated by discounting the future cash flows using interest rates currently being offered and a schedule of aggregated expected maturities.

Short-term borrowings: The fair values of borrowings from the FHLB were estimated based on the estimated incremental borrowing rate for similar type borrowings. The carrying amounts of other short-term borrowings, such as federal funds

39

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

purchased and securities sold under agreement to repurchase, were used to approximate fair value due to the short-term nature of the borrowings.

Subordinated debt and long-term debt: The fair value is estimated by discounting the future cash flows using First Commonwealth’s estimate of the current market rate for similar types of borrowing arrangements.

The following table presents carrying amounts and fair values of First Commonwealth’s financial instruments:

			March 31, 2022
									Fair Value Measurements Using:
			Carrying Amount						Total						Level 1						Level 2						Level 3
			(dollars in thousands)
Financial assets
Cash and due from banks			$	120,289					$	120,289					$	120,289					$	—					$	—
Interest-bearing deposits			404,516						404,516						404,516						—						—
Securities available for sale			933,204						933,204						—						933,204						—
Securities held to maturity			512,911						477,088						—						477,088						—
Other investments			13,142						13,142						—						11,972						1,170
Loans held for sale			10,506						10,506						—						10,506						—
Loans			6,952,112						7,154,726						—						25,306						7,129,420
Financial liabilities
Deposits			8,171,847						8,164,467						—						8,164,467						—
Short-term borrowings			95,748						93,203						—						93,203						—
Subordinated debt			170,815						168,231						—						—						168,231
Long-term debt			5,398						5,587						—						5,587						—
Capital lease obligation			5,799						5,799						—						5,799						—

			December 31, 2021
									Fair Value Measurements Using:
			Carrying Amount						Total						Level 1						Level 2						Level 3
			(dollars in thousands)
Financial assets
Cash and due from banks			$	84,738					$	84,738					$	84,738					$	—					$	—
Interest-bearing deposits			310,634						310,634						310,634						—						—
Securities available for sale			1,041,380						1,041,380						—						1,041,380						—
Securities held to maturity			541,311						536,651						—						536,651						—
Other investments			12,838						12,838						—						11,668						1,170
Loans held for sale			18,583						18,583						—						18,583						—
Loans			6,839,230						7,169,768						—						42,538						7,127,230
Financial liabilities
Deposits			7,982,498						7,980,101						—						7,980,101						—
Short-term borrowings			138,315						136,473						—						136,473						—
Subordinated debt			170,775						175,040						—						—						175,040
Long-term debt			5,573						6,065						—						6,065						—
Capital lease obligation			5,921						5,921						—						5,921						—

40

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11 Derivatives

Derivatives Not Designated as Hedging Instruments

First Commonwealth is a party to interest rate derivatives that are not designated as hedging instruments. These derivatives relate to interest rate swaps that First Commonwealth enters into with customers to allow customers to convert variable rate loans to a fixed rate. First Commonwealth pays interest to the customer at a floating rate on the notional amount and receives interest from the customer at a fixed rate for the same notional amount. At the same time the interest rate swap is entered into with the customer, an offsetting interest rate swap is entered into with another financial institution. First Commonwealth pays the other financial institution interest at the same fixed rate on the same notional amount as the swap entered into with the customer, and receives interest from the financial institution for the same floating rate on the same notional amount.

The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties.

We have 39 risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are a participant. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. We have 17 risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which we are the lead bank. The risk participation agreement provides credit protection to us should the borrower fail to perform on its interest rate derivative contract with us.

First Commonwealth is also party to interest rate caps and collars that are not designated as hedging instruments. The interest rate caps relate to contracts that First Commonwealth enters into with loan customers that provide a maximum interest rate on their variable rate loan. At the same time the interest rate cap is entered into with the customer, First Commonwealth enters into an offsetting interest rate cap with another financial institution. The notional amount and maximum interest rate on both interest cap contracts are identical. The interest rate collars relate to contracts that First Commonwealth enters into with loan customers that provides both a maximum and minimum interest rate on their variable rate loan. At the same time the interest rate collar is entered into with the customer, First Commonwealth enters into an offsetting interest rate collar with another financial institution. The notional amount and the maximum and minimum interest rates on both interest collar contracts are identical.

The fee received, less the estimate of the loss for the credit exposure, was recognized in earnings at the time of the transaction.

Derivatives Designated as Hedging Instruments

In August 2019, the Company entered into two interest rate swap contracts that are designated as cash flow hedges. These contracts mature on August 15, 2024 and August 15, 2026 and have notional amounts of $30.0 million and $40.0 million, respectively. The Company's risk management objective for these hedges is to reduce its exposure to variability in expected future cash flows related to interest payments made on subordinated debentures benchmarked to the 3-month LIBOR rate. Therefore, the interest rate swaps convert the interest rate benchmark on the first $70.0 million of 3-month LIBOR based subordinated debentures to a fixed rate.

During 2021, the Company entered into eight interest rate swap contracts that were designated as cash flow hedges. The interest rate swaps have a total notional amount of $500.0 million: $75.0 million with an original maturity of three years, $250.0 million with an original maturity of four years and $175.0 million with an original maturity of five years. The Company's risk management objective for these hedges is to reduce its exposure to variability in expected future cash flows related to interest payments on commercial loans benchmarked to the 1-month LIBOR rate. Therefore, the interest rate swaps convert the interest payments on the first $500.0 million of 1-month LIBOR based commercial loans into fixed rate payments.

The periodic net settlement of these interest rate swaps are recorded as an adjustment to "Interest on subordinated debentures" or "Interest and fees on loans" in the unaudited Consolidated Statements of Income. For the three months ended March 31, 2022, there was a positive impact of $0.5 million on net interest income as a result of these interest rate swaps. Changes in the fair value of the cash flow hedges are reported on the balance sheet and in OCI. When the cash flows associated with the hedged item are realized, the gain or loss included in OCI is recognized in "Interest on subordinated debentures," or "Interest and fees on loans", the same line items in the unaudited Consolidated Statements of Income as the income on the hedged items. The cash flow hedges were highly effective at March 31, 2022, and changes in the fair value attributed to hedge ineffectiveness were not material.

41

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company also enters into interest rate lock commitments in conjunction with its mortgage origination business. These are commitments to originate loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The Company locks the rate in with an investor and commits to deliver the loan if settlement occurs (“best efforts”) or commits to deliver the locked loan in a binding (“mandatory”) delivery program with an investor. Loans under mandatory rate lock commitments are covered under forward sales contracts of mortgage-backed securities (“MBS”). Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in "Noninterest income" in the unaudited Consolidated Statements of Income. The impact to noninterest income for the three months ended March 31, 2022 was a decrease of $1.2 million.

Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. We determine the fair value of rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates and taking into consideration the probability that the rate lock commitments will close or will be funded. At March 31, 2022, the underlying funded mortgage loan commitments had a carrying value of $6.9 million and a fair value of $6.3 million, while the underlying unfunded mortgage loan commitments had a notional amount of $38.6 million. At December 31, 2021, the underlying funded mortgage loan commitments had a carrying value of $11.0 million and a fair value of $11.9 million, while the underlying unfunded mortgage loan commitments had a notional amount of $29.7 million. The interest rate lock commitments decreased other noninterest income by $0.9 million for the three months ended March 31, 2022.

In addition, a small amount of interest income on loans is exposed to changes in foreign exchange rates. Several commercial borrowers have a portion of their operations outside of the United States and borrow funds on a short-term basis to fund those operations. In order to reduce the risk related to the translation of foreign denominated transactions into U.S. dollars, the Company enters into foreign exchange forward contracts. These contracts relate principally to the Euro and the Canadian dollar. The contracts are recorded at fair value with changes in fair value recorded in "Other operating expense" in the unaudited Consolidated Statements of Income. The increase in other noninterest expense for the three months ended March 31, 2022 totaled $1 thousand. At March 31, 2022 and December 31, 2021, the underlying loans had a carrying value of $1.4 million and $2.0 million, respectively, and a fair value of $1.4 million and $2.0 million, respectively.

