FIRST COMMONWEALTH FINANCIAL CORP /PA/ - Quarter Report: 2023 March (Form 10-Q)

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, 2023


☐			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 9, 2023, was 102,890,733.

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	52

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	70

ITEM 4.	Controls and Procedures	70

PART II.	Other Information

ITEM 1.	Legal Proceedings	71

ITEM 1A.	Risk Factors	71

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71

ITEM 3.	Defaults Upon Senior Securities	71

ITEM 4.	Mine Safety Disclosures	72

ITEM 5.	Other Information	72

ITEM 6.	Exhibits	73

	Signatures	74

Table of Contents

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)


	March 31, 2023		December 31, 2022

	(dollars in thousands, except share data)
Assets
Cash and due from banks	$	113,692	$	124,254
Interest-bearing bank deposits	282,110		29,990
Securities available for sale, at fair value	750,613		762,661
Securities held to maturity, at amortized cost (Fair value of $381,741 and $386,205 at March 31, 2023 and December 31, 2022, respectively)	451,278		461,162
Other investments	36,200		26,414
Loans held for sale	11,050		11,869
Loans and leases:
Portfolio loans and leases	8,656,945		7,642,143
Allowance for credit losses	(133,885)		(102,906)
Net loans and leases	8,523,060		7,539,237
Premises and equipment, net	130,210		115,106
Other real estate owned	424		534
Goodwill	360,414		303,328
Amortizing intangibles, net	25,584		9,205
Bank owned life insurance	227,024		222,651
Other assets	202,093		199,255
Total assets	$	11,113,752	$	9,805,666
Liabilities
Deposits (all domestic):
Noninterest-bearing	$	2,698,225	$	2,670,508
Interest-bearing	6,536,723		5,334,961
Total deposits	9,234,948		8,005,469
Short-term borrowings	278,978		372,694
Subordinated debentures	177,558		170,937
Other long-term debt	4,679		4,862
Capital lease obligation	5,294		5,425
Total long-term debt	187,531		181,224
Other liabilities	187,281		194,205
Total liabilities	9,888,738		8,753,592
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; 123,603,380 and 113,914,902 shares issued at March 31, 2023 and December 31, 2022, respectively, and 103,193,127 and 93,376,314 shares outstanding at March 31, 2023 and December 31, 2022, respectively	123,603		113,915
Additional paid-in capital	630,196		497,431
Retained earnings	792,720		774,863
Accumulated other comprehensive loss, net	(124,570)		(137,692)
Treasury stock (20,410,253 and 20,538,588 shares at March 31, 2023 and December 31, 2022, respectively)	(196,935)		(196,443)

Total shareholders’ equity	1,225,014		1,052,074
Total liabilities and shareholders’ equity	$	11,113,752	$	9,805,666

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

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,
		2023		2022
		(dollars in thousands, except share data)
Interest Income
Interest and fees on loans and leases		$	107,668	$	64,394
Interest and dividends on investments:
Taxable interest		5,789		6,478
Interest exempt from federal income taxes		117		126
Dividends		505		135
Interest on bank deposits		510		111
Total interest income		114,589		71,244
Interest Expense
Interest on deposits		15,518		813
Interest on short-term borrowings		2,401		21
Interest on subordinated debentures		2,214		2,129
Interest on other long-term debt		45		52
Interest on lease obligations		53		57

Total interest expense		20,231		3,072
Net Interest Income		94,358		68,172
Provision for credit losses		(2,650)		1,964
Provision for credit losses - acquisition day 1 non-PCD		10,653		—
Net Interest Income after Provision for Credit Losses		86,355		66,208
Noninterest Income



Net securities gains		—		2
Trust income		2,486		2,713
Service charges on deposit accounts		4,918		4,615
Insurance and retail brokerage commissions		2,552		2,272
Income from bank owned life insurance		1,227		1,508
Gain on sale of mortgage loans		652		1,282
Gain on sale of other loans and assets		2,086		2,319
Card-related interchange income		6,829		6,490
Derivatives mark to market		(89)		347

Swap fee income		245		453
Other income		2,057		1,975
Total noninterest income		22,963		23,976
Noninterest Expense
Salaries and employee benefits		34,264		30,932
Net occupancy		5,018		4,787
Furniture and equipment		4,238		3,730
Data processing		3,404		3,188
Advertising and promotion		1,663		1,226

Pennsylvania shares tax		1,252		1,005
Intangible amortization		1,147		862

Other professional fees and services		1,591		1,221
FDIC insurance		1,417		698
Loss on sale or write-down of assets		41		75

Litigation and operational losses		743		600

Merger and acquisition related		8,541		—



Other operating		8,062		7,400
Total noninterest expense		71,381		55,724
Income Before Income Taxes		37,937		34,460
Income tax provision		7,713		6,734
Net Income		$	30,224	$	27,726
Average Shares Outstanding		99,560,831		94,078,699

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

Table of Contents


	For the Three Months Ended
	March 31,
		2023		2022
		(dollars in thousands, except share data)
Average Shares Outstanding Assuming Dilution		99,779,816		94,311,324

Per Share Data: Basic Earnings per Share		$	0.30	$	0.29
Diluted Earnings per Share		$	0.30	$	0.29
Cash Dividends Declared per Common Share		$	0.120	$	0.115

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

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,
		2023		2022
		(dollars in thousands)
Net Income		$	30,224	$	27,726
Other comprehensive income (loss), before tax (expense) benefit:
Unrealized holding gains (losses) on securities arising during the period		10,355		(57,251)

Less: reclassification adjustment for gains on securities included in net income		—		(2)
Unrealized holding gains (losses) on derivatives arising during the period		5,806		(17,926)

Total other comprehensive income (loss), before tax (expense) benefit		16,161		(75,179)
Income tax (expense) benefit related to items of other comprehensive income (loss)		(3,039)		15,787
Total other comprehensive income (loss)		13,122		(59,392)
Comprehensive Income (Loss)		$	43,346	$	(31,666)

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

Table of Contents

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, 2022	93,376,314	$	113,915	$	497,431	$	774,863	$	(137,692)	$	(196,443)	$	1,052,074


Net income						30,224						30,224
Other comprehensive income								13,122				13,122
Cash dividends declared ($0.120 per share)						(12,367)						(12,367)




Treasury stock acquired	(109,112)									(1,732)		(1,732)
Treasury stock reissued	143,412			610		—				1,356		1,966
Restricted stock	94,035	—		488		—				(116)		372
Common stock issued	9,688,478	9,688		131,667								141,355
Balance at March 31, 2023	103,193,127	$	123,603	$	630,196	$	792,720	$	(124,570)	$	(196,935)	$	1,225,014


	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

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

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,
	2023		2022
Operating Activities	(dollars in thousands)
Net income	$	30,224	$	27,726
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses	8,003		1,964
Deferred tax expense	2,218		1,807
Depreciation and amortization	1,847		2,560
Net gains on securities and other assets	(2,330)		(3,908)
Net amortization of premiums and discounts on securities	378		635

Income from increase in cash surrender value of bank owned life insurance	(1,190)		(1,508)
Decrease in interest receivable	645		45
Mortgage loans originated for sale	(31,165)		(51,833)
Proceeds from sale of mortgage loans	32,462		58,198
Increase in interest payable	2,146		1,282
Increase (decrease) in income taxes payable	5,512		(4,137)

Other-net	(10,150)		(1,632)
Net cash provided by operating activities	38,600		31,199
Investing Activities
Transactions with securities held to maturity:
Proceeds from maturities and redemptions	9,733		28,369
Purchases	—		(200)
Transactions with securities available for sale:
Proceeds from sales	30,686		—
Proceeds from maturities and redemptions	25,791		50,521

Purchases of FHLB stock	(18,262)		(505)
Proceeds from the redemption of FHLB stock	21,134		201
Proceeds from bank owned life insurance	1,216		—
Proceeds from sale of loans	30,425		21,767
Proceeds from sale of other assets	846		1,461
Net cash received from business acquisition	14,492		—

Net increase in loans and leases	(95,513)		(133,137)

Purchases of premises and equipment and other assets	(9,433)		(4,419)
Net cash provided by (used in) investing activities	11,115		(35,942)
Financing Activities

Net decrease in other short-term borrowings	(266,450)		(42,566)
Net increase in deposits	472,706		189,364
Repayments of other long-term debt	(183)		(175)
Repayments of capital lease obligation	(131)		(122)



Dividends paid	(12,367)		(10,837)

Purchase of treasury stock	(1,732)		(1,488)

Net cash provided by financing activities	191,843		134,176
Net increase in cash and cash equivalents	241,558		129,433
Cash and cash equivalents at January 1	154,244		395,372
Cash and cash equivalents at March 31	$	395,802	$	524,805

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

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 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, 2023 are not necessarily indicative of the results that may be expected for the full year of 2023. These interim financial statements should be read in conjunction with First Commonwealth’s 2022 Annual Report on Form 10-K.

Note 2 Acquisition

On January 31, 2023, the Company completed its acquisition of Centric Financial Corporation (“Centric”) and its banking subsidiary, Centric Bank, for consideration of 9,688,478 shares of the Company's common stock. Through the acquisition, the Company obtained seven full-service banking offices and one loan production office in the Harrisburg, Philadelphia and Lancaster Metropolitan Service Areas ("MSAs").

The table below summarizes the preliminary net assets acquired (at fair value) and consideration transferred in connection with the Centric acquisition (dollars in thousands):


Consideration paid
Cash paid to shareholders - fractional shares	$	1
Shares issued to shareholders (9,688,478 shares)	141,355
Total consideration paid			$	141,356
Fair value of assets acquired
Cash and due from banks	14,492
Investment securities	34,302
FHLB stock	7,658
Loans	925,948
Premises and equipment	12,123
Core deposit intangible	16,671
Bank owned life insurance	4,502
Other assets	18,875
Total assets acquired	1,034,571
Fair value of liabilities assumed
Deposits	757,003
Borrowings	186,716
Other liabilities	6,582
Total liabilities assumed	950,301
Total fair value of identifiable net assets			84,270
Goodwill			$	57,086

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company determined that this acquisition constitutes a business combination and therefore was accounted for using the acquisition method of accounting. Accordingly, as of the date of the acquisition, the Company recorded the assets acquired, liabilities assumed and consideration paid at fair value. The $57.1 million excess of the consideration paid over the fair value of assets acquired was recorded as goodwill and is not amortizable or deductible for tax purposes. The amount of goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company with Centric.

The fair value of the 9,688,478 common shares issued was determined based on the $14.59 closing market price of the Company's common shares on the acquisition date, January 31, 2023. While the valuation of the acquired assets and liabilities is substantially complete, fair value estimates are subject to adjustment during the provisional period, which may last up to twelve months subsequent to the acquisition date. During this period, the Company may obtain additional information to refine the valuations and adjust the recorded fair value, although such adjustments are not expected to be significant. Valuations subject to adjustments include, but are not limited to, the fair value of acquired loans, deposits, land and building, core deposit intangible and other assets and liabilities.

The following is a description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. The Company used an independent valuation specialist to assist with the determination of fair values for certain acquired assets and assumed liabilities.

Cash and due from banks - The estimated fair value was determined to approximate the carrying amount of these assets.

Investment securities - The estimated fair value of the investment portfolio was based on quoted market prices, dealer quotes, and pricing obtained from independent pricing services.

Loans - The estimated fair value of loans were based on a discounted cash flow methodology applied on a pooled basis for non purchased credit-deteriorated ("non-PCD") loans and on an individual basis for purchased credit-deteriorated ("PCD") loans. The valuation considered underlying characteristics including loan type, term, rate, payment schedule and credit rating. Other factors included assumptions related to prepayments, probability of default and loss given default. The discount rates applied were based on a build-up approach considering the funding mix, servicing costs, liquidity premium and factors related to performance risk.