The following table depicts the credit value and fair value adjustments recorded related to the notional amount of derivatives outstanding as well as the notional amount of risk participation agreements participated to other banks:

			March 31, 2022						December 31, 2021
			(dollars in thousands)
Derivatives not Designated as Hedging Instruments
Credit value adjustment			$	(48)					$	(395)
Notional amount:
Interest rate derivatives			672,534						708,759
Interest rate caps			65,823						66,007
Interest rate collars			35,354						35,354
Risk participation agreements			240,122						241,111
Sold credit protection on risk participation agreements			(77,114)						(95,618)
Interest rate options			38,612						29,691
Derivatives Designated as Hedging Instruments
Interest rate swaps:
Fair value adjustment			(24,948)						(7,022)
Notional amount			570,000						570,000
Interest rate forwards:
Fair value adjustment			837						(29)
Notional amount			41,000						38,000
Foreign exchange forwards:
Fair value adjustment			11						12
Notional amount			1,425						1,982

 

42

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The table below presents the change in the fair value of derivative assets and derivative liabilities attributable to credit risk or fair value changes included in "Other income," 'Other expense," "Interest on subordinated debentures" or "Interest and fees on loans" in the unaudited Consolidated Statements of Income:

									For the Three Months Ended March 31,
															2022						2021
												(dollars in thousands)
Non-hedging interest rate derivatives
(Decrease) increase in other income															$	(848)					$	336
Hedging interest rate derivatives
Increase in interest and fees on loans															755						—
Increase in interest from subordinated debentures															224						226
Hedging interest rate forwards
Decrease in other income															(865)						(1,042)
Hedging foreign exchange forwards
Increase in other expense															1						2

The fair value of our derivatives is included in a table in Note 10, “Fair Values of Assets and Liabilities,” in the line items

“Other assets” and “Other liabilities.”

Note 12 Goodwill

FASB ASC Topic 350-20, “Intangibles – Goodwill and Other” requires an annual valuation of the fair value of a reporting unit that has goodwill and a comparison of the fair value to the book value of equity to determine whether the goodwill has been impaired. Goodwill is also required to be tested on an interim basis if an event or circumstance indicates that it is more likely than not that an impairment loss has been incurred. When circumstances indicate that it is more likely than not that fair value is less than carrying value, a triggering event has occurred and a quantitative impairment test would be performed.

We consider First Commonwealth to be one reporting unit. The carrying amount of goodwill as both of March 31, 2022 and December 31, 2021 was $303.3 million. No impairment charges on goodwill or other intangible assets were incurred in 2022 or 2021.

We test goodwill for impairment as of November 30th each year and again at any quarter-end if any material events occur during a quarter that may affect goodwill.

As of March 31, 2022, no indicators of impairment were identified; however, changing economic conditions that may adversely affect our performance, the fair value of our assets and liabilities, or our stock price could result in impairment, which could adversely affect earnings in future periods. Management will continue to monitor events that could impact this conclusion in the future.

43

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 Subordinated Debentures

Subordinated debentures outstanding are as follows:

												March 31, 2022						December 31, 2021
			Due			Rate						Amount												Amount
												(dollars in thousands)
Owed to:
First Commonwealth Bank			2028			4.875% until June 1, 2023, then 3-Month LIBOR + 1.845%						$	49,430											$	49,407
First Commonwealth Bank			2033			5.50% until June 1, 2028, then 3-Month LIBOR + 2.37%						49,218												49,201
First Commonwealth Capital Trust II			2034			3-Month LIBOR + 2.85%						30,929												30,929
First Commonwealth Capital Trust III			2034			3-Month LIBOR + 2.85%						41,238												41,238
Total												$	170,815											$	170,775

On May 21, 2018, First Commonwealth issued ten-year subordinated notes with an aggregate principal amount of $50.0 million and a fixed-to-floating rate of 4.875%. The rate remains fixed until June 1, 2023, then adjusts on a quarterly basis to three-month LIBOR + 1.845%. The Bank may redeem the notes, beginning with the interest payment due on June 1, 2023, in whole or in part at a redemption price equal to 100% of the principal amount of the subordinated notes, plus accrued and unpaid interest to the date of redemption. Deferred issuance costs of $0.9 million are being amortized on a straight-line basis over the term of the notes.

On May 21, 2018, First Commonwealth issued fifteen-year subordinated notes with an aggregate principal amount of $50.0 million and a fixed-to-floating rate of 5.50%. The rate remains fixed until June 1, 2028, then adjusts on a quarterly basis to three-month LIBOR + 2.37%. The Bank may redeem the notes, beginning with the interest payment due on June 1, 2028, in whole or in part at a redemption price equal to 100% of the principal amount of the subordinated notes, plus accrued and unpaid interest to the date of redemption. Deferred issuance costs of $1.1 million are being amortized on a straight-line basis over the term of the notes.

First Commonwealth currently has two trusts, First Commonwealth Capital Trust II and First Commonwealth Capital Trust III, of which 100% of the common equity is owned by First Commonwealth. The trusts were formed for the purpose of issuing company obligated mandatorily redeemable capital securities to third-party investors and investing the proceeds from the sale of the capital securities solely in junior subordinated debt securities (“subordinated debentures”) of First Commonwealth. The subordinated debentures held by each trust are the sole assets of the trust.

Interest on the debentures issued to First Commonwealth Capital Trust III is paid quarterly at a floating rate of three-month LIBOR + 2.85% which is reset quarterly. Subject to regulatory approval, First Commonwealth may redeem the debentures, in whole or in part, at its option on any interest payment date at a redemption price equal to 100% of the principal amount of the debentures, plus accrued and unpaid interest to the date of the redemption. Deferred issuance costs of $0.6 million are being amortized on a straight-line basis over the term of the securities.

Interest on the debentures issued to First Commonwealth Capital Trust II is paid quarterly at a floating rate of three-month LIBOR + 2.85%, which is reset quarterly. Subject to regulatory approval, First Commonwealth may redeem the debentures, in whole or in part, at its option at a redemption price equal to 100% of the principal amount of the debentures, plus accrued and unpaid interest to the date of the redemption. Deferred issuance costs of $0.5 million are being amortized on a straight-line basis over the term of the securities.

In order to reduce its exposure to variability in expected future cash flows related to interest payments on First Commonwealth Capital Trust II and III, the Company entered into two interest rate swap contracts that are designated as cash flow hedges. These contracts fix the LIBOR based portion of the interest rate on Capital Trust II at 1.515% until August 15, 2024 and on Capital Trust III at 1.525% until August 15, 2026. Additional information related to these cash flow hedges can be found in Note 11- "Derivatives".

Note 14 Revenue Recognition

Substantially all of the Company’s revenue is generated from contracts with customers. Revenue associated with financial instruments, including revenue from loans and securities, certain noninterest income streams such as fees associated with derivatives are not in scope of ASC Topic 606 - Revenue from Contracts with Customers. ASC Topic 606 is applicable to

44

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

noninterest revenue streams such as trust income, service charges on deposits, insurance and retail brokerage commissions, card-related interchange income and gain(loss) on sale of OREO. For contracts within the scope of ASC Topic 606, the Company immediately expenses contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less.

Noninterest revenue streams in-scope of Topic 606 are discussed below:

Trust Income

Trust income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon a tiered scale of market value of the assets under management at month-end. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. Optional services such as financial planning or tax return preparation services are also available to trust customers. The Company’s performance obligation for these transactional-based services is generally satisfied and related revenue recognized, at a point in time. Payment is received shortly after services are rendered.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of fees earned from its deposit customers for transaction-based, account maintenance, overdraft services and account analysis fees. Transaction-based fees, which include services such as ATM use fees, stop payment fees, statement rendering and ACH fees are recognized at the time the transaction is executed which is the point in time the Company fulfills the customer’s request. Monthly account maintenance fees are earned over the course of the month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. The Company’s performance obligation for account analysis fees is generally satisfied, and the related revenue recognized, during the month the service is provided. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Insurance and Retail Brokerage Commissions

Insurance income primarily consists of commissions received from execution of personal, business and health insurance policies when acting as an agent on behalf of insurance carriers. The Company’s performance obligation is generally satisfied upon the issuance of the insurance policy. Because the Company’s contracts with the insurance carriers are generally cancellable by either party, with minimal notice, insurance commissions are recognized during the policy period as received. Also, the majority of insurance commissions are received on a monthly basis during the policy period; however, some carriers pay the full annual commission to First Commonwealth at the time of policy issuance or renewal. In these cases, First Commonwealth would be required to refund any commissions it would not be entitled to as a result of cancelled or terminated policies. The Company has established a refund liability for the remaining term of the policies expected to be cancelled. The Company also receives incentive-based contingency fees from the insurance carriers. Contingency fee revenue, which totals approximately $0.3 million per year, is recognized as received due to the immaterial amount.

Retail brokerage income primarily consists of commissions received on annuity and investment product sales through a third-party service provider. The Company’s performance obligation is generally satisfied upon the issuance of the annuity policy or the execution of an investment transaction. The Company does not earn a significant amount of trailer fees on annuity sales. However, after considering the factors impacting these trailer fees, such as the uncertainty of investor behavior and changes in the market value of assets, First Commonwealth determined that it would recognize trailing fees as received because it could not reasonably estimate an amount of future trailing commissions for which collection is probable. Commissions from the third-party service provider are received on a monthly basis based upon customer activity for the month. The fees are recognized monthly with a receivable until commissions are received from the third-party service provider the following month. Because the Company acts as an agent in arranging the relationship between the customer and the third-party service provider and does not control the services rendered to the customers, retail brokerage fees are presented net of related costs, including $0.9 million and $0.9 million in commission expense as of March 31, 2022 and 2021, respectively.

45

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ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Card-Related Interchange Income

Card-related interchange income is primarily comprised of debit and credit card income, ATM fees and merchant services income. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as MasterCard. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Card-related interchange income is recognized daily as the customer transactions are settled.

Other Income

Other income includes service revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for these services are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Gains(losses) on sales of OREO

First Commonwealth records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When First Commonwealth finances the sale of OREO to the buyer, an assessment of whether the buyer is committed to perform their obligations under the contract is completed along with an evaluation of whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. In determining the gain or loss on the sale, First Commonwealth adjusts the transaction price and related gain(loss) on sale if a significant financing component is present.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606:

									For the Three Months Ended March 31,
															2022						2021
												(dollars in thousands)
Noninterest Income
In-scope of Topic 606:
Trust income															$	2,713					$	2,516
Service charges on deposit accounts															4,615						4,047
Insurance and retail brokerage commissions															2,272						2,172
Card-related interchange income															6,490						6,427
Gain on sale of other loans and assets															43						169
Other income															975						980
Noninterest Income (in-scope of Topic 606)															17,108						16,311
Noninterest Income (out-of-scope of Topic 606)															6,868						11,044
Total Noninterest Income															$	23,976					$	27,355

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Table of Contents

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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 (“First Commonwealth”) for the three months ended March 31, 2022 and 2021, and should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto included in this Form 10-Q.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), notwithstanding that such statements are not specifically identified as such. In addition, certain statements may be contained in our future filings with the Securities and Exchange Commission, in press releases, and in oral and written statements made by us or with our approval that are not statements of historical fact and constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, expenses, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans, objectives and expectations of First Commonwealth or its management or Board of Directors, including those relating to products, services or operations; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “estimate,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could” or “may,” are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those in such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

•Local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact.

•Volatility and disruption in national and international financial markets.

•Government intervention in the U.S. financial system.

•Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs.

•Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements.

•The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board.

•Inflation, interest rate, securities market and monetary fluctuations.

•The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we and our subsidiaries must comply.

•The soundness of other financial institutions.

•Political instability.

•Impairment of our goodwill or other intangible assets.

•Acts of God or of war or terrorism.

•The timely development and acceptance of new products and services and perceived overall value of these products and services by users.

•Changes in consumer spending, borrowings and savings habits.

•Changes in the financial performance and/or condition of our borrowers.

•Technological changes.

•The cost and effects of cyber incidents or other failures, interruption or security breaches of our systems or those of third-party providers.

•Acquisitions and integration of acquired businesses.

•Our ability to increase market share and control expenses.

•Our ability to attract and retain qualified employees.

•Changes in the competitive environment in our markets and among banking organizations and other financial service providers.

•The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters.

•Changes in the reliability of our vendors, internal control systems or information systems.

•Changes in our liquidity position.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

•Changes in our organization, compensation and benefit plans.

•The impact of the ongoing COVID-19 pandemic and any other pandemic, epidemic or health-related crisis.

•The costs and effects of legal and regulatory developments, the resolution of legal proceedings or regulatory or other governmental inquiries, the results of regulatory examinations or reviews and the ability to obtain required regulatory approvals.

•Greater than expected costs or difficulties related to the integration of new products and lines of business.

•Our success at managing the risks involved in the foregoing items.

Forward-looking statements speak only as of the date on which such statements are made. We do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

Explanation of Use of Non-GAAP Financial Measure

In addition to the results of operations presented in accordance with generally accepted accounting principles (“GAAP”), First Commonwealth management uses, and this quarterly report contains or references, certain non-GAAP financial measures, such as net interest income on a fully taxable equivalent basis. We believe these non-GAAP financial measures provide information that is useful to investors in understanding our underlying operational performance and our business and performance trends as they facilitate comparison with the performance of others in the financial services industry. Although we believe that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP.

We believe the presentation of net interest income on a fully taxable equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest income per the unaudited Consolidated Statements of Income is reconciled to net interest income adjusted to a fully taxable equivalent basis on pages 51 for the three months ended March 31, 2022 and 2021.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Selected Financial Data

The following selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, which follows, and with the unaudited Consolidated Financial Statements and related notes. 

									For the Three Months Ended March 31,
															2022						2021
															(dollars in thousands, except per share data)
Net Income															$	27,726					$	39,770
Per Share Data:
Basic Earnings per Share															$	0.29					$	0.41
Diluted Earnings per Share															0.29						0.41
Cash Dividends Declared per Common Share															0.115						0.110
Average Balance:
Total assets															$	9,524,578					$	9,130,454
Total equity															1,107,415						1,076,555
End of Period Balance:
Net loans and leases (1)															$	6,871,430					$	6,660,735
Total assets															9,642,124						9,416,989
Total deposits															8,171,847						7,869,256
Total equity															1,067,619						1,087,480
Key Ratios:
Return on average assets															1.18		%				1.77		%
Return on average equity															10.15		%				14.98		%
Dividends payout ratio															39.66		%				26.83		%
Average equity to average assets ratio															11.63		%				11.79		%
Net interest margin															3.19		%				3.40		%
Net loans to deposits ratio															84.09		%				84.64		%

(1) Includes loans held for sale.

Results of Operations

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Net Income

For the three months ended March 31, 2022, First Commonwealth had net income of $27.7 million, or $0.29 diluted earnings per share, compared to net income of $39.8 million, or $0.41 diluted earnings per share, in the three months ended March 31, 2021. The decrease in net income was primarily the result of a $2.0 million provision for credit losses recognized during the three months ended March 31, 2022 compared to a negative provision of $4.4 million recognized in the same period in 2021. Additionally, noninterest income decreased $3.4 million and noninterest expense increased $3.9 million during the three months ended March 31, 2022 compared to the same period in 2021.

For the three months ended March 31, 2022, the Company’s return on average equity was 10.15% and its return on average assets was 1.18%, compared to 14.98% and 1.77%, respectively, for the three months ended March 31, 2021.

Net Interest Income

Net interest income, on a fully taxable equivalent basis, was $68.4 million in the first three months of 2022, compared to $69.8 million for the same period in 2021. The decrease in net interest income can be attributed to a 30 basis point decrease in the yield on interest-earning assets, partially offset by a 12 basis point decrease in the cost of interest-bearing liabilities and a $391.2 million increase in interest-earning assets. Net interest income comprises the majority of our operating revenue (net

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

interest income before provision expense plus noninterest income), at 74.0% and 71.7% for the three months ended March 31, 2022 and 2021, respectively.

The net interest margin on a fully taxable equivalent basis was 3.19% and 3.40% for the three months ended March 31, 2022 and March 31, 2021, respectively. The decline in the net interest margin is primarily attributable to the amount and composition of interest-earning assets and interest-bearing liabilities.

 

The taxable equivalent yield on interest-earning assets was 3.33% for the three months ended March 31, 2022, a decrease of 30 basis points compared to the 3.63% yield for the same period in 2021. Contributing to this decrease is a $438.2 million decline in average PPP loans, which yield higher rates than the remainder of the loan portfolio. As the PPP loans paid off, due to forgiveness by the US Government, the funds were used to fund growth in the loan and investment portfolios. Additionally, replacement yields on certain loan categories, including commercial variable loans, were lower than the rates on runoff in those categories.