Premise and equipment - The estimated fair value of land and buildings were determined by independent market-based appraisals.

Core deposit intangible - The core deposit intangible was valued utilizing the cost savings method approach, which recognizes the cost savings represented by the expense of maintaining the core deposit base versus the cost of an alternative funding source. The valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates.

Time deposits - The estimated fair value of time deposits was determined using a discounted cash flow approach incorporating a discount rate equal to current market interest rates offered on time deposits with similar terms and maturities.

Borrowings - The estimated fair value of short-term borrowings was determined to approximate stated value. Subordinated debentures were valued using a discounted cash flow approach incorporating a discount rate that incorporated similar terms, maturity and credit rating.

Accounting for Acquired Loans

Acquired loans are classified into two categories PCD loans and non-PCD loans. PCD loans are defined as a loan or group of loans that have experienced more than insignificant credit deterioration since origination. Non-PCD loans will have an allowance established on acquisition date, which is recognized as an expense through provision for credit losses. For PCD loans, an allowance is recognized on day 1 by adding it to the fair value of the loan, which is the “Day 1 amortized cost”. There is no provision for credit loss expense recognized on PCD loans because the initial allowance is established by grossing-up the amortized cost of the PCD loan.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

A day 1 allowance for credit losses on non-PCD loans of $10.7 million was recorded through the provision for credit losses within the Consolidated Statements of Income. At the date of acquisition, of the $977.1 million of loans acquired from Centric, $302.4 million, or 30.9%, of Centric's loan portfolio, was accounted for as PCD loans.

The following table provides details related to the fair value of acquired PCD loans.


	Unpaid Principal Balance		PCD Allowance for Credit Loss at Acquisition		(Discount) Premium on Acquired Loans		Fair Value of PCD Loans at Acquisition
	(dollars in thousands)
Commercial, financial, agricultural and other	$	82,639	$	(15,949)	$	(84)	$	66,606
Time and demand	82,639		(15,949)		(84)		66,606



Real estate construction	29,947		(287)		(479)		29,181
Construction other	16,978		(227)		(179)		16,572
Construction residential	12,969		(60)		(300)		12,609
Residential real estate	16,564		(527)		(496)		15,541
Residential first lien	13,740		(197)		(264)		13,279
Residential junior lien/home equity	2,824		(330)		(232)		2,262
Commercial real estate	173,143		(5,313)		(6,193)		161,637
Multifamily	13,169		(234)		(1,413)		11,522
Nonowner occupied	97,037		(2,739)		(1,902)		92,396
Owner occupied	62,937		(2,340)		(2,878)		57,719
Loans to individuals	62		(3)		(3)		56
Automobile and recreational vehicles	62		(3)		(3)		56


Total loans and leases	$	302,355	$	(22,079)	$	(7,255)	$	273,021

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides details related to the fair value and Day 1 provision related to the acquired non-PCD loans.


	Unpaid Principal Balance		(Discount) premium on acquired loans		Fair Value of Non-PCD Loans at Acquisition		Day 1 Provision for Credit Losses - Non-PCD Loans
	(dollars in thousands)
Commercial, financial, agricultural and other	$	167,509	$	(5,451)	$	162,058	$	3,482
Time and demand	165,781		(5,342)		160,439		3,436

Equipment finance	4		—		4		—
Time and demand other	1,724		(109)		1,615		46
Real estate construction	52,773		(1,126)		51,647		1,638
Construction other	34,801		(971)		33,830		1,146
Construction residential	17,972		(155)		17,817		492
Residential real estate	75,041		(2,593)		72,448		614
Residential first lien	53,612		(1,981)		51,631		437
Residential junior lien/home equity	21,429		(612)		20,817		177
Commercial real estate	378,777		(12,607)		366,170		4,911
Multifamily	45,475		(1,203)		44,272		514
Nonowner occupied	182,793		(5,660)		177,133		2,111
Owner occupied	150,509		(5,744)		144,765		2,286
Loans to individuals	640		(36)		604		8
Automobile and recreational vehicles	449		(25)		424		4

Consumer other	191		(11)		180		4
Total loans and leases	$	674,740	$	(21,813)	$	652,927	$	10,653

Costs related to the acquisition totaled $8.5 million. These amounts were expensed as incurred and are recorded as a merger and acquisition related expense in the Consolidated Statements of Income.

As a result of the full integration of the operations of Centric, it is not practicable to determine revenue or net income included in the Company's operating results relating to Centric since the date of acquisition as Centric results cannot be separately identified.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 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,
	2023						2022
	Pretax Amount		Tax (Expense) Benefit		Net of Tax Amount		Pretax Amount		Tax (Expense) Benefit		Net of Tax Amount
	(dollars in thousands)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) on securities arising during the period	$	10,355	$	(1,820)	$	8,535	$	(57,251)	$	12,023	$	(45,228)

Reclassification adjustment for gains on securities included in net income	—		—		—		(2)		—		(2)
Total unrealized gains (losses) on securities	10,355		(1,820)		8,535		(57,253)		12,023		(45,230)
Unrealized gains (losses) on derivatives:
Unrealized holding gains (losses) on derivatives arising during the period	5,806		(1,219)		4,587		(17,926)		3,764		(14,162)

Total unrealized gains (losses) on derivatives	5,806		(1,219)		4,587		(17,926)		3,764		(14,162)




Total other comprehensive income (loss)	$	16,161	$	(3,039)	$	13,122	$	(75,179)	$	15,787	$	(59,392)

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


	2023								2022
	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	$	(107,471)	$	268	$	(30,489)	$	(137,692)	$	(3,317)	$	95	$	(5,546)	$	(8,768)


Other comprehensive income (loss) before reclassification adjustment	8,535		—		4,587		13,122		(45,228)		—		(14,162)		(59,390)
Amounts reclassified from accumulated other comprehensive (loss) income	—		—		—		—		(2)		—		—		(2)
Net other comprehensive income (loss) during the period	8,535		—		4,587		13,122		(45,230)		—		(14,162)		(59,392)
Balance at March 31	$	(98,936)	$	268	$	(25,902)	$	(124,570)	$	(48,547)	$	95	$	(19,708)	$	(68,160)

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 4 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:


	2023		2022
	(dollars in thousands)
Cash paid during the period for:
Interest	$	18,252	$	1,755
Income taxes	19		9,020
Non-cash investing and financing activities:

Loans transferred to other real estate owned and repossessed assets	536		647
Loans transferred from held to maturity to held for sale	28,714		18,627

Loans transferred from available for sale to held to maturity	(519)		—
Gross increase (decrease) in market value adjustment to securities available for sale	10,356		(57,254)
Gross increase (decrease) in market value adjustment to derivatives	5,806		(17,926)

Increase in limited partnership investment unfunded commitment	4,464		—
Noncash treasury stock reissuance	1,966		1,947
Net assets acquired through acquisition	69,778		—

Proceeds from death benefit on bank owned life insurance not received	103		397

Note 5 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,
		2023		2022
Weighted average common shares issued		120,266,238		113,914,902
Average treasury stock shares		(20,498,898)		(19,654,309)
Average deferred compensation shares		(55,821)		(55,684)
Average unearned nonvested shares		(150,688)		(126,210)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share		99,560,831		94,078,699
Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share		163,133		176,913
Additional common stock equivalents (deferred compensation) used to calculate diluted earnings per share		55,852		55,712

Weighted average common shares and common stock equivalents used to calculate diluted earnings per share		99,779,816		94,311,324
Per Share Data:
Basic Earnings per Share		$	0.30	$	0.29
Diluted Earnings per Share		$	0.30	$	0.29

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.


	2023					2022
		Price Range					Price Range
	Shares	From		To		Shares	From		To

Restricted Stock	139,476	$	12.77	$	16.43	23,621	$	15.81	$	16.25
Restricted Stock Units	17,667	$	17.53	$	17.53	12,793	$	21.08	$	21.08

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6 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 the date shown below:


	March 31, 2023		December 31, 2022
	(dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	2,478,090	$	2,356,539
Financial standby letters of credit	19,676		18,417
Performance standby letters of credit	13,401		12,853
Commercial letters of credit	886		573

The notional amounts outstanding as of March 31, 2023 include amounts issued in 2023 of $0.1 million in performance standby letters of credit. There were no financial standby letters of credit or commercial letters of credit issued in 2023. A liability of $0.1 million has been recorded as of both March 31, 2023 and December 31, 2022, 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 $8.2 million and $10.0 million as of March 31, 2023 and December 31, 2022, 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, 2023, 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.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7 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, 2023								December 31, 2022
	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	$	3,995	$	45	$	(144)	$	3,896	$	4,127	$	37	$	(181)	$	3,983
Mortgage-Backed Securities – Commercial	319,133		—		(49,250)		269,883		324,306		—		(52,890)		271,416
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	512,277		72		(72,106)		440,243		527,777		59		(78,847)		448,989

Other Government-Sponsored Enterprises	1,000		—		(107)		893		1,000		—		(118)		882
Obligations of States and Political Subdivisions	9,479		1		(1,075)		8,405		9,482		—		(1,295)		8,187
Corporate Securities	30,414		20		(3,141)		27,293		32,010		179		(2,985)		29,204



Total Securities Available for Sale	$	876,298	$	138	$	(125,823)	$	750,613	$	898,702	$	275	$	(136,316)	$	762,661

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 40 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.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The amortized cost and estimated fair value of debt securities available for sale at March 31, 2023, by contractual maturity, are shown below.


	Amortized Cost		Estimated Fair Value
	(dollars in thousands)
Due within 1 year	$	5,998	$	5,888
Due after 1 but within 5 years	2,885		2,763
Due after 5 but within 10 years	32,010		27,940
Due after 10 years	—		—
	40,893		36,591
Mortgage-Backed Securities (a)	835,405		714,022
Total Debt Securities	$	876,298	$	750,613

(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 $323.1 million and a fair value of $273.8 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $512.3 million and a fair value of $440.2 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:


	2023		2022
	(dollars in thousands)
Proceeds from sales	$	30,686	$	—
Gross gains (losses) realized:
Sales transactions:
Gross gains	$	—	$	—
Gross losses	—		—
	—		—
Maturities
Gross gains	—		2
Gross losses	—		—

	—		2
Net gains	$	—	$	2

Proceeds from sales included in above table are a result of the sale of investments acquired as part of the Centric acquisition. The securities were recorded at fair value at the time of acquisition and subsequently sold at the same value.

Securities available for sale with an estimated fair value of $431.0 million and $626.7 million were pledged as of March 31, 2023 and December 31, 2022, respectively, to secure public deposits and for other purposes required or permitted by law.

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, 2023								December 31, 2022
	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	$	1,907	$	—	$	(181)	$	1,726	$	2,008	$	—	$	(224)	$	1,784
Mortgage-Backed Securities- Commercial	74,052		—		(13,162)		60,890		75,229		—		(14,196)		61,033
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	321,247		—		(49,529)		271,718		329,267		—		(53,002)		276,265
Mortgage-Backed Securities – Commercial	4,137		—		(89)		4,048		4,794		—		(129)		4,665
Other Government-Sponsored Enterprises	22,301		—		(4,238)		18,063		22,221		—		(4,501)		17,720
Obligations of States and Political Subdivisions	26,634		1		(2,289)		24,346		26,643		—		(2,865)		23,778
Debt Securities Issued by Foreign Governments	1,000		—		(50)		950		1,000		—		(40)		960




Total Securities Held to Maturity	$	451,278	$	1	$	(69,538)	$	381,741	$	461,162	$	—	$	(74,957)	$	386,205

The amortized cost and estimated fair value of debt securities held to maturity at March 31, 2023, 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	$	1,145	$	1,145
Due after 1 but within 5 years	9,816		9,462
Due after 5 but within 10 years	38,411		32,299
Due after 10 years	563		453
	49,935		43,359
Mortgage-Backed Securities (a)	401,343		338,382
Total Debt Securities	$	451,278	$	381,741

(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 $76.0 million and a fair value of $62.6 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $325.4 million and a fair value of $275.8 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 $115.9 million and $368.8 million were pledged as of March 31, 2023 and December 31, 2022, 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

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, 2023 and December 31, 2022, our FHLB stock totaled $30.0 million and $25.2 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, 2023.

As of both March 31, 2023 and December 31, 2022, "Other investments" also includes $6.2 million and $1.2 million, respectively, 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, 2023 and 2022, 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, 2023 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	$	—	$	—	$	3,639	$	(325)	$	3,639	$	(325)
Mortgage-Backed Securities – Commercial	7,076		(232)		323,697		(62,180)		330,773		(62,412)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	15,351		(551)		693,339		(121,084)		708,690		(121,635)
Mortgage-Backed Securities – Commercial	4,048		(89)		—		—		4,048		(89)
Other Government-Sponsored Enterprises	—		—		18,956		(4,345)		18,956		(4,345)
Obligations of States and Political Subdivisions	8,458		(163)		20,802		(3,201)		29,260		(3,364)
Debt Securities Issued by Foreign Governments	197		(4)		554		(46)		751		(50)
Corporate Securities	12,621		(799)		12,660		(2,342)		25,281		(3,141)



Total Securities	$	47,751	$	(1,838)	$	1,073,647	$	(193,523)	$	1,121,398	$	(195,361)

At March 31, 2023, fixed income securities issued by the U.S. Government and U.S. Government-sponsored enterprises comprised 96% of total unrealized losses. All unrealized losses are the result of changes in market interest rates. At March 31, 2023, there are 202 debt securities in an unrealized loss position.

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, 2022 by investment category and the 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	$	3,734	$	(405)	$	—	$	—	$	3,734	$	(405)
Mortgage-Backed Securities - Commercial	92,208		(12,364)		240,241		(54,722)		332,449		(67,086)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	239,760		(21,543)		482,195		(110,306)		721,955		(131,849)
Mortgage-Backed Securities – Commercial	4,666		(129)		—		—		4,666		(129)
Other Government-Sponsored Enterprises	—		—		18,603		(4,619)		18,603		(4,619)
Obligation of States and Political Subdivisions	21,234		(1,979)		9,230		(2,181)		30,464		(4,160)
Debt Securities Issued by Foreign Governments	587		(13)		373		(27)		960		(40)
Corporate Securities	14,406		(590)		12,632		(2,395)		27,038		(2,985)

Total Securities	$	376,595	$	(37,023)	$	763,274	$	(174,250)	$	1,139,869	$	(211,273)

As of March 31, 2023, our corporate securities had an amortized cost and an estimated fair value of $30.4 million and $27.3 million, respectively. As of December 31, 2022, our corporate securities had an amortized cost and estimated fair value of $32.0 million and $29.2 million, respectively. Corporate securities are comprised of debt issued by large regional banks. There were seven and six corporate securities, respectively, in an unrealized loss position as of March 31, 2023 and December 31, 2022. 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, 2023 and 2022.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8 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 $6.7 million and $5.9 million as of March 31, 2023 and December 31, 2022, respectively, and discounts on purchased loans from acquisitions were $33.5 million and $5.4 million as of March 31, 2023 and December 31, 2022, respectively. The following table provides outstanding balances related to each of our loan types:


	March 31, 2023		December 31, 2022

	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,471,079	$	1,211,706
Time and demand	1,254,315		1,023,824

Commercial credit cards	13,706		13,920
Equipment finance	109,221		79,674
Time and demand other	93,837		94,288
Real estate construction	541,902		513,101
Construction other	422,831		395,439
Construction residential	119,071		117,662
Residential real estate	2,323,867		2,194,669
Residential first lien	1,660,433		1,547,192
Residential junior lien/home equity	663,434		647,477
Commercial real estate	2,991,930		2,425,012
Multifamily	484,193		431,151
Nonowner occupied	1,817,453		1,510,347
Owner occupied	690,284		483,514
Loans to individuals	1,328,167		1,297,655
Automobile and recreational vehicles	1,244,874		1,210,451
Consumer credit cards	9,886		10,657
Consumer other	73,407		76,547
Total loans and leases	$	8,656,945	$	7,642,143

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. At March 31, 2023 and December 31, 2022, this category includes $5.3 million and $4.3 million in Paycheck Protection Program ("PPP") loans for small businesses. Because PPP loans are fully guaranteed by the SBA, there is no allowance for credit losses recognized for these loans.

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.

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.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

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.

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.

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.

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.

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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 3.47% and during the one-year forecast period it was projected to average 4.42%, with a peak of 4.84%.

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.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables represent our credit risk profile by creditworthiness:


	March 31, 2023
			Non-Pass
	Pass		OAEM		Substandard		Doubtful		Loss		Total Non-Pass		Total
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,368,580	$	63,654	$	38,845	$	—	$	—	$	102,499	$	1,471,079
Time and demand	1,152,045		63,654		38,616		—		—		102,270		1,254,315
Commercial credit cards	13,706		—		—		—		—		—		13,706
Equipment finance	109,020		—		201		—		—		201		109,221
Time and demand other	93,809		—		28		—		—		28		93,837
Real estate construction	540,264		1,638		—		—		—		1,638		541,902
Construction other	421,193		1,638		—		—		—		1,638		422,831
Construction residential	119,071		—		—		—		—		—		119,071
Residential real estate	2,313,412		2,119		8,336		—		—		10,455		2,323,867
Residential first lien	1,654,259		2,119		4,055		—		—		6,174		1,660,433
Residential junior lien/home equity	659,153		—		4,281		—		—		4,281		663,434
Commercial real estate	2,917,078		45,500		29,352		—		—		74,852		2,991,930
Multifamily	483,668		479		46		—		—		525		484,193
Nonowner occupied	1,765,458		28,201		23,794		—		—		51,995		1,817,453
Owner occupied	667,952		16,820		5,512		—		—		22,332		690,284
Loans to individuals	1,327,738		—		429		—		—		429		1,328,167
Automobile and recreational vehicles	1,244,519		—		355		—		—		355		1,244,874
Consumer credit cards	9,886		—		—		—		—		—		9,886
Consumer other	73,333		—		74		—		—		74		73,407
Total loans and leases	$	8,467,072	$	112,911	$	76,962	$	—	$	—	$	189,873	$	8,656,945

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	December 31, 2022
			Non-Pass
	Pass		OAEM		Substandard		Doubtful		Loss		Total Non-Pass		Total
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,164,193	$	35,389	$	12,124	$	—	$	—	$	47,513	$	1,211,706
Time and demand	976,346		35,389		12,089		—		—		47,478		1,023,824
Commercial credit cards	13,920		—		—		—		—		—		13,920
Equipment finance	79,674		—		—		—		—		—		79,674
Time and demand other	94,253		—		35		—		—		35		94,288
Real estate construction	513,101		—		—		—		—		—		513,101
Construction other	395,439		—		—		—		—		—		395,439
Construction residential	117,662		—		—		—		—		—		117,662
Residential real estate	2,187,780		736		6,153		—		—		6,889		2,194,669
Residential first lien	1,542,854		675		3,663		—		—		4,338		1,547,192
Residential junior lien/home equity	644,926		61		2,490		—		—		2,551		647,477
Commercial real estate	2,347,000		52,291		25,721		—		—		78,012		2,425,012
Multifamily	430,613		488		50		—		—		538		431,151
Nonowner occupied	1,439,478		49,037		21,832		—		—		70,869		1,510,347
Owner occupied	476,909		2,766		3,839		—		—		6,605		483,514
Loans to individuals	1,297,206		—		449		—		—		449		1,297,655
Automobile and recreational vehicles	1,210,090		—		361		—		—		361		1,210,451
Consumer credit cards	10,657		—		—		—		—		—		10,657
Consumer other	76,459		—		88		—		—		88		76,547
Total loans and leases	$	7,509,280	$	88,416	$	44,447	$	—	$	—	$	132,863	$	7,642,143

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


	March 31, 2023
	Term Loans												Revolving Loans
	2023		2022		2021		2020		2019		Prior				Total
	(dollars in thousands)
Time and demand	$	48,152	$	229,873	$	173,699	$	84,221	$	92,893	$	108,814	$	516,663	$	1,254,315
Pass	48,152		215,243		163,441		73,274		82,030		104,781		465,124		1,152,045
OAEM	—		14,630		2,806		1,547		1,604		1,224		41,843		63,654
Substandard	—		—		7,452		9,400		9,259		2,809		9,696		38,616
Gross charge-offs	—		—		—		—		—		(14)		(241)		(255)
Gross recoveries	—		—		—		34		4		78		—		116
Commercial credit cards	—		—		—		—		—		—		13,706		13,706
Pass	—		—		—		—		—		—		13,706		13,706


Gross charge-offs	—		—		—		—		—		—		(26)		(26)
Gross recoveries	—		—		—		—		—		—		2		2

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	March 31, 2023
	Term Loans						Revolving Loans
	2023	2022	2021	2020	2019	Prior		Total
	(dollars in thousands)
Equipment finance	33,014	76,207	—	—	—	—	—	109,221
Pass	33,014	76,006	—	—	—	—	—	109,020

Substandard	—	201	—	—	—	—	—	201
Gross charge-offs	—	(45)	—	—	—	—	—	(45)
Gross recoveries	—	—	—	—	—	—	—	—
Time and demand other	2,251	5,879	19,698	20,130	3,624	39,653	2,602	93,837
Pass	2,251	5,879	19,698	20,130	3,624	39,625	2,602	93,809

Substandard	—	—	—	—	—	28	—	28
Gross charge-offs	—	—	—	—	—	—	(337)	(337)
Gross recoveries	—	—	—	—	—	—	41	41
Construction other	2,156	117,145	201,349	65,640	21,922	14,310	309	422,831
Pass	2,156	117,145	199,711	65,640	21,922	14,310	309	421,193
OAEM	—	—	1,638	—	—	—	—	1,638

Gross charge-offs	—	—	—	—	—	—	—	—
Gross recoveries	—	—	—	—	—	—	—	—
Construction residential	1,842	103,518	4,429	5,376	3,208	—	698	119,071
Pass	1,842	103,518	4,429	5,376	3,208	—	698	119,071


Gross charge-offs	—	—	—	—	—	—	—	—
Gross recoveries	—	—	—	—	—	—	—	—
Residential first lien	26,936	300,936	559,299	339,378	102,937	328,714	2,233	1,660,433
Pass	26,936	300,872	557,367	339,288	102,120	325,707	1,969	1,654,259
OAEM	—	—	1,571	—	130	341	77	2,119
Substandard	—	64	361	90	687	2,666	187	4,055
Gross charge-offs	—	(1)	—	(4)	(1)	(10)	—	(16)
Gross recoveries	—	—	—	—	—	26	—	26
Residential junior lien/home equity	10,373	77,342	49,009	1,563	3,220	6,260	515,667	663,434
Pass	10,373	77,342	49,009	1,563	3,155	6,181	511,530	659,153