The loan yield for the three months ended March 31, 2022, decreased 30 basis points compared to the same period in 2021. The decrease was primarily due to a decline in average PPP loans outstanding. These loans, which were originated under the CARES Act, had an average balance of $51.1 million and a stated loan rate of 1% and a yield of 13.93% for the three months ended March 31, 2022. During the three months ended March 31, 2021, PPP loans averaged $489.4 million with a yield of 6.58%. The yield on PPP loans includes the recognition of PPP loan deferred processing fees, net of deferred origination costs, of $1.5 million for the three months ended March 31, 2022. These amounts are recognized in interest income as a yield adjustment over the life of the loan with accelerated recognition when a loan is forgiven or paid off. As of March 31, 2022, we expect to recognize additional PPP-related deferred processing fees, net of origination costs, of approximately $0.9 million as an adjustment to yield over the remaining terms of the loans. The balance of PPP loans outstanding at March 31, 2022 totaled $28.9 million. During the three months ended March 31, 2022, PPP loans generated $1.8 million in income compared to $7.9 million during the same period in 2021. For the three months ended March 31, 2022, PPP loans increased the yield on total loans by 7 basis points and the net interest margin by 6 basis points. During the three months ended March 31, 2022, the Company processed forgiveness on $43.0 million of PPP loans originated in prior quarters.

The investment portfolio yield decreased 15 basis points in comparison to the prior year as a result of $335.5 million in average growth at a time when new volume rates were lower than the portfolio yield. Growth in the investment portfolio is a result of continued deposit growth as well as a decline in interest-bearing deposits with banks, which decreased from $340.8 million in 2021 to $284.4 million in 2022. The change in the level and rate paid on interest-bearing deposits with banks decreased the yield on earning assets by 11 basis points for the three months ended March 31, 2022.

Decreases in the cost of interest-bearing liabilities partially offset the negative impact of lower yields on interest-earning assets. The cost of interest-bearing liabilities decreased to 0.22% for the three months ended March 31, 2022, from 0.34% for the same period in 2021. Lower market interest rates and management's efforts to reduce deposit costs resulted in the cost of interest-bearing deposits decreasing 10 basis points and short-term borrowings decreasing 4 basis points in comparison to the same period last year.

For the three months ended March 31, 2022, changes in interest rates negatively impacted net interest income by $4.8 million when compared with the same period in 2021. The lower yield on interest-earning assets negatively impacted net interest income by $5.6 million, while the decrease in the cost of interest-bearing liabilities positively impacted net interest income by $0.8 million.

Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $3.5 million for the three months ended March 31, 2022, as compared to the same period in 2021. Higher levels of interest-earning assets resulted in an increase of $2.7 million in interest income, and changes in the volume and mix of interest-bearing liabilities decreased interest expense by $0.8 million, primarily due to a decrease in long-term debt. Average earning assets for the three months ended March 31, 2022 increased $391.2 million, or 4.7%, compared to the same period in 2021. Average loans for the comparable period increased $112.2 million, or 1.7%.

Net interest income also benefited from a $223.2 million increase in average net free funds at March 31, 2022 as compared to March 31, 2021. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The largest component of the increase in net free funds was an increase of $231.7 million, or 9.6%, in noninterest-bearing demand deposit average balances, primarily due to deposit growth related to PPP loan proceeds and government stimulus payments. Average time deposits for the three months ended March 31, 2022 decreased by $153.8 million compared to the comparable period in 2021, while the average rate paid on time deposits decreased 46 basis points compared to the same period in 2021.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following table reconciles interest income in the Consolidated Statements of Income to net interest income adjusted to a fully taxable equivalent basis for the three months ended March 31:

 

			2022						2021
			(dollars in thousands)
Interest income per Consolidated Statements of Income			$	71,244					$	74,061
Adjustment to fully taxable equivalent basis			253						309
Interest income adjusted to fully taxable equivalent basis (non-GAAP)			71,497						74,370
Interest expense			3,072						4,619
Net interest income adjusted to fully taxable equivalent basis (non-GAAP)			$	68,425					$	69,751

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following is an analysis of the average balance sheets and net interest income on a fully taxable equivalent basis for the three months ended March 31:

 

			2022									2021
			Average Balance			Income / Expense (a)			Yield or Rate			Average Balance			Income / Expense (a)			Yield or Rate
			(dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits with banks			$	284,367		$	111		0.16		%	$	340,800		$	77		0.09		%
Tax-free investment securities			24,430			160			2.66			29,695			208			2.84
Taxable investment securities			1,500,334			6,613			1.79			1,159,612			5,507			1.93
Loans and leases, net of unearned income (b)(c)			6,893,628			64,613			3.80			6,781,451			68,578			4.10
Total interest-earning assets			8,702,759			71,497			3.33			8,311,558			74,370			3.63
Noninterest-earning assets:
Cash			114,672									90,844
Allowance for credit losses			(93,645)									(106,197)
Other assets			800,792									834,249
Total noninterest-earning assets			821,819									818,896
Total Assets			$	9,524,578								$	9,130,454
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (d)			$	1,551,979		$	100		0.03		%	$	1,445,653		$	108		0.03		%
Savings deposits (d)			3,428,411			449			0.05			3,158,169			971			0.12
Time deposits			374,484			264			0.29			528,265			973			0.75
Short-term borrowings			115,544			21			0.07			119,369			31			0.11
Long-term debt			182,119			2,238			4.98			233,113			2,536			4.41
Total interest-bearing liabilities			5,652,537			3,072			0.22			5,484,569			4,619			0.34
Noninterest-bearing liabilities and shareholders’ equity:
Noninterest-bearing demand deposits			2,645,551									2,413,887
Other liabilities			119,075									155,443
Shareholders’ equity			1,107,415									1,076,555
Total Noninterest-Bearing Funding Sources			3,872,041									3,645,885
Total Liabilities and Shareholders’ Equity			$	9,524,578								$	9,130,454
Net Interest Income and Net Yield on Interest-Earning Assets						$	68,425		3.19		%				$	69,751		3.40		%

(a)Income on interest-earning assets has been computed on a fully taxable equivalent basis using the 21% federal income tax statutory rate for the three months ended March 31, 2022 and 2021.

(b)Loan balances include held for sale and nonaccrual loans. Income on nonaccrual loans is accounted for on the cash basis.

(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.

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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, 2022 compared with March 31, 2021:

 

						Analysis of Year-to-Year Changes in Net Interest Income
						Total Change						Change Due To Volume						Change Due To Rate (a)
						(dollars in thousands)
Interest-earning assets:
Interest-bearing deposits with banks						$	34					$	(13)					$	47
Tax-free investment securities						(48)						(37)						(11)
Taxable investment securities						1,106						1,621						(515)
Loans and leases						(3,965)						1,134						(5,099)
Total interest income (b)						(2,873)						2,705						(5,578)
Interest-bearing liabilities:
Interest-bearing demand deposits						(8)						8						(16)
Savings deposits						(522)						80						(602)
Time deposits						(709)						(284)						(425)
Short-term borrowings						(10)						(1)						(9)
Long-term debt						(298)						(555)						257
Total interest expense						(1,547)						(752)						(795)
Net interest income						$	(1,326)					$	3,457					$	(4,783)

(a)Changes in interest income or expense not arising solely as a result of volume or rate variances are allocated to rate variances.

(b)Changes in interest income have been computed on a fully taxable equivalent basis using the 21% federal income tax statutory rate.

Provision for Credit Losses

The provision for credit losses is determined based on management’s estimates of the appropriate level of the allowance for credit losses needed for expected losses inherent in the loan portfolio and on off-balance sheet commitments. The provision for credit losses is an amount added to the allowance, against which credit losses are charged.  

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The table below provides a breakout of the provision for credit losses by loan category for the three months ended March 31: 

			2022									2021
			Dollars			Percentage						Dollars			Percentage
			(dollars in thousands)
Commercial, financial, agricultural and other			$	3,023		(1,511)		%				$	5,093		(399)		%
Time and demand			3,715			(1,857)						4,960			(389)
Commercial credit cards			113			(56)						133			(10)
Equipment finance			31			(16)
Time and demand other			(836)			418
Real estate construction			710			(355)						(3,945)			309
Construction other			(103)			52
Construction residential			813			(407)
Residential real estate			4,213			(2,107)						(1,461)			115
Residential first lien			3,683			(1,842)						(692)			55
Residential junior lien/home equity			530			(265)						(769)			60
Commercial real estate			314			(157)						(2,774)			217
Multifamily			49			(25)						(1,988)			156
Nonowner occupied			(1,576)			788						985			(77)
Owner occupied			1,841			(920)						(1,771)			138
Loans to individuals			(8,460)			4,230						1,811			(142)
Automobile and recreational vehicles			(8,460)			4,230						1,254			(98)
Consumer credit cards			(29)			15						205			(16)
Consumer other			29			(15)						352			(28)
Provision for credit losses on loans and leases			$	(200)		100		%				$	(1,276)		100		%
Provision for off-balance sheet credit exposure			2,164									(3,114)
Total provision for credit losses			$	1,964								$	(4,390)

The provision for credit losses on loans and leases for the three months ended March 31, 2022 increased in comparison to the three months ended March 31, 2021 by $1.1 million, however both periods reflect a negative provision. Total provision expense in the three months ended March 31, 2022 is primarily the result of growth in off-balance sheet commitments as well as an annual review of peer loss history data which resulted in higher loss rates for construction related commitments. Comparing the three months ended March 31, 2022 with the comparable period in 2021, the provision for credit losses on loans and leases was also impacted by a decrease of $2.8 million in reserves on individually analyzed loans.