Substandard	—	—	—	—	65	79	4,137	4,281
Gross charge-offs	—	—	—	—	—	—	(63)	(63)
Gross recoveries	—	—	—	—	—	1	11	12
Multifamily	1,863	154,628	101,627	79,771	32,764	111,833	1,707	484,193
Pass	1,863	154,628	101,627	79,771	32,764	111,308	1,707	483,668
OAEM	—	—	—	—	—	479	—	479
Substandard	—	—	—	—	—	46	—	46
Gross charge-offs	—	—	—	—	—	—	—	—
Gross recoveries	—	—	—	—	—	—	—	—
Nonowner occupied	37,368	401,997	214,359	163,827	247,824	742,094	9,984	1,817,453
Pass	37,368	401,523	214,359	159,321	246,350	697,715	8,822	1,765,458
OAEM	—	—	—	4,506	1,474	21,219	1,002	28,201
Substandard	—	474	—	—	—	23,160	160	23,794
Gross charge-offs	—	—	—	—	—	—	—	—
Gross recoveries	—	—	—	—	—	38	—	38





Owner occupied	23,235	163,650	140,176	95,510	67,131	190,969	9,613	690,284
Pass	23,235	163,055	139,972	88,836	56,667	186,685	9,502	667,952
OAEM	—	595	182	5,089	9,798	1,123	33	16,820
Substandard	—	—	22	1,585	666	3,161	78	5,512
Gross charge-offs	—	—	—	—	—	—	—	—
Gross recoveries	—	—	—	—	—	4	—	4

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	March 31, 2023
	Term Loans												Revolving Loans
	2023		2022		2021		2020		2019		Prior				Total
	(dollars in thousands)
Automobile and recreational vehicles	129,646		575,915		304,240		157,298		59,302		18,473		—		1,244,874
Pass	129,646		575,889		304,197		157,204		59,184		18,399		—		1,244,519

Substandard	—		26		43		94		118		74		—		355
Gross charge-offs	—		(266)		(199)		(196)		(102)		(39)		—		(802)
Gross recoveries	—		60		80		92		98		60		—		390
Consumer credit cards	—		—		—		—		—		—		9,886		9,886
Pass	—		—		—		—		—		—		9,886		9,886


Gross charge-offs	—		—		—		—		—		—		(66)		(66)
Gross recoveries	—		—		—		—		—		—		17		17
Consumer other	1,792		5,998		16,226		2,185		2,943		4,818		39,445		73,407
Pass	1,792		5,998		16,226		2,185		2,924		4,814		39,394		73,333

Substandard	—		—		—		—		19		4		51		74
Gross charge-offs	—		(44)		(27)		(3)		(19)		(6)		(174)		(273)
Gross recoveries	—		—		—		1		4		18		41		64
Total loans and leases	$	318,628	$	2,213,088	$	1,784,111	$	1,014,899	$	637,768	$	1,565,938	$	1,122,513	$	8,656,945
Total charge-offs	—		(356)		(226)		(203)		(122)		(69)		(907)		(1,883)
Total recoveries	—		60		80		127		106		225		112		710

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	December 31, 2022
	Term Loans												Revolving Loans
	2022		2021		2020		2019		2018		Prior				Total
	(dollars in thousands)
Time and demand	$	180,134	$	165,064	$	66,006	$	88,959	$	57,030	$	57,907	$	408,724	$	1,023,824
Pass	180,134		154,542		56,592		79,935		56,718		56,309		392,116		976,346
OAEM	—		10,489		8,387		1,846		250		895		13,522		35,389
Substandard	—		33		1,027		7,178		62		703		3,086		12,089
Commercial credit cards	—		—		—		—		—		—		13,920		13,920
Pass	—		—		—		—		—		—		13,920		13,920


Equipment finance	79,674		—		—		—		—		—		—		79,674
Pass	79,674		—		—		—		—		—		—		79,674


Time and demand other	7,172		20,281		19,626		3,823		2,885		36,197		4,304		94,288
Pass	7,172		20,281		19,626		3,823		2,885		36,162		4,304		94,253

Substandard	—		—		—		—		—		35		—		35
Construction other	81,870		179,919		85,264		23,001		24,005		1,011		369		395,439
Pass	81,870		179,919		85,264		23,001		24,005		1,011		369		395,439


Construction residential	82,829		34,783		—		31		18		—		1		117,662
Pass	82,829		34,783		—		31		18		—		1		117,662


Residential first lien	272,136		507,573		337,995		102,870		69,890		255,573		1,155		1,547,192
Pass	272,136		507,042		337,979		102,097		69,212		253,310		1,078		1,542,854
OAEM	—		164		—		133		51		250		77		675
Substandard	—		367		16		640		627		2,013		—		3,663
Residential junior lien/home equity	77,016		49,273		1,499		2,584		1,683		4,396		511,026		647,477
Pass	77,016		49,273		1,499		2,517		1,683		4,263		508,675		644,926
OAEM	—		—		—		—		—		51		10		61
Substandard	—		—		—		67		—		82		2,341		2,490
Multifamily	140,004		90,868		60,699		39,848		19,914		78,483		1,335		431,151
Pass	140,004		90,868		60,699		39,848		19,914		77,945		1,335		430,613
OAEM	—		—		—		—		—		488		—		488
Substandard	—		—		—		—		—		50		—		50
Nonowner occupied	298,751		153,918		115,947		214,068		141,814		581,060		4,789		1,510,347
Pass	298,751		153,918		115,947		212,588		113,638		541,007		3,629		1,439,478
OAEM	—		—		—		1,480		20,349		26,207		1,001		49,037
Substandard	—		—		—		—		7,827		13,846		159		21,832
Owner occupied	113,010		105,513		56,977		44,430		26,456		131,432		5,696		483,514
Pass	113,010		105,309		55,468		43,014		26,294		128,230		5,584		476,909
OAEM	—		182		745		791		92		923		33		2,766
Substandard	—		22		764		625		70		2,279		79		3,839
Automobile and recreational vehicles	613,513		330,298		172,530		68,996		20,589		4,525		—		1,210,451
Pass	613,513		330,252		172,435		68,865		20,524		4,501		—		1,210,090

Substandard	—		46		95		131		65		24		—		361
Consumer credit cards	—		—		—		—		—		—		10,657		10,657
Pass	—		—		—		—		—		—		10,657		10,657


Consumer other	6,561		17,177		2,489		3,798		1,656		4,085		40,781		76,547
Pass	6,561		17,177		2,489		3,775		1,652		4,085		40,720		76,459

Substandard	—		—		—		23		4		—		61		88
Total loans and leases	$	1,952,670	$	1,654,667	$	919,032	$	592,408	$	365,940	$	1,154,669	$	1,002,757	$	7,642,143

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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, 2023 and 2022 were $1.2 million and $1.1 million, respectively.

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, 2023 and December 31, 2022. 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.


	March 31, 2023
	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	$	1,470	$	311	$	551	$	12,364	$	14,696	$	1,456,383	$	1,471,079
Time and demand	1,462		293		548		12,163		14,466		1,239,849		1,254,315
Commercial credit cards	6		18		1		—		25		13,681		13,706
Equipment finance	—		—		—		201		201		109,020		109,221
Time and demand other	2		—		2		—		4		93,833		93,837
Real estate construction	833		—		—		—		833		541,069		541,902
Construction other	—		—		—		—		—		422,831		422,831
Construction residential	833		—		—		—		833		118,238		119,071
Residential real estate	3,787		1,821		280		7,655		13,543		2,310,324		2,323,867
Residential first lien	1,934		1,188		61		3,543		6,726		1,653,707		1,660,433
Residential junior lien/home equity	1,853		633		219		4,112		6,817		656,617		663,434
Commercial real estate	4,623		21		—		23,786		28,430		2,963,500		2,991,930
Multifamily	68		—		—		—		68		484,125		484,193
Nonowner occupied	1,941		—		—		21,111		23,052		1,794,401		1,817,453
Owner occupied	2,614		21		—		2,675		5,310		684,974		690,284
Loans to individuals	2,141		802		609		429		3,981		1,324,186		1,328,167
Automobile and recreational vehicles	1,786		586		205		355		2,932		1,241,942		1,244,874
Consumer credit cards	41		40		—		—		81		9,805		9,886
Consumer other	314		176		404		74		968		72,439		73,407
Total loans and leases	$	12,854	$	2,955	$	1,440	$	44,234	$	61,483	$	8,595,462	$	8,656,945

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	December 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	$	1,233	$	279	$	355	$	2,374	$	4,241	$	1,207,465	$	1,211,706
Time and demand	1,121		270		352		2,374		4,117		1,019,707		1,023,824
Commercial credit cards	27		9		—		—		36		13,884		13,920
Equipment finance	—		—		—		—		—		79,674		79,674
Time and demand other	85		—		3		—		88		94,200		94,288
Real estate construction	502		—		—		—		502		512,599		513,101
Construction other	—		—		—		—		—		395,439		395,439
Construction residential	502		—		—		—		502		117,160		117,662
Residential real estate	3,023		1,178		811		5,683		10,695		2,183,974		2,194,669
Residential first lien	1,547		771		214		3,369		5,901		1,541,291		1,547,192
Residential junior lien/home equity	1,476		407		597		2,314		4,794		642,683		647,477
Commercial real estate	7,870		25		93		20,539		28,527		2,396,485		2,425,012
Multifamily	202		—		—		—		202		430,949		431,151
Nonowner occupied	7,547		—		92		19,575		27,214		1,483,133		1,510,347
Owner occupied	121		25		1		964		1,111		482,403		483,514
Loans to individuals	3,268		571		732		449		5,020		1,292,635		1,297,655
Automobile and recreational vehicles	2,694		368		295		361		3,718		1,206,733		1,210,451
Consumer credit cards	53		29		5		—		87		10,570		10,657
Consumer other	521		174		432		88		1,215		75,332		76,547
Total loans and leases	$	15,896	$	2,053	$	1,991	$	29,045	$	48,985	$	7,593,158	$	7,642,143

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. 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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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, 2023 and December 31, 2022, there were no nonperforming loans held for sale. During both the three months ended March 31, 2023 and 2022, there were no gains recognized on the sale of nonperforming loans.

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, 2023 and December 31, 2022. Also presented are the average recorded investment in nonperforming loans and the related amount of interest recognized while the loan was considered nonperforming. 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. The increase in nonperforming loans is primarily a result of $14.9 million in loans acquired from Centric, offset by the removal of $6.4 million in accruing troubled debt restructurings ("TDR's"). The TDR's were eliminated as a result of our adoption of ASU 2022-02, Financial Instruments Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"). This standard was adopted on January 1, 2023 and eliminates the accounting guidance for TDR's while enhancing disclosure requirements for loan modifications for borrowers experiencing financial difficulty.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	March 31, 2023						December 31, 2022
	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	$	1,808	$	10,187			$	3,141	$	9,555
Time and demand	1,607		9,978				3,141		9,555

Equipment finance	201		209				—		—
Time and demand other	—		—				—		—
Real estate construction	—		—				—		—
Construction other	—		—				—		—
Construction residential	—		—				—		—
Residential real estate	6,419		8,312				9,145		11,010
Residential first lien	3,543		4,633				5,754		6,848
Residential junior lien/home equity	2,876		3,679				3,391		4,162
Commercial real estate	22,689		25,685				21,505		24,119
Multifamily	—		—				—		—
Nonowner occupied	20,938		23,063				20,155		22,565
Owner occupied	1,751		2,622				1,350		1,554
Loans to individuals	429		470				528		563
Automobile and recreational vehicles	355		396				440		475

Consumer other	74		74				88		88
Subtotal	31,345		44,654				34,319		45,247
With an allowance recorded:
Commercial, financial, agricultural and other	10,556		13,881		$	9,071	1,168		1,186		$	711
Time and demand	10,556		13,881		9,071		1,168		1,186		711

Equipment finance	—		—		—		—		—		—
Time and demand other	—		—		—		—		—		—
Real estate construction	—		—		—		—		—		—
Construction other	—		—		—		—		—		—
Construction residential	—		—		—		—		—		—
Residential real estate	1,237		1,406		103		—		—		—
Residential first lien	—		—		—		—		—		—
Residential junior lien/home equity	1,237		1,406		103		—		—		—
Commercial real estate	1,096		1,103		588		—		—		—
Multifamily	—		—		—		—		—		—
Nonowner occupied	173		212		172		—		—		—
Owner occupied	923		891		416		—		—		—
Loans to individuals	—		—		—		—		—		—
Automobile and recreational vehicles	—		—		—		—		—		—

Consumer other	—		—		—		—		—		—
Subtotal	12,889		16,390		9,762		1,168		1,186		711
Total	$	44,234	$	61,044	$	9,762	$	35,487	$	46,433	$	711

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,
	2023				2022

	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	$	1,693	$	—	$	3,561	$	29
Time and demand	1,455		—		3,561		29

Equipment finance	238		—		—		—
Time and demand other	—		—		—		—
Real estate construction	—		—		—		—
Construction other	—		—		—		—
Construction residential	—		—		—		—
Residential real estate	6,069		20		9,201		84
Residential first lien	3,437		20		5,197		62
Residential junior lien/home equity	2,632		—		4,004		22
Commercial real estate	21,974		—		24,312		13
Multifamily	—		—		—		—
Nonowner occupied	20,487		—		22,714		9
Owner occupied	1,487		—		1,598		4
Loans to individuals	432		—		435		4
Automobile and recreational vehicles	356		—		350		4

Consumer other	76		—		85		—
Subtotal	30,168		20		37,509		130
With an allowance recorded:
Commercial, financial, agricultural and other	7,445		—		384		6
Time and demand	7,445		—		384		6

Equipment finance	—		—		—		—
Time and demand other	—		—		—		—
Real estate construction	—		—		—		—
Construction other	—		—		—		—
Construction residential	—		—		—		—
Residential real estate	824		—		—		—
Residential first lien	—		—		—		—
Residential junior lien/home equity	824		—		—		—
Commercial real estate	711		—		416		—
Multifamily	—		—		416		—
Nonowner occupied	115		—		—		—
Owner occupied	596		—		—		—
Loans to individuals	—		—		—		—
Automobile and recreational vehicles	—		—		—		—

Consumer other	—		—		—		—
Subtotal	8,980		—		800		6
Total	$	39,148	$	20	$	38,309	$	136

Unfunded commitments related to nonperforming loans were $0.2 million at both March 31, 2023 and December 31, 2022. 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, 2023 and December 31, 2022.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

The Company adopted ASU 2022-02 on January 1, 2023 on a prospective basis. Disclosures for years prior to adoption continue to reflect TDR's as nonperforming loans and include TDR disclosures required under the previous guidance. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective loan segment and an allowance is determined by a loss given default and probability of default methodology.

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal forgiveness, other- than-insignificant payment delay, term extensions or any combination thereof.

The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty:


	For the Three Months Ended March 31, 2023
	Rate Reduction		Term Extension		Principal Forgiveness		Payment Deferral		Total		Percentage of Total Loans and Leases
	(dollars in thousands)




Residential real estate	$	25	$	—	$	—	$	—	$	25	—	%
Residential first lien	25		—		—		—		25		—









Total	$	25	$	—	$	—	$	—	$	25	—	%

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:


	For the Three Months Ended March 31, 2023
	Rate Reduction		Term Extension	Principal Forgiveness		Payment Deferral
	(dollars in thousands)




Residential real estate	(2.25)	%	0	$	—	—
Residential first lien	(2.25)		0	—		—









Total	(2.25)	%	0	$	—	—

A modification is considered to be in default when the loan is 90 days or more past due. For the three months ended March 31, 2023, there were no modified loans that were considered to be in default. The following table shows the payment status of loans that have been modified on or after January 1, 2023, the date we adopted ASU 2022-02:


	March 31, 2023
	Current		30 - 59 days past due		60 - 89 days past due		90 days or greater and still accruing		Total
	(dollars in thousands)








Residential real estate	$	25	$	—	$	—	$	—	$	25
Residential first lien	25		—		—		—		25









Total loans and leases	$	25	$	—	$	—	$	—	$	25

Troubled Debt Restructurings Disclosures Prior to Adoption of ASU 2022-02

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.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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	$	—

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, $10 thousand of total rate modifications represent loans with modifications to the rate as well as payment as a result of re-amortization. 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
		Number of Contracts	Recorded Investment
		(dollars in thousands)




Residential real estate		1	$	17
Residential first lien		1	17









Total		1	$	17

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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


	For the Three Months Ended March 31, 2023
	Beginning balance		Allowance for credit loss on PCD acquired loans		Charge-offs		Recoveries		Provision (credit)a		Ending balance
	(dollars in thousands)
Commercial, financial, agricultural and other	$	22,650	$	15,949	$	(663)	$	159	$	4,473	$	42,568
Time and demand	20,040		15,949		(255)		116		3,615		39,465
Commercial credit cards	335		—		(26)		2		20		331
Equipment finance	1,086		—		(45)		—		420		1,461
Time and demand other	1,189		—		(337)		41		418		1,311
Real estate construction	8,822		287		—		—		(1,160)		7,949
Construction other	6,360		227		—		—		(696)		5,891
Construction residential	2,462		60		—		—		(464)		2,058
Residential real estate	21,412		527		(79)		38		875		22,773
Residential first lien	14,822		197		(16)		26		795		15,824
Residential junior lien/home equity	6,590		330		(63)		12		80		6,949
Commercial real estate	28,804		5,313		—		42		5,218		39,377
Multifamily	4,726		234		—		—		581		5,541
Nonowner occupied	16,426		2,739		—		38		2,349		21,552
Owner occupied	7,652		2,340		—		4		2,288		12,284
Loans to individuals	21,218		3		(1,141)		471		667		21,218
Automobile and recreational vehicles	18,819		3		(802)		390		603		19,013
Consumer credit cards	412		—		(66)		17		5		368
Consumer other	1,987		—		(273)		64		59		1,837
Total loans and leases	$	102,906	$	22,079	$	(1,883)	$	710	$	10,073	$	133,885

a) The provision expense (credit) shown here includes the day 1 provision on non-PCD loans acquired from Centric and excludes the provision for off-balance sheet credit exposure included in the income statement.

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
	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.

Note 9 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 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.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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, 2023			December 31, 2022
Balance sheet:
Operating lease asset classified as premises and equipment	$	52,177	$	40,747
Operating lease liability classified as other liabilities	56,622		45,149

					For the Three Months Ended
						March 31, 2023			March 31, 2022
Income statement:
Operating lease cost classified as occupancy and equipment expense						$	1,494		$	1,216

Weighted average lease term, in years						13.59			13.72
Weighted average discount rate						3.54		%	3.19		%
Operating cash flows						$	12,478		$	1,164

In the above table, the increase in the ROU asset and lease liability at March 31, 2023 compared to December 31, 2022, is primarily a result of leases assumed as part of the Centric acquisition.

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, 2023 were as follows (dollars in thousands):


For the twelve months ended:
March 31, 2024	$	4,630
March 31, 2025	6,074
March 31, 2026	5,885
March 31, 2027	5,519
March 31, 2028	5,301
Thereafter	45,400
Total future minimum lease payments	72,809
Less remaining imputed interest	16,187
Operating lease liability	$	56,622

Note 10 Income Taxes

In accordance with FASB ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes,” at March 31, 2023 and December 31, 2022, 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.

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, 2019 are no longer open to examination by federal and state taxing authorities.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11 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 7, “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 could 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. When loans held for sale include other commercial loans, 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 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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

thirty years. These yield curves determine the valuations of interest rate swaps. Interest rate derivatives are further described in Note 12, “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 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).

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. 2011-04, 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, 2023

Other Investments

6,170

Carrying Value

N/A

Nonperforming Loans

277

(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

24,422

Par Value

N/A

December 31, 2022

Other Investments

1,170

Carrying Value

N/A

Nonperforming Loans

363

(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

17,691

Par Value

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, 2023
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Residential	$	—	$	3,896	$	—	$	3,896
Mortgage-Backed Securities - Commercial	—		269,883		—		269,883
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities - Residential	—		440,243		—		440,243
Mortgage-Backed Securities - Commercial	—		—		—		—
Other Government-Sponsored Enterprises	—		893		—		893
Obligations of States and Political Subdivisions	—		8,405		—		8,405
Corporate Securities	—		27,293		—		27,293



Total Securities Available for Sale	—		750,613		—		750,613
Other Investments	—		30,030		6,170		36,200
Loans Held for Sale	—		11,050		—		11,050

Other Assets(a)	—		34,302		24,422		58,724
Total Assets	$	—	$	825,995	$	30,592	$	856,587
Other Liabilities(a)	$	—	$	67,268	$	—	$	67,268
Total Liabilities	$	—	$	67,268	$	—	$	67,268

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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	December 31, 2022
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Residential	$	—	$	3,983	$	—	$	3,983
Mortgage-Backed Securities - Commercial	—		271,416		—		271,416
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities - Residential	—		448,989		—		448,989

Other Government-Sponsored Enterprises	—		882		—		882
Obligations of States and Political Subdivisions	—		8,187		—		8,187
Corporate Securities	—		29,204		—		29,204



Total Securities Available for Sale	—		762,661		—		762,661
Other Investments	—		25,244		1,170		26,414
Loans Held for Sale	—		11,869		—		11,869

Other Assets(a)	—		50,738		17,691		68,429
Total Assets	$	—	$	850,512	$	18,861	$	869,373
Other Liabilities(a)	$	—	$	89,298	$	—	$	89,298
Total Liabilities	$	—	$	89,298	$	—	$	89,298

(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:


	2023
	Other Investments		Other Assets		Total
	(dollars in thousands)
Balance, beginning of period	$	1,170	$	17,691	$	18,861
Total gains or losses
Included in earnings	—		—		—
Included in other comprehensive income	—		—		—
Purchases, issuances, sales and settlements
Purchases	5,000		6,882		11,882
Issuances	—		—		—
Sales	—		—		—
Settlements	—		(151)		(151)
Transfers from Level 3	—		—		—
Transfers into Level 3	—		—		—
Balance, end of period	$	6,170	$	24,422	$	30,592

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	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

During the three months ended March 31, 2023 and 2022, 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, 2023 and 2022.

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


	March 31, 2023
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Nonperforming loans	$	—	$	25,806	$	8,666	$	34,472
Other real estate owned	—		466		—		466
Total Assets	$	—	$	26,272	$	8,666	$	34,938


	December 31, 2022
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Nonperforming loans	$	—	$	23,140	$	11,636	$	34,776
Other real estate owned	—		553		—		553
Total Assets	$	—	$	23,693	$	11,636	$	35,329

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


	For the Three Months Ended March 31,
		2023		2022
		(dollars in thousands)
Nonperforming loans		$	230	$	(171)
Other real estate owned		—		(54)
Total losses		$	230	$	(225)

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

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 $0.4 million as of March 31, 2023 and consists of five residential real estate properties in Pennsylvania. 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 13, “Goodwill.” There were no other assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2023.