Because PPP loans are fully guaranteed by the SBA, there is no allowance for credit losses recognized for these loans. For the three months ended March 31, 2022, increases in provision expense for Time and demand and Residential first lien as well as the negative provision for Automobile and recreational vehicles are primarily the result of an annual review of peer loss history data used in the Allowance for Credit Loss model. Provision expense was also impacted by loan growth in these categories.

The negative provision expense for the three months ended March 31, 2021 was primarily the result of an improved economic forecast which reflected a decline in the projected impact of the COVID-19 pandemic on the economy and expected loan losses.

The allowance for credit losses was $91.2 million, or 1.31%, of total loans outstanding at March 31, 2022, compared to $92.5 million, or 1.35%, at December 31, 2021 and $96.8 million, or 1.44%, at March 31, 2021. Nonperforming loans as a percentage of total loans decreased to 0.54% at March 31, 2022 from 0.81% at December 31, 2021 and 0.75% as of March 31, 2021. The allowance to nonperforming loan ratio was 243.38%, 167.67% and 192.06% as of March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

 

Management believes that the allowance for credit losses is at a level deemed appropriate to absorb expected losses inherent in the loan portfolio at March 31, 2022.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Below is an analysis of the consolidated allowance for credit losses for the three months ended March 31, 2022 and 2021 and the year-ended December 31, 2021:

 

						March 31, 2022						March 31, 2021						December 31, 2021
						(dollars in thousands)
Balance, beginning of period						$	92,522					$	101,309					$	101,309
Loans charged off:
Commercial, financial, agricultural and other						475						569						7,020
Real estate construction						—						—						9
Residential real estate						139						105						309
Commercial real estate						—						1,550						1,659
Loans to individuals						1,009						1,541						4,061
Total loans charged off						1,623						3,765						13,058
Recoveries of loans previously charged off:
Commercial, financial, agricultural and other						80						90						2,430
Real estate construction						—						—						155
Residential real estate						29						37						468
Commercial real estate						14						39						135
Loans to individuals						366						329						1,460
Total recoveries						489						495						4,648
Net charge-offs						1,134						3,270						8,410
Provision for credit losses on loans charged to expense						(200)						(1,276)						(377)
Balance, end of period						$	91,188					$	96,763					$	92,522
Net charge-offs as a percentage of average loans and leases outstanding (annualized)						0.07		%				0.20		%				0.12		%
Allowance for credit losses as a percentage of end-of-period loans outstanding						1.31		%				1.44		%				1.35		%
Allowance for credit losses as a percentage of end-of-period loans outstanding, excluding PPP loans						1.32		%				1.55		%				1.37		%

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Noninterest Income

The following table presents the components of noninterest income for the three months ended March 31: 

						2022						2021						$ Change						% Change
						(dollars in thousands)
Noninterest Income:
Trust income						$	2,713					$	2,516					$	197					8		%
Service charges on deposit accounts						4,615						4,047						568						14
Insurance and retail brokerage commissions						2,272						2,172						100						5
Income from bank owned life insurance						1,508						1,951						(443)						(23)
Card-related interchange income						6,490						6,427						63						1
Swap fee income						453						146						307						210
Other income						1,975						1,924						51						3
Subtotal						20,026						19,183						843						4
Net securities gains						2						6						(4)						(67)
Gain on sale of mortgage loans						1,282						5,046						(3,764)						(75)
Gain on sale of other loans and assets						2,319						1,690						629						37
Derivatives mark to market						347						1,430						(1,083)						(76)
Total noninterest income						$	23,976					$	27,355					$	(3,379)					(12)		%

Total noninterest income, excluding net securities gains, gain on sale of mortgage loans, gain on sale of other loans and assets and the derivatives mark to market for the three months ended March 31, 2022 increased $0.8 million, or 4%, compared to the three months ended March 31, 2021. Service charges on deposit accounts increased $0.6 million as customer activity began to return to pre-COVID levels and swap fee income increased $0.3 million due to growth in interest rate swaps entered into for our commercial customers. Trust income increased $0.2 million as a result of growth in assets under management. Income from bank owned life insurance decreased $0.4 million compared to the prior period due to recognition of a benefit during the three months ended March 31, 2021 with no similar benefit during the three months ended March 31, 2022.

Total noninterest income decreased $3.4 million, or 12%, compared to the same period in the prior year. The most significant changes, other than the changes noted above, include a $3.8 million decrease in Gain on sale of mortgage loans as a result of changes in volume and the spread received on mortgage loans sold. The mark to market adjustment on interest rate swaps entered into for our commercial loan customers decreased $1.1 million. This adjustment does not reflect a realized gain on the swaps, but rather relates to changes in fair value due to movements in corporate bond spreads and swap rates. The gain on sale of other loans and assets increased $0.6 million due to a higher volume of loans, primarily SBA loans, being sold in the first three months of 2022 compared to the same period in 2021.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Noninterest Expense

The following table presents the components of noninterest expense for the three months ended March 31: 

						2022						2021						$ Change						% Change
						(dollars in thousands)
Noninterest Expense:
Salaries and employee benefits						$	30,932					$	28,671					$	2,261					8		%
Net occupancy						4,787						4,773						14						—
Furniture and equipment						3,730						3,948						(218)						(6)
Data processing						3,188						3,052						136						4
Advertising and promotion						1,226						1,324						(98)						(7)
Pennsylvania shares tax						1,005						832						173						21
Intangible amortization						862						866						(4)						—
Other professional fees and services						1,221						751						470						63
FDIC insurance						698						696						2						—
Other operating						7,285						6,344						941						15
Subtotal						54,934						51,257						3,677						7
Loss on sale or write-down of assets						75						9						66						733
COVID-19 related						17						74						(57)						(77)
Branch consolidation						98						40						58						145
Litigation and operational losses						600						479						121						25
Total noninterest expense						$	55,724					$	51,859					$	3,865					7		%

Noninterest expense increased $3.9 million, or 7%, for the three months ended March 31, 2022 compared to the same period in 2021. Contributing to the increase in expense in 2022 is a $2.3 million increase in salaries and employee benefits primarily due to the number of full time equivalent employees increasing from 1,387 at March 31, 2021 to 1,432 at March 31, 2022. Contributing to the increase in other operating expenses were several expense categories, including credit reporting, travel and operational losses, none of which were individually significant.

Income Tax

The provision for income taxes decreased $2.8 million for the three months ended March 31, 2022, compared to the corresponding period in 2021. 

We applied the “annual effective tax rate approach” to determine the provision for income taxes, which applies an annual forecast of tax expense as a percentage of expected full year income, for the three months ended March 31, 2022 and 2021.

We generate an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest, income from bank-owned life insurance and tax benefits associated with low income housing tax credits, all of which are relatively consistent regardless of the level of pretax income. These provided for an annual effective tax rate of 19.5% and 19.4% for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, our deferred tax assets totaled $41.4 million. Based on our evaluation, we determined that it is more likely than not that all of these assets will be realized. As a result, a valuation allowance against these assets was not recorded. In evaluating the need for a valuation allowance, we estimate future taxable income based on management approved forecasts, evaluation of historical earning levels and consideration of potential tax strategies. If future events differ from our current forecasts, we may need to establish a valuation allowance, which could have a material impact on our financial condition and results of operations.

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. During the first three months of 2022, the maturity and redemption of investment securities provided $78.9 million in liquidity. These funds contributed to the liquidity used to originate loans and purchase investment securities and fund depositor withdrawals.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

We also have available unused wholesale sources of liquidity, including overnight federal funds and repurchase agreements, advances from the FHLB of Pittsburgh, borrowings through the discount window at the Federal Reserve Bank of Cleveland (“FRB”) and access to certificates of deposit through brokers.