FASB ASC Topic 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, 2023 and December 31, 2022. See Note 6, “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

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, 2023
			Fair Value Measurements Using:
	Carrying Amount		Total		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	113,692	$	113,692	$	113,692	$	—	$	—
Interest-bearing deposits	282,110		282,110		282,110		—		—
Securities available for sale	750,613		750,613		—		750,613		—
Securities held to maturity	451,278		381,741		—		381,741		—
Other investments	36,200		36,200		—		30,030		6,170
Loans held for sale	11,050		11,050		—		11,050		—
Loans	8,656,945		8,514,685		—		25,806		8,488,879
Financial liabilities
Deposits	9,234,948		9,223,482		—		9,223,482		—
Short-term borrowings	278,978		272,601		—		272,601		—
Subordinated debt	177,558		156,402		—		—		156,402
Long-term debt	4,679		4,651		—		4,651		—
Capital lease obligation	5,294		5,294		—		5,294		—


	December 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	$	124,254	$	124,254	$	124,254	$	—	$	—
Interest-bearing deposits	29,990		29,990		29,990		—		—
Securities available for sale	762,661		762,661		—		762,661		—
Securities held to maturity	461,162		386,205		—		386,205		—
Other investments	26,414		26,414		—		25,244		1,170
Loans held for sale	11,869		11,869		—		11,869		—
Loans	7,642,143		7,639,721		—		23,140		7,616,581
Financial liabilities
Deposits	8,005,469		7,992,012		—		7,992,012		—
Short-term borrowings	372,694		363,135		—		363,135		—
Subordinated debt	170,937		156,621		—		—		156,621
Long-term debt	4,862		4,781		—		4,781		—
Capital lease obligation	5,425		5,425		—		5,425		—

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 12 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 31 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 15 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, 2023, there was a negative impact of $4.2 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, 2023, and changes in the fair value attributed to hedge ineffectiveness were not material.

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, 2023 was an increase of $0.3 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, 2023, the underlying funded mortgage loan commitments had a carrying value of $3.8 million and a fair value of $3.9 million, while the underlying unfunded mortgage loan commitments had a notional amount of $13.9 million. At December 31, 2022, the underlying funded mortgage loan commitments had a carrying value of $4.3 million and a fair value of $4.0 million, while the underlying unfunded mortgage loan commitments had a notional amount of $12.0 million. The interest rate lock commitments increased other noninterest income by $0.1 million for the three months ended March 31, 2023.

In addition, based on customer activity, a small amount of interest income on loans may be exposed to changes in foreign exchange rates. Several commercial borrowers have a portion of their operations outside of the United States and from time to time 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 may enter 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. At March 31, 2023 and December 31, 2022, there were no foreign exchange contracts outstanding and there was no impact to other noninterest expense for the three months ended March 31, 2023.

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, 2023		December 31, 2022
	(dollars in thousands)
Derivatives not Designated as Hedging Instruments
Credit value adjustment	$	(117)	$	(27)
Notional amount:
Interest rate derivatives	813,543		816,745
Interest rate caps	15,257		15,340
Interest rate collars	35,354		35,354
Risk participation agreements	227,647		256,043
Sold credit protection on risk participation agreements	(100,349)		(100,741)
Interest rate options	13,887		12,009
Derivatives Designated as Hedging Instruments
Interest rate swaps:
Fair value adjustment	(32,789)		(38,596)
Notional amount	570,000		570,000
Interest rate forwards:
Fair value adjustment	(60)		63
Notional amount	16,000		16,000
Foreign exchange forwards:
Fair value adjustment	—		—
Notional amount	—		—

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,
		2023		2022
		(dollars in thousands)
Non-hedging interest rate derivatives
(Decrease) increase in other income		$	239	$	(848)

Hedging interest rate derivatives
(Decrease) increase in interest and fees on loans		(4,758)		755
(Decrease) increase in interest from subordinated debentures		(560)		224

Hedging interest rate forwards
Increase (decrease) in other income		123		(865)

Hedging foreign exchange forwards
Increase in other expense		—		1

The fair value of our derivatives is included in a table in Note 11, “Fair Values of Assets and Liabilities,” in the line items

“Other assets” and “Other liabilities.”

Note 13 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 at March 31, 2023 and December 31, 2022 was $360.4 million and $303.3 million, respectively. The $57.1 million increase in goodwill during the three months ended March 31, 2023 is the result of the Centric acquisition. No impairment charges on goodwill or other intangible assets were incurred in 2023 or 2022.

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, 2023, 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.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 Subordinated Debentures

Subordinated debentures outstanding are as follows:


			March 31, 2023		December 31, 2022
	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%	$	49,523		$	49,499
First Commonwealth Bank	2033	5.50% until June 1, 2028, then 3-Month LIBOR + 2.37%	49,288			49,271
First Commonwealth Financial Corp	2031	4.50% until March 29, 2026, then Prime + 1.00%	6,580			—
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			$	177,558		$	170,937

With the acquisition of Centric, First Commonwealth acquired a ten-year subordinated note with a principal balance of $6.0 million. The rate remains fixed at 4.50% until March 29, 2026, then adjusts quarterly to Prime + 1.00%. The Bank may redeem the notes, beginning with the interest payment due on March 29, 2026, 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. A fair value premium of $0.6 million was recognized in connection with the acquisition.

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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Capital Trust III at 1.525% until August 15, 2026. Additional information related to these cash flow hedges can be found in Note 12- "Derivatives".

Note 15 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 FASB ASC Topic 606 - "Revenue from Contracts with Customers" ("Topic 606"). Topic 606 is applicable to 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 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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

not control the services rendered to the customers, retail brokerage fees are presented net of related costs, including $1.0 million and $0.9 million in commission expense as of March 31, 2023 and 2022, respectively.

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 the related gain or 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,
		2023		2022
		(dollars in thousands)
Noninterest Income
In-scope of Topic 606:
Trust income		$	2,486	$	2,713
Service charges on deposit accounts		4,918		4,615
Insurance and retail brokerage commissions		2,552		2,272
Card-related interchange income		6,829		6,490
Gain on sale of other loans and assets		61		43
Other income		1,069		975
Noninterest Income (in-scope of Topic 606)		17,915		17,108
Noninterest Income (out-of-scope of Topic 606)		5,048		6,868
Total Noninterest Income		$	22,963	$	23,976

Note 16 Subsequent Event

On April 24, 2023, the Board of Directors authorized an increase of $25.0 million to the existing share repurchase program of the Company's common stock. Management is authorized to repurchase shares through Rule 10b5-1 plans, open market purchases, privately negotiated transactions, block purchases or otherwise in a manner that is intended to comply with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. First Commonwealth may suspend or discontinue the program at any time.

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, 2023 and 2022, 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.

•Unexpected outflows of uninsured deposits.

•The effect of changes in laws and regulations, including with respect to capital, and liquidity requirements, which may become more stringent in light of recent market events, may adversely affect our financial condition or results of operations.

•Factors that can impact the performance of our loan portfolio, including changes in real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions.

•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.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

•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.

•Changes in our organization, compensation and benefit plans.

•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 Measures

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 55 for the three months ended March 31, 2023 and 2022.

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,
			2023			2022
		(dollars in thousands, except per share data)
Net Income			$	30,224		$	27,726
Per Share Data:
Basic Earnings per Share			$	0.30		$	0.29
Diluted Earnings per Share			0.30			0.29
Cash Dividends Declared per Common Share			0.120			0.115
Average Balance:
Total assets			$	10,488,908		$	9,524,578
Total equity			1,161,054			1,107,415
End of Period Balance:
Net loans and leases (1)			$	8,534,110		$	6,871,430
Total assets			11,113,752			9,642,124
Total deposits			9,234,948			8,171,847
Total equity			1,225,014			1,067,619
Key Ratios:
Return on average assets			1.17		%	1.18		%
Return on average equity			10.56		%	10.15		%
Dividends payout ratio			40.00		%	39.66		%
Average equity to average assets ratio			11.07		%	11.63		%
Net interest margin			4.01		%	3.19		%
Net loans to deposits ratio			92.41		%	84.09		%

(1) Includes loans held for sale.

Results of Operations

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Net Income

For the three months ended March 31, 2023, First Commonwealth had net income of $30.2 million, or $0.30 diluted earnings per share, compared to net income of $27.7 million, or $0.29 diluted earnings per share, in the three months ended March 31, 2022. The increase in net income was primarily the result of a $26.2 million increase in net interest income and a $4.6 million decrease in provision for credit losses, excluding the $10.7 million in provision expense related to the day 1 CECL adjustment on non-PCD loans acquired in the Centric acquisition. Partially offsetting these positive changes was a $15.7 million increase in noninterest expense.

For the three months ended March 31, 2023, the Company’s return on average equity was 10.56% and its return on average assets was 1.17%, compared to 10.15% and 1.18%, respectively, for the three months ended March 31, 2022.

Net Interest Income

Net interest income, on a fully taxable equivalent basis, was $94.7 million in the first three months of 2023, compared to $68.4 million for the same period in 2022. The increase in net interest income can be attributed to growth in earning assets and a 153 basis point increase in the yield on interest-earning assets offset by a 105 basis point increase in the cost of interest-bearing liabilities. Net interest income comprises the majority of our operating revenue (net interest income before provision expense plus noninterest income), at 80.4% and 74.0% for the three months ended March 31, 2023 and 2022, respectively.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The net interest margin on a fully taxable equivalent basis was 4.01% for the three months ended March 31, 2023 and 3.19% for the three months ended March 31, 2022. The net interest margin is affected by changes in the level of interest rates and the amount and composition of interest-earning assets and interest-bearing liabilities.

The taxable equivalent yield on interest-earning assets was 4.86% for the three months ended March 31, 2023, an increase of 153 basis points compared to the 3.33% yield for the same period in 2022. This change is largely due to a higher loan portfolio yield, which improved by 147 basis points when compared to the three months ended March 31, 2022. Contributing to this increase was the yield on our adjustable and variable rate commercial loan portfolios, which increased 253 basis points largely due to the Federal Reserve increasing short term interest rates by 450 basis points since March 31, 2022. Additionally, five basis points of the increase in the yield on interest-earnings assets can be attributed to the recognition of $1.1 million in accretion of the purchase accounting marks recognized as a result of the Centric acquisition.

The investment portfolio yield increased 32 basis points in comparison to the prior year as new volume rates were higher than the portfolio yield. The average investment portfolio balance decreased $291.6 million as maturities and runoff funded loan growth. Interest-bearing deposits with banks, which decreased from $284.4 million in 2022 to $46.3 million in 2023 increased the yield on earning assets by 1 basis points for the three months ended March 31, 2023 as its yield increased 431 basis points.

The cost of interest-bearing liabilities increased to 1.27% for the three months ended March 31, 2023, from 0.22% for the same period in 2022. The cost of interest-bearing deposits increased 99 basis points and short-term borrowings increased 358 basis points in comparison to the same period last year. The increase in cost of interest-bearing deposits can be attributed to higher market interest rates and changes in the mix of deposits as customers moved funds to take advantage of the increased rates. Comparing the three months ended March 31, 2023 with the comparable period in 2022, average time deposits increased $307.7 million, or 82.2%, while the cost of these deposits increased 205 basis points. Contributing to average growth in time deposits was an average of $54.0 million acquired as part of the Centric acquisition. Other interest-bearing deposits increased on average $331.7 million, or 6.7%, compared to the three months ended March 31, 2022 and the cost of these deposits increased 84 basis points. Average growth in other-interest bearing deposits attributable to the Centric acquisition totaled $251.0 million.

For the three months ended March 31, 2023, changes in rates positively impacted net interest income by $14.7 million when compared with the same period in 2022. The higher yield on interest-earning assets impacted net interest income by $31.6 million, while the increase in the cost of interest-bearing liabilities negatively impacted net interest income by $16.8 million.

Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $11.5 million for the three months ended March 31, 2023, as compared to the same period in 2022. Higher levels of interest-earning assets resulted in an increase of $11.8 million in interest income, and changes in the volume and mix of interest-bearing liabilities increased interest expense by $0.3 million. Average earning assets for the three months ended March 31, 2023 increased $878.2 million, or 10.1%, compared to the same period in 2022. Average loans for the comparable period increased $1.4 billion, or 20.4%.

Net interest income also benefited from a $84.2 million increase in average net free funds at March 31, 2023 as compared to March 31, 2022. 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 $33.3 million, or 1.3%, in noninterest-bearing demand deposit average balances.