We participate in the Certificate of Deposit Account Registry Services (“CDARS”) program as part of an Asset/Liability Committee (“ALCO”) strategy to increase and diversify funding sources. As of March 31, 2022, our maximum borrowing capacity under this program was $1.4 billion, and as of that date there was $5.8 million outstanding with an average weighted rate of 0.55% and an average original term of 341 days. These deposits are part of a reciprocal program that allows our depositors to receive expanded FDIC coverage by placing multiple certificates of deposit at other CDARS member banks.

An additional source of liquidity is the FRB Borrower-in-Custody of Collateral program, which enables us to pledge certain loans that are not being used as collateral at the FHLB as collateral for borrowings at the FRB. At March 31, 2022, the borrowing capacity under this program totaled $1.1 billion and there was no balance outstanding. As of March 31, 2022, our maximum borrowing capacity at the FHLB of Pittsburgh was $1.8 billion and as of that date amounts used against this capacity included $5.4 million in outstanding borrowings and no outstanding letters of credit.

We also have available unused federal funds lines with four correspondent banks. These lines have an aggregate commitment of $160.0 million with no outstanding balance as of March 31, 2022. In addition, we have available unused repo lines with two correspondent banks. These lines have an aggregate commitment of $400.0 million with no outstanding balance as of March 31, 2022.

First Commonwealth Financial Corporation has an unsecured $20.0 million line of credit with another financial institution. As of March 31, 2022, there are no amounts outstanding on this line.

First Commonwealth’s long-term liquidity source is its core deposit base. Core deposits are the most stable source of liquidity a bank can have due to the long-term relationship with a deposit customer. The following table shows a breakdown of the components of First Commonwealth’s deposits: 

						March 31, 2022						December 31, 2021
						(dollars in thousands)
Noninterest-bearing demand deposits(a)						$	2,719,645					$	2,658,782
Interest-bearing demand deposits(a)						305,623						291,476
Savings deposits(a)						4,782,445						4,647,197
Time deposits						364,134						385,043
Total						$	8,171,847					$	7,982,498

(a)Balances include reallocations from noninterest-bearing demand deposits and interest-bearing demand deposits into savings deposits, which were made for regulatory purposes.

The level of deposits during any period is influenced by factors outside of management’s control, such as the level of short-term and long-term market interest rates and yields offered on competing investments, such as money market mutual funds.

During the first three months of 2022, total deposits increased $189.3 million. Interest-bearing demand and savings deposits increased $149.4 million, noninterest-bearing demand deposits increased $60.9 million and time deposits decreased $20.9 million.

Market Risk

The following gap analysis compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time. The ratio of rate-sensitive assets to rate-sensitive liabilities repricing within a one-year period was 0.81 and 0.84 at March 31, 2022 and December 31, 2021, respectively. A ratio of less than one indicates a higher level of repricing liabilities over repricing assets over the next twelve months. The level of First Commonwealth's ratio is largely driven by the modeling of interest-bearing non-maturity deposits, which are included in the analysis as repricing within one year.

Gap analysis has limitations due to the static nature of the model that holds volumes and consumer behaviors constant in all economic and interest rate scenarios. A lower level of rate sensitive assets to rate sensitive liabilities repricing in one year could indicate reduced net interest income in a rising interest rate scenario, and conversely, increased net interest income in a declining interest rate scenario. However, the gap analysis incorporates only the level of interest-earning assets and interest-

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

bearing liabilities and not the sensitivity each has to changes in interest rates. The impact of the sensitivity to changes in interest rates is provided in the table below the gap analysis.

The following is the gap analysis as of March 31, 2022 and December 31, 2021: 

						March 31, 2022
						0-90 Days						91-180 Days						181-365 Days						Cumulative 0-365 Days						Over 1 Year Through 5 Years						Over 5 Years
						(dollars in thousands)
Loans and leases						$	2,992,947					$	299,339					$	558,586					$	3,850,872					$	2,210,550					$	812,022
Investments						60,056						43,525						86,785						190,366						550,110						758,722
Other interest-earning assets						404,516						—						—						404,516						—						—
Total interest-sensitive assets (ISA)						3,457,519						342,864						645,371						4,445,754						2,760,660						1,570,744
Certificates of deposit						96,518						69,072						93,274						258,864						104,226						1,194
Other deposits						5,088,068						—						—						5,088,068						—						—
Borrowings						168,116						201						401						168,718						53,211						51,383
Total interest-sensitive liabilities (ISL)						5,352,702						69,273						93,675						5,515,650						157,437						52,577
Gap						$	(1,895,183)					$	273,591					$	551,696					$	(1,069,896)					$	2,603,223					$	1,518,167
ISA/ISL						0.65						4.95						6.89						0.81						17.54						29.88
Gap/Total assets						19.66		%				2.84		%				5.72		%				11.10		%				27.00		%				15.75		%

 

						December 31, 2021
						0-90 Days						91-180 Days						181-365 Days						Cumulative 0-365 Days						Over 1 Year Through 5 Years						Over 5 Years
						(dollars in thousands)
Loans						$	2,910,172					$	394,048					$	606,468					$	3,910,688					$	2,296,873					$	555,022
Investments						98,969						82,267						154,316						335,552						725,576						516,766
Other interest-earning assets						310,629						—						—						310,629						—						—
Total interest-sensitive assets (ISA)						3,319,770						476,315						760,784						4,556,869						3,022,449						1,071,788
Certificates of deposit						97,269						72,453						106,243						275,965						107,795						1,232
Other deposits						4,938,673						—						—						4,938,673						—						—
Borrowings						210,682						200						400						211,282						53,197						51,577
Total interest-sensitive liabilities (ISL)						5,246,624						72,653						106,643						5,425,920						160,992						52,809
Gap						$	(1,926,854)					$	403,662					$	654,141					$	(869,051)					$	2,861,457					$	1,018,979
ISA/ISL						0.63						6.56						7.13						0.84						18.77						20.30
Gap/Total assets						20.19		%				4.23		%				6.85		%				9.10		%				29.98		%				10.68		%

The following table presents an analysis of the potential sensitivity of our annual net interest income to gradual changes in interest rates over a 12-month time frame as compared with net interest income if rates remained unchanged and there are no changes in balance sheet categories.

 

						Net interest income change (12 months) for basis point movements of:
						-200						-100						+100						+200
						(dollars in thousands)
March 31, 2022 ($)						$	(8,703)					$	(4,632)					$	5,772					$	9,861
March 31, 2022 (%)						(2.97)		%				(1.58)		%				1.97		%				3.36		%
December 31, 2021 ($)						$	(9,008)					$	(4,976)					$	5,956					$	10,224
December 31, 2021 (%)						(3.25)		%				(1.79)		%				2.15		%				3.69		%

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following table represents the potential sensitivity of our annual net interest income to immediate changes in interest rates versus if rates remained unchanged and there are no changes in balance sheet categories.

						Net interest income change (12 months) for basis point movements of:
						-200						-100						+100						+200
						(dollars in thousands)
March 31, 2022 ($)						$	(26,610)					$	(13,796)					$	14,056					$	29,773
March 31, 2022 (%)						(9.07)		%				(4.70)		%				4.79		%				10.15		%
December 31, 2021 ($)						$	(26,120)					$	(17,640)					$	13,867					$	29,192
December 31, 2021 (%)						(9.42)		%				(6.36)		%				5.00		%				10.53		%

The analysis and model used to quantify the sensitivity of our net interest income becomes less meaningful in a decreasing 200 basis point scenario given the current interest rate environment. Results of the 100 and 200 basis point interest rate decline scenario are affected by the fact that many of our interest-bearing liabilities are at rates below 1%, with an assumed floor of zero in the model. In the three months ended March 31, 2022 and 2021, the cost of our interest-bearing liabilities averaged 0.22% and 0.34%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 3.33% and 3.63%, respectively.

Asset/liability models require that certain assumptions be made, such as prepayment rates on earning assets and the impact of pricing on non-maturity deposits, which may differ from actual experience. These business assumptions are based upon our experience, business plans and published industry experience. While management believes such assumptions to be reasonable, there can be no assurance that modeled results will approximate actual results.

Credit Risk

First Commonwealth maintains an allowance for credit losses at a level deemed sufficient for losses inherent in the loan and lease portfolio at the date of each statement of financial condition. Management reviews the appropriateness of the allowance on a quarterly basis to ensure that the provision for credit losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is appropriate based on management’s assessment of probable estimated losses.

First Commonwealth’s methodology for assessing the appropriateness of the allowance for credit losses consists of several key elements. These elements include an assessment of individual nonperforming loans with a balance greater than $250 thousand, loss experience trends and other relevant factors.