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:


	2023		2022
	(dollars in thousands)
Interest income per Consolidated Statements of Income	$	114,589	$	71,244
Adjustment to fully taxable equivalent basis	305		253
Interest income adjusted to fully taxable equivalent basis (non-GAAP)	114,894		71,497
Interest expense	20,231		3,072
Net interest income adjusted to fully taxable equivalent basis (non-GAAP)	$	94,663	$	68,425

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:


	2023						2022
	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	$	46,304	$	510	4.47	%	$	284,367	$	111	0.16	%
Tax-free investment securities	21,983		148		2.73		24,430		160		2.66
Taxable investment securities	1,211,190		6,294		2.11		1,500,334		6,613		1.79
Loans and leases, net of unearned income (b)(c)	8,301,449		107,942		5.27		6,893,628		64,613		3.80
Total interest-earning assets	9,580,926		114,894		4.86		8,702,759		71,497		3.33
Noninterest-earning assets:
Cash	112,157						114,672
Allowance for credit losses	(123,672)						(93,645)
Other assets	919,497						800,792
Total noninterest-earning assets	907,982						821,819
Total Assets	$	10,488,908					$	9,524,578
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (d)	$	1,848,228	$	3,732	0.82	%	$	1,551,979	$	100	0.03	%
Savings deposits (d)	3,463,858		7,853		0.92		3,428,411		449		0.05
Time deposits	682,144		3,933		2.34		374,484		264		0.29
Short-term borrowings	266,932		2,401		3.65		115,544		21		0.07
Long-term debt	185,367		2,312		5.06		182,119		2,238		4.98
Total interest-bearing liabilities	6,446,529		20,231		1.27		5,652,537		3,072		0.22
Noninterest-bearing liabilities and shareholders’ equity:
Noninterest-bearing demand deposits (d)	2,678,849						2,645,551
Other liabilities	202,476						119,075
Shareholders’ equity	1,161,054						1,107,415
Total Noninterest-Bearing Funding Sources	4,042,379						3,872,041
Total Liabilities and Shareholders’ Equity	$	10,488,908					$	9,524,578
Net Interest Income and Net Yield on Interest-Earning Assets			$	94,663	4.01	%			$	68,425	3.19	%

(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, 2023 and 2022.

(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.

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, 2023 compared with March 31, 2022:


	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	$	399	$	(94)	$	493
Tax-free investment securities	(12)		(16)		4
Taxable investment securities	(319)		(1,276)		957
Loans and leases	43,329		13,191		30,138
Total interest income (b)	43,397		11,805		31,592
Interest-bearing liabilities:
Interest-bearing demand deposits	3,632		22		3,610
Savings deposits	7,404		4		7,400
Time deposits	3,669		220		3,449
Short-term borrowings	2,380		26		2,354
Long-term debt	74		40		34
Total interest expense	17,159		312		16,847
Net interest income	$	26,238	$	11,493	$	14,745

(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 off-balance sheet commitments. The provision for credit losses is an amount added to the allowance, against which credit losses are charged.

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:


	2023				2022
	Dollars		Percentage		Dollars		Percentage
	(dollars in thousands)
Commercial, financial, agricultural and other	$	991	(170)	%	$	3,023	(1,511)	%
Time and demand	179		(31)		3,715		(1,857)
Commercial credit cards	20		(3)		113		(56)
Equipment finance	420		(72)		31		(16)
Time and demand other	372		(64)		(836)		418
Real estate construction	(2,798)		482		710		(355)
Construction other	(1,842)		317		(103)		52
Construction residential	(956)		165		813		(407)
Residential real estate	261		(45)		4,213		(2,107)
Residential first lien	358		(62)		3,683		(1,842)
Residential junior lien/home equity	(97)		17		530		(265)
Commercial real estate	307		(53)		314		(157)
Multifamily	67		(12)		49		(25)
Nonowner occupied	238		(41)		(1,576)		788
Owner occupied	2		—		1,841		(920)
Loans to individuals	659		(114)		(8,460)		4,230
Automobile and recreational vehicles	599		(104)		(8,460)		4,230
Consumer credit cards	5		(1)		(29)		15
Consumer other	55		(9)		29		(15)

Provision for credit losses on loans and leases	$	(580)	100	%	$	(200)	100	%
Provision for credit losses - acquisition day 1 non-PCD	10,653				—
Total provision for credit losses on loans and leases	10,073				(200)
Provision for off-balance sheet credit exposure	(2,070)				2,164
Total provision for credit losses	$	8,003			$	1,964

Total provision expense for the three months ended March 31, 2023, increased $6.0 million compared to the three months ended March 31, 2022. This increase is a result of $10.7 million in provision expense recognized in the first quarter of 2023 as the day 1 non-PCD provision expense resulting from the Centric acquisition offset by a $4.2 million decline in the provision for off-balance sheet commitments. The negative provision for off-balance sheet commitments for the period ending March 31, 2023 was a result of lower off-balance sheet commitments related to construction loans and improvement in the economic variables considered in the calculation.

The allowance for credit losses was $133.9 million, or 1.55%, of total loans outstanding at March 31, 2023, compared to $102.9 million, or 1.35%, at December 31, 2022 and $91.2 million, or 1.31%, at March 31, 2022. Nonperforming loans as a percentage of total loans and leases decreased to 0.51% at March 31, 2023 from 0.54% as of March 31, 2022 and increased from 0.46% at December 31, 2022. The allowance to nonperforming loan ratio was 302.67%, 289.98% and 243.38% as of March 31, 2023, December 31, 2022 and March 31, 2022, 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, 2023.

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, 2023 and 2022 and the year-ended December 31, 2022:


	March 31, 2023			March 31, 2022			December 31, 2022
	(dollars in thousands)
Balance, beginning of period	$	102,906		$	92,522		$	92,522
Day 1 allowance for credit loss on PCD acquired loans	22,079			—			—
Provision for credit losses - acquisition day 1 non-PCD	10,653			—			—
Loans charged off:
Commercial, financial, agricultural and other	663			475			2,361
Real estate construction	—			—			—
Residential real estate	79			139			339
Commercial real estate	—			—			2,487
Loans to individuals	1,141			1,009			4,658
Total loans charged off	1,883			1,623			9,845
Recoveries of loans previously charged off:
Commercial, financial, agricultural and other	159			80			394
Real estate construction	—			—			9
Residential real estate	38			29			187
Commercial real estate	42			14			769
Loans to individuals	471			366			1,349
Total recoveries	710			489			2,708
Net charge-offs	1,173			1,134			7,137
Provision for credit losses on loans and leases charged to expense	(580)			(200)			17,521
Balance, end of period	$	133,885		$	91,188		$	102,906
Net charge-offs as a percentage of average loans and leases outstanding (annualized)	0.06		%	0.07		%	0.10		%
Allowance for credit losses as a percentage of end-of-period loans and leases outstanding	1.55		%	1.31		%	1.35		%

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:


	2023		2022		$ Change		% Change
	(dollars in thousands)
Noninterest Income:
Trust income	$	2,486	$	2,713	$	(227)	(8)	%
Service charges on deposit accounts	4,918		4,615		303		7
Insurance and retail brokerage commissions	2,552		2,272		280		12
Income from bank owned life insurance	1,227		1,508		(281)		(19)
Card-related interchange income	6,829		6,490		339		5
Swap fee income	245		453		(208)		(46)
Other income	2,057		1,975		82		4
Subtotal	20,314		20,026		288		1
Net securities gains	—		2		(2)		(100)
Gain on sale of mortgage loans	652		1,282		(630)		(49)
Gain on sale of other loans and assets	2,086		2,319		(233)		(10)
Derivatives mark to market	(89)		347		(436)		(126)

Total noninterest income	$	22,963	$	23,976	$	(1,013)	(4)	%

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, 2023 increased $0.3 million, or 1%, compared to the three months ended March 31, 2022. Service charges on deposit accounts and card-related interchange income both increased $0.3 million as a result of increased customer activity. Insurance and retail brokerage commissions increased $0.3 million due to growth in annuity sales. Trust income decreased $0.2 million as a result of declines in the value of assets under management, income from bank owned life insurance decreased $0.3 million compared to the prior period primarily due to changes in market interest rates and swap fee income declined $0.2 million due to a lower volume of interest rate swaps entered into by our commercial loan customers. For the three months ended March 31, 2023, $0.1 million in non-interest income can be attributed to the Centric acquisition.

Total noninterest income decreased $1.0 million, or 4%, compared to the same period in the prior year. The most significant changes, other than the changes noted above, include a $0.6 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 $0.4 million. This adjustment does not reflect a realized gain or loss 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 decreased $0.2 million due to a lower volume of loans, primarily SBA loans, being sold in the first three months of 2023 compared to the same period in 2022.

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:


	2023		2022		$ Change		% Change
	(dollars in thousands)
Noninterest Expense:
Salaries and employee benefits	$	34,264	$	30,932	$	3,332	11	%
Net occupancy	5,018		4,787		231		5
Furniture and equipment	4,238		3,730		508		14
Data processing	3,404		3,188		216		7
Advertising and promotion	1,663		1,226		437		36

Pennsylvania shares tax	1,252		1,005		247		25
Intangible amortization	1,147		862		285		33

Other professional fees and services	1,591		1,221		370		30
FDIC insurance	1,417		698		719		103

Other operating	8,062		7,400		662		9
Subtotal	62,056		55,049		7,007		13
Loss on sale or write-down of assets	41		75		(34)		(45)


Merger and acquisition related	8,541		—		8,541		N/A



Litigation and operational losses	743		600		143		24
Total noninterest expense	$	71,381	$	55,724	$	15,657	28	%

Noninterest expense increased $15.7 million, or 28%, for the three months ended March 31, 2023 compared to the same period in 2022. Contributing to the increase in expense in 2023 is $8.5 million in merger-related expenses associated with the Centric acquisition. Additionally, salaries and employee benefits increased $3.3 million primarily due to the number of full time equivalent employees, which increased from 1,432 at March 31, 2022 to 1,536 at March 31, 2023, largely due to the Centric acquisition. Additionally, increases in net occupancy, furniture and equipment and intangible amortization all reflected increases as a result of Centric. Data processing costs increased $0.2 million due to continued investment in our digital banking and other product offerings. Contributing to the increase in other operating expenses were several expense categories, including, travel, interview and placement, telephone and operational losses, none of which were individually significant.

FDIC insurance increased $0.7 million due to both the impact of Centric as well as a 2 basis point increase in the FDIC deposit insurance assessment rate which began in the first quarterly assessment period of 2023. The assessment rate increase is estimated to increase the Company's annual FDIC assessment by approximately $1.7 million.

Income Tax

The provision for income taxes increased $1.0 million for the three months ended March 31, 2023, compared to the corresponding period in 2022, due to the increase in income before income taxes.

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, 2023 and 2022.

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 effective tax rate of 20.3% and 19.5% for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, our deferred tax assets totaled $69.7 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.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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 2023, the maturity and redemption of investment securities provided $66.2 million in liquidity. These funds contributed to the liquidity used to originate loans, purchase investment securities and fund depositor withdrawals.

The following represents our expanded sources of liquidity as of March 31, 2023:


	Total Available		Amount Used		Outstanding Letters of Credit		Net Available
	(dollars in thousands)
Internal liquidity sources
Unencumbered securities	$	601,100	$	—	$	—	$	601,100
Other (excess pledged)	43,700		—		—		43,700
External liquidity sources
FHLB advances	2,041,633		204,679		666,800		1,170,154
FRB borrowings	1,081,368		—		—		1,081,368
Lines with other financial institutions	180,000		—		—		180,000

Brokered deposits (1)	1,108,551		18,730		—		1,089,821

Total liquidity	$	5,056,352	$	223,409	$	666,800	$	4,166,143

(1) Reflects internal policy limit. Maximum capacity with CDARs is $1.7 billion.