First Commonwealth also maintains a reserve for unfunded loan commitments and letters of credit based upon credit risk and probability of funding. The reserve totaled $8.6 million at March 31, 2022 and is classified in "Other liabilities" on the unaudited Consolidated Statements of Financial Condition.

Nonperforming loans include nonaccrual loans and loans classified as troubled debt restructurings. Nonaccrual loans represent loans on which interest accruals have been discontinued. Troubled debt restructured loans are those loans whose terms have been renegotiated to provide a reduction or deferral of principal or interest as a result of the deteriorating financial position of the borrower, who could not obtain comparable terms from alternative financing sources. In the first three months of 2022, two loans totaling $0.1 million were identified as troubled debt restructurings.

The balance of troubled debt restructured loans decreased $3.3 million from December 31, 2021. Changes during the first three months of 2022 can be attributed to the pay off and paydown of troubled debt loans. Please refer to Note 7 “Loans and Allowance for Credit Losses,” for additional information on troubled debt restructurings.

We discontinue interest accruals on a loan when, based on current information and events, it is probable that we will be unable to fully collect principal or interest due according to the contractual terms of the loan. A loan is also placed on nonaccrual status when, based on regulatory definitions, the loan is maintained on a “cash basis” due to the weakened financial condition of the borrower. Generally, loans 90 days or more past due are placed on nonaccrual status, except for consumer loans, which are placed on nonaccrual status at 150 days past due.

Nonperforming loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The probable risk of loss on these loans is evaluated by comparing the loan balance to the fair value of any underlying collateral or the present value of projected future cash flows. Losses or a specifically assigned allowance for loan losses are recognized where appropriate.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Nonperforming loans, including loans held for sale, decreased $17.7 million to $37.5 million at March 31, 2022 compared to $55.2 million at December 31, 2021. During the three months ended March 31, 2022, a $14.5 million commercial real estate loan was removed from nonaccrual status and subsequent to March 31, 2022 the loan was paid off in full. During the same period $0.7 million of loans were moved to nonaccrual.

The allowance for credit losses as a percentage of nonperforming loans was 243.38% as of March 31, 2022, compared to 167.67% at December 31, 2021, and 192.06% at March 31, 2021. The amount of specific reserves included in the allowance for nonperforming loans was determined by using fair values obtained from current appraisals and updated discounted cash flow analyses. The allowance for credit losses includes specific reserves of $0.4 million and general reserves of $90.8 million as of March 31, 2022. Specific reserves decreased $44 thousand from December 31, 2021, and $2.8 million from March 31, 2021. The decrease from both periods is primarily due to the charge-off and payoffs of relationships with specific reserves assigned. 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, 2022.

Criticized loans totaled $174.1 million at March 31, 2022 and represented 3% of the loan portfolio. The level of criticized loans decreased as of March 31, 2022 when compared to December 31, 2021, by $24.1 million, or 12%. Classified loans totaled $75.3 million at March 31, 2022 compared to $77.6 million at December 31, 2021, a decrease of $2.3 million, or 3%. The decrease in criticized loans is the result of the aforementioned changes in nonperforming loans as well as credit upgrades on borrowers primarily in the hospitality sector. Delinquency on accruing loans for the same period increased $14.1 million, or 134%, as a result of the commercial real estate loan that was moved out of a nonaccrual status being 30 days delinquent at March 31, 2022. At March 31, 2022, this loan was well secured and in the process of collection and subsequent to March 31, 2022, this loan paid off in full.

The allowance for credit losses was $91.2 million at March 31, 2022, or 1.31% of total loans outstanding, compared to 1.35% reported at December 31, 2021, and 1.44% at March 31, 2021. General reserves, or the portion of the allowance related to loans that were not specifically evaluated, as a percentage of performing loans were 1.31% at March 31, 2022 compared to 1.36% at December 31, 2021 and 1.40% at March 31, 2021. The decrease in the general reserve from December 31, 2021 and March 31, 2021 are reflective of lower unemployment rates utilized to forecast future loan losses at March 31, 2022.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following table provides information related to nonperforming assets, the allowance for credit losses and other credit-related measurements:

						March 31,																					December 31, 2021
						2022												2021
						(dollars in thousands)
Nonperforming Loans:
Loans on nonaccrual basis						$	20,490											$	23,056											$	34,926
Troubled debt restructured loans on nonaccrual basis						10,090												20,628												13,134
Troubled debt restructured loans on accrual basis						6,887												6,697												7,120
Total nonperforming loans						$	37,467											$	50,381											$	55,180
Loans past due 30 to 90 days and still accruing						$	22,692											$	6,837											$	8,911
Loans past due in excess of 90 days and still accruing						$	1,921											$	1,079											$	1,606
Other real estate owned						$	667											$	916											$	642
Loans held for sale at end of period						$	10,506											$	20,604											$	18,583
Portfolio loans and leases outstanding at end of period						$	6,952,112											$	6,736,894											$	6,839,230
Average loans and leases outstanding						$	6,893,628					(a)						$	6,781,451					(a)						$	6,777,192					(b)
Nonperforming loans as a percentage of total loans and leases						0.54		%										0.75		%										0.81		%
Provision for credit losses on loans and leases						$	(200)					(a)						$	(1,276)					(a)						$	(377)					(b)
Allowance for credit losses						$	91,188											$	96,763											$	92,522
Net charge-offs						$	1,134					(a)						$	3,270					(a)						$	8,410					(b)
Net charge-offs as a percentage of average loans and leases outstanding (annualized)						0.07		%										0.20		%										0.12		%
Provision for credit losses as a percentage of net charge-offs						(17.64)		%				(a)						(39.02)		%				(a)						(4.48)		%				(b)
Allowance for credit losses as a percentage of end-of-period loans and leases outstanding (c)						1.31		%										1.44		%										1.35		%
Allowance for credit losses as a percentage of end-of-period loans and leases outstanding, excluding PPP loans (c)						1.32		%										1.55		%										1.37		%
Allowance for credit losses as a percentage of nonperforming loans (d)						243.38		%										192.06		%										167.67		%

(a)For the three-month period ended.

(b)For the twelve-month period ended.

(c)Does not include loans held for sale.

(d)Does not include nonperforming loans held for sale.

The following tables show the outstanding balances of our loan and lease portfolio and the breakdown of net charge-offs and nonperforming loans, excluding loans held for sale, by loan type as of and for the periods presented:

 

						March 31, 2022												December 31, 2021
						Amount						%						Amount						%
						(dollars in thousands)
Commercial, financial, agricultural and other						$	1,123,690					16		%				$	1,173,452					17		%
Real estate construction						398,988						6						494,456						7
Residential real estate						2,006,221						29						1,920,250						28
Commercial real estate						2,344,281						34						2,251,097						33
Loans to individuals						1,078,932						15						999,975						15
Total loans and leases, net of unearned income						$	6,952,112					100		%				$	6,839,230					100		%

During the three months ended March 31, 2022, loans increased $112.9 million, or 1.7%, compared to balances outstanding at December 31, 2021.

Commercial, financial, agricultural and other loans decreased $49.8 million as the result of a $42.4 million decline in PPP loans.

Real estate construction loans decreased $95.5 million, or 19.3%, primarily due to the completion of commercial real estate construction projects. Residential real estate grew $86.0 million, or 4.5%, primarily due to originations of closed-end 1-4

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

family mortgage loans. Commercial real estate loans increased $93.2 million, or 4.1%, primarily due to growth in multifamily and nonresidential property due in part to the completion of several construction projects. Loans to individuals increased $79.0 million, or 7.9%, primarily due to growth in the indirect auto and recreational vehicle portfolio.

As indicated in the table below, commercial real estate, residential real estate and commercial, financial and agricultural and other loans represent a significant portion of the nonperforming loans as of March 31, 2022. See discussions related to the provision for credit losses and loans for more information.

						For the Three Months Ended March 31, 2022																		As of March 31, 2022
						Net Charge- offs						% of Total Net Charge-offs						Net Charge- offs as a % of Average Loans (annualized)						Nonperforming Loans						% of Total Nonperforming Loans						Nonperforming Loans as a % of Total Loans
						(dollars in thousands)
Commercial, financial, agricultural and other						$	395					34.83		%				0.02		%				$	4,049					10.81		%				0.06		%
Real estate construction						—						—						—						—						—						—
Residential real estate						110						9.70						0.01						9,161						24.45						0.13
Commercial real estate						(14)						(1.23)						—						23,834						63.61						0.34
Loans to individuals						643						56.70						0.04						423						1.13						0.01
Total loans and leases, net of unearned income						$	1,134					100.00		%				0.07		%				$	37,467					100.00		%				0.54		%

Net charge-offs for the three months ended March 31, 2022 totaled $1.1 million, compared to $3.3 million for the three months ended March 31, 2021. The most significant charge-offs during the three months ended March 31, 2022 included $0.6 million related to loans to individuals, primarily indirect auto loans and personal credit lines. See discussions related to the provision for credit losses and loans for more information.

Capital Resources

At March 31, 2022, shareholders’ equity was $1.1 billion, a decrease of $41.8 million from December 31, 2021. The decrease was the result of a $59.4 million decline in the fair value of available for sale investments and interest rate swaps which are reflected in the Other Comprehensive Income component of capital. Other items impacting capital include increases of $27.7 million in net income and $2.2 million in treasury stock sales. These increases were partially offset by $10.8 million of dividends paid to shareholders and $1.5 million of common stock repurchases. Cash dividends declared per common share were $0.115 for the three months ended March 31, 2022 and $0.11 for the three months ended March 31, 2021.

First Commonwealth and First Commonwealth Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on First Commonwealth’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, First Commonwealth and First Commonwealth Bank must meet specific capital guidelines that involve quantitative measures of First Commonwealth’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. First Commonwealth’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting and other factors.

Effective January 1, 2015, the Company became subject to the new regulatory risk-based capital rules adopted by the federal banking agencies implementing Basel III. The most significant changes included higher minimum capital requirements, as the minimum Tier I capital ratio increased from 4.0% to 6.0% and a new common equity Tier I capital ratio was established with a minimum level of 4.5%. Additionally, the rules improved the quality of capital by providing stricter eligibility criteria for regulatory capital instruments and provide for a phase-in, beginning January 1, 2016, of a capital conservation buffer of 2.5% of risk-weighted assets. This buffer, which was fully phased-in as of January 1, 2019, provides a requirement to hold common equity Tier 1 capital above the minimum risk-based capital requirements, resulting in an effective common equity Tier I risk-weighted asset minimum ratio of 7.0% on a fully phased-in basis.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The Basel III Rules also permit banking organizations with less than $15.0 billion in assets to retain, through a one-time election, the existing treatment for accumulated other comprehensive income, which currently does not affect regulatory capital. The Company elected to retain this treatment, which reduces the volatility of regulatory capital levels.

During the second quarter of 2018, First Commonwealth Bank, the Company's banking subsidiary, issued $100 million in subordinated debt, which under the regulatory rules qualifies as Tier II capital. This subordinated debt issuance increased the total risk-based capital ratio by 160 basis points.

As of March 31, 2022, the Company had $28.9 million in PPP loans outstanding under the CARES Act. Because these loans are 100% guaranteed by the SBA, banking regulators confirmed that they have a zero percent risk weight under applicable risk-based capital rules. Additionally, a bank may exclude all PPP loans pledged as collateral to the Federal Reserve's PPP Facility from average total assets when calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. The PPP loans originated by the Company are included in our leverage ratio as of March 31, 2022, as we did not utilize the PPP Facility.

As of March 31, 2022, First Commonwealth and First Commonwealth Bank met all capital adequacy requirements to which they are subject and were considered well-capitalized under the regulatory rules, all on a fully phased-in basis. To be considered well capitalized, the Company must maintain minimum Total risk-based capital, Tier I risk-based capital, Tier I leverage ratio and Common equity tier I risk-based capital as set forth in the table below:

			Actual																		Minimum Capital Required												Required to be Considered Well Capitalized
			Capital Amount						Ratio																		Capital Amount						Ratio						Capital Amount						Ratio
			(dollars in thousands)
Total Capital to Risk Weighted Assets
First Commonwealth Financial Corporation			$	1,092,245					14.74		%																$	777,861					10.50		%				$	740,820					10.00		%
First Commonwealth Bank			1,034,163						13.99																		776,378						10.50						739,407						10.00
Tier I Capital to Risk Weighted Assets
First Commonwealth Financial Corporation			$	907,130					12.24		%																$	629,697					8.50		%				$	592,656					8.00		%
First Commonwealth Bank			849,048						11.48																		628,496						8.50						591,526						8.00
Tier I Capital to Average Assets
First Commonwealth Financial Corporation			$	907,130					9.81		%																$	369,827					4.00		%				$	462,283					5.00		%
First Commonwealth Bank			849,048						9.20																		369,148						4.00						461,435						5.00
Common Equity Tier I to Risk Weighted Assets
First Commonwealth Financial Corporation			$	837,130					11.30		%																$	518,574					7.00		%				$	481,533					6.50		%
First Commonwealth Bank			849,048						11.48																		517,585						7.00						480,615						6.50

On April 26, 2022, First Commonwealth Financial Corporation declared a quarterly dividend of $0.12 per share payable on May 20, 2022 to shareholders of record as of May 6, 2022. The timing and amount of future dividends are at the discretion of First Commonwealth's Board of Directors based upon, among other factors, capital levels, asset quality, liquidity and current and projected earnings.

In November 2021, a share repurchase program was authorized by the Board of Directors for up to an additional $25.0 million in shares of the Company's common stock. As of March 31, 2022, 937,670 common shares had been repurchased under this program at an average price of $15.39 per share.

New Accounting Pronouncements

In March 2020, FASB released Accounting Standards Update (“ASU”) 2020-04 - Reference Rate Reform (Topic 848), which provides optional guidance to ease the accounting burden in accounting for, or recognizing the effects from, reference rate reform on financial reporting. The new standard is a result of the potential discontinuance of the London Interbank Offered Rate ("LIBOR") as an available benchmark rate. The standard is elective and provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, or other transactions that reference LIBOR, or another reference rate expected to be discontinued. The amendments in the update are effective for all entities between March 12, 2020 and December 31, 2022. The Company has established a cross-functional working group to manage the Company’s transition from LIBOR. Products that utilize LIBOR have been identified and have incorporated enhanced language to accommodate the transition to alternative reference rates and the use of LIBOR has been discontinued as an index for new loans. The Company continues to evaluate the impact of the LIBOR transition and adopting the new standard.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

In March 2022, FASB released ASU 2022-02 – “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”). ASU 2022-22 eliminates the accounting guidance for troubled debt restructurings (“TDRs”) while expanding modification and vintage disclosure requirements. Under the previous guidance a TDR occurs when a loan to a borrower experiencing financial difficulty is restructured with a concession provided that a creditor would not otherwise consider. ASU 2022-02 removes the TDR accounting model, instead requiring modifications to apply existing refinancing and restructuring guidance to determine if the modification results in a new loan or is a continuation of the existing one. The update also requires additional disclosures on the nature, magnitude and subsequent performance of certain types of modifications with borrowers experiencing financial difficulties. ASU 2022-02 further includes a requirement to disclose gross charge-offs incurred by year of origination of the related loan or lease. ASU 2022-02 is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. ASU 2022-02 is not expected to have a material impact on the Company's consolidated financial statements, but will result in additional disclosure requirements.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Information appearing in Item 2 of this report under the caption “Market Risk” is incorporated by reference in response to this item.

ITEM 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms of the Securities and Exchange Commission.

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PART II – OTHER INFORMATION

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

 

ITEM 1.     LEGAL PROCEEDINGS

The information required by this item is set forth in Part I, Item 1, Note 5, "Commitments and Contingent Liabilities," which is incorporated herein by reference in response to this item.

ITEM 1A.    RISK FACTORS

There have been no material changes to the risk factors previously disclosed under Part I, Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

    

    None

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

    None

ITEM 4.    MINE SAFETY DISCLOSURES

    Not applicable

ITEM 5.    OTHER INFORMATION

    None

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PART II – OTHER INFORMATION

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 6.     EXHIBITS

Exhibit Number

Description

Incorporated by Reference to

10.1

2022 Annual Incentive Plan

Filed herewith

10.2

2022-2024 Long-Term Incentive Plan

Filed herewith

31.1

Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

31.2

Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Filed herewith

32.1

Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith

32.2

Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed herewith

101

The following materials from First Commonwealth Financial Corporation’s Quarterly Report on Form 10-Q, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Consolidated Financial Statements. Note that XBRL tags are embedded within the document.

Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

FIRST COMMONWEALTH FINANCIAL CORPORATION

(Registrant)

 

DATED: May 9, 2022						/s/ T. Michael Price
						T. Michael Price President and Chief Executive Officer
DATED: May 9, 2022						/s/ James R. Reske
						James R. Reske Executive Vice President, Chief Financial Officer and Treasurer

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