The brokered deposits included in the table above are a result of our participation 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, 2023, the outstanding balance of $18.7 million carried an average weighted rate of 3.20% and an average original term of 215 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.

Liquidity available through the Federal Reserve is a result of the FRB Borrower-in-Custody of Collateral program, which enables us to take certain loans that are not being used as collateral at the FHLB and pledge them as collateral for borrowings at the FRB.

During the first quarter of 2023, the Company increased its liquidity by purchasing $519.0 million in letters of credit from the FHLB of Pittsburgh, which were then used to secure public deposits. This resulted in a similar amount of previously pledged securities becoming unencumbered. Additionally, new short-term borrowings in the amount of $250.0 million were entered into in order to provide additional on-balance sheet liquidity.

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, 2023		December 31, 2022
	(dollars in thousands)
Noninterest-bearing demand deposits(a)	$	2,698,225	$	2,670,508
Interest-bearing demand deposits(a)	547,015		357,769
Savings deposits(a)	5,127,037		4,572,183
Time deposits	862,671		405,009
Total	$	9,234,948	$	8,005,469

(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.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

During the first three months of 2023, total deposits increased $1.2 billion, of which $757.0 million were acquired as part of the Centric acquisition. Interest-bearing demand and savings deposits increased $744.1 million, noninterest-bearing demand deposits increased $27.7 million and time deposits increased $457.7 million.

The estimated total of uninsured deposits was $2.5 billion at March 31, 2023 and $2.1 billion at December 31, 2022. Additionally, $1.0 billion of uninsured deposits are secured by pledged investment securities or letters of credit. Uninsured amounts are estimated based on known account relationships for each depositor and insurance guidelines provided by the FDIC.

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 0.76 at both March 31, 2023 and December 31, 2022. 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-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, 2023 and December 31, 2022:


	March 31, 2023
	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	$	3,508,121		$	396,766		$	684,053		$	4,588,940		$	2,977,254		$	1,025,209
Investments	43,472			38,671			76,338			158,481			442,624			719,901
Other interest-earning assets	282,037			—			—			282,037			—			—
Total interest-sensitive assets (ISA)	3,833,630			435,437			760,391			5,029,458			3,419,878			1,745,110
Certificates of deposit	80,552			87,288			346,430			514,270			347,659			974
Other deposits	5,674,052			—			—			5,674,052			—			—
Borrowings	407,928			204			409			408,541			3,271			50,590
Total interest-sensitive liabilities (ISL)	6,162,532			87,492			346,839			6,596,863			350,930			51,564
Gap	$	(2,328,902)		$	347,945		$	413,552		$	(1,567,405)		$	3,068,948		$	1,693,546
ISA/ISL	0.62			4.98			2.19			0.76			9.75			33.84
Gap/Total assets	20.95		%	3.13		%	3.72		%	14.10		%	27.61		%	15.24		%

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES


	December 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	$	3,164,495		$	354,556		$	575,640		$	4,094,691		$	2,498,042		$	978,319
Investments	46,426			35,579			74,962			156,967			461,699			734,221
Other interest-earning assets	29,919			—			—			29,919			71			—
Total interest-sensitive assets (ISA)	3,240,840			390,135			650,602			4,281,577			2,959,812			1,712,540
Certificates of deposit	71,976			56,539			102,037			230,552			173,810			955
Other deposits	4,929,952			—			—			4,929,952			—			—
Borrowings	445,065			50,204			407			495,676			3,256			50,791
Total interest-sensitive liabilities (ISL)	5,446,993			106,743			102,444			5,656,180			177,066			51,746
Gap	$	(2,206,153)		$	283,392		$	548,158		$	(1,374,603)		$	2,782,746		$	1,660,794
ISA/ISL	0.59			3.65			6.35			0.76			16.72			33.10
Gap/Total assets	22.50		%	2.89		%	5.59		%	14.02		%	28.38		%	16.94		%

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, 2023 ($)	$	(14,089)		$	(6,584)		$	7,008		$	13,374
March 31, 2023 (%)	(3.41)		%	(1.59)		%	1.70		%	3.24		%

December 31, 2022 ($)	$	(11,973)		$	(5,486)		$	5,902		$	11,413
December 31, 2022 (%)	(3.12)		%	(1.43)		%	1.54		%	2.98		%

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, 2023 ($)	$	(51,158)		$	(23,531)		$	22,066		$	42,563
March 31, 2023 (%)	(12.38)		%	(5.70)		%	5.34		%	10.30		%

December 31, 2022 ($)	$	(45,361)		$	(20,166)		$	18,626		$	36,011
December 31, 2022 (%)	(11.83)		%	(5.26)		%	4.86		%	9.39		%

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, 2023 and 2022, the cost of our interest-bearing liabilities averaged 1.27% and 0.22%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 4.86% and 3.33%, 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.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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 $8.2 million at March 31, 2023 and is classified in "Other liabilities" on the unaudited Consolidated Statements of Financial Condition.

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.

Nonperforming loans and leases, including loans held for sale, increased $8.7 million to $44.2 million at March 31, 2023, compared to $35.5 million at December 31, 2022. The increase in nonperforming loans is primarily a result of $14.9 million in loans acquired from Centric, offset by the removal of $6.4 million in accruing TDR's. The TDR's were eliminated as a result of our adoption of ASU 2022-02. The adoption of this guidance was effective January 1, 2023.

The allowance for credit losses as a percentage of nonperforming loans was 302.67% as of March 31, 2023, compared to 289.98% at December 31, 2022, and 243.38% at March 31, 2022. The amount of individually assessed reserves included in the allowance for nonperforming loans and leases 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 $14.7 million and general reserves of $112.1 million as of March 31, 2023. Specific reserves increased $14.0 million from December 31, 2022, and $14.4 million from March 31, 2022 as a result of individually analyzed PCD loans acquired from Centric.

Criticized loans totaled $189.9 million at March 31, 2023 and represented 2% of the loan portfolio. The level of criticized loans increased as of March 31, 2023 when compared to December 31, 2022, by $57.0 million, or 43%. Classified loans totaled $77.0 million at March 31, 2023 compared to $44.4 million at December 31, 2022, an increase of $32.5 million, or 73%. The increase in criticized loans is the result of PCD loans acquired as part of the Centric acquisition.

The allowance for credit losses was $133.9 million at March 31, 2023, or 1.55% of total loans and leases outstanding, compared to 1.35% reported at December 31, 2022, and 1.31% at March 31, 2022. General reserves, or the portion of the allowance related to loans that were not specifically evaluated, as a percentage of performing loans were 1.38% at March 31, 2023 compared to 1.34% at December 31, 2022 and 1.31% at March 31, 2022.

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, 2022
	2023				2022
	(dollars in thousands)
Nonperforming Loans:
Loans on nonaccrual basis	$	44,234			$	20,490				$	20,193

Troubled debt restructured loans on nonaccrual basis					10,090					8,852
Troubled debt restructured loans on accrual basis					6,887					6,442
Total nonperforming loans	$	44,234			$	37,467				$	35,487
Loans past due 30 to 90 days and still accruing	$	15,809			$	22,692				$	17,949
Loans past due in excess of 90 days and still accruing	$	1,440			$	1,921				$	1,991
Other real estate owned	$	424			$	667				$	534
Loans held for sale at end of period	$	11,050			$	10,506				$	11,869
Portfolio loans and leases outstanding at end of period	$	8,656,945			$	6,952,112				$	7,642,143
Average loans and leases outstanding	$	8,301,449		(a)	$	6,893,628		(a)		$	7,172,624		(b)
Nonperforming loans as a percentage of total loans and leases	0.51		%		0.54		%			0.46		%
Provision for credit losses on loans and leases	$	(580)		(a)	$	(200)		(a)		$	17,521		(b)
Provision for credit losses - acquisition day 1 non-PCD	$	10,653			$	—				$	—
Allowance for credit losses	$	133,885			$	91,188				$	102,906
Net charge-offs	$	1,173		(a)	$	1,134		(a)		$	7,137		(b)
Net charge-offs as a percentage of average loans and leases outstanding (annualized)	0.06		%		0.07		%			0.10		%
Provision for credit losses as a percentage of net charge-offs (e)	(49.45)		%	(a)	(17.64)		%	(a)		245.50		%	(b)
Allowance for credit losses as a percentage of end-of-period loans and leases outstanding (c)	1.55		%		1.31		%			1.35		%



Allowance for credit losses as a percentage of nonperforming loans (d)	302.67		%		243.38		%			289.98		%

(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.

(e)Does not include provision for credit losses on loans and leases - acquisition day 1 non-PCD

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, 2023								December 31, 2022
	Originated		Acquired (1)		Total		%		Amount		%
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,226,466	$	244,613	$	1,471,079	17	%	$	1,211,706	16	%
Real estate construction	460,787		81,115		541,902		6		513,101		7
Residential real estate	2,235,351		88,516		2,323,867		27		2,194,669		29
Commercial real estate	2,458,810		533,120		2,991,930		35		2,425,012		31
Loans to individuals	1,327,504		663		1,328,167		15		1,297,655		17
Total loans and leases, net of unearned income	$	7,708,918	$	948,027	$	8,656,945	100	%	$	7,642,143	100	%

(1) Includes loans acquired as part of the Centric acquisition plus day 1 gross up of PCD loans.

During the three months ended March 31, 2023, originated loans and leases increased $66.8 million, or 0.9%, compared to balances outstanding at December 31, 2022. As provided in the table above, the acquisition of Centric accounted for $948.0 million of loan growth during the first quarter of 2023.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

Excluding the impact of Centric, real estate construction loans decreased $52.3 million, or 10.2%, due to the completion of commercial real estate projects. Residential real estate grew $40.7 million, or 1.9%, primarily due to originations of closed-end 1-4 family mortgage loans. Commercial real estate loans increased $33.8 million, or 1.4%, primarily due to growth in loans secured by nonresidential property due in part to the completion of several construction projects. Loans to individuals increased $29.8 million, or 2.3%, primarily due to growth in the indirect auto and recreational vehicle portfolio. Commercial, financial, agricultural and other loans increased $14.8 million, as a result of $29.5 million in growth in the equipment finance portfolio.

As indicated in the table below, commercial real estate and commercial, financial and agricultural and other loans represent a significant portion of the nonperforming loans as of March 31, 2023.


	For the Three Months Ended March 31, 2023						As of March 31, 2023
	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	$	504	42.97	%	0.03	%	$	12,364	27.95	%	0.14	%
Real estate construction	—		—		—		—		—		—
Residential real estate	41		3.49		—		7,656		17.31		0.09
Commercial real estate	(42)		(3.58)		—		23,785		53.77		0.28
Loans to individuals	670		57.12		0.03		429		0.97		—
Total loans and leases, net of unearned income	$	1,173	100.00	%	0.06	%	$	44,234	100.00	%	0.51	%

Net charge-offs for the three months ended March 31, 2023 totaled $1.2 million, compared to $1.1 million for the three months ended March 31, 2022. The most significant charge-offs during the three months ended March 31, 2023 included $0.7 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, 2023, shareholders’ equity was $1.2 billion, an increase of $172.9 million from December 31, 2022. The increase was primarily the result of $141.4 million in stock issued as part of the Centric acquisition, $30.2 million in net income and a $13.1 million increase 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 due to $2.3 million in treasury stock sales, offset by $12.4 million of dividends paid to shareholders and $1.7 million of common stock repurchases. Cash dividends declared per common share were $0.120 for the three months ended March 31, 2023.

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.

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.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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.

In March 2020, regulators issued interim financial rule (“IFR”) “Regulatory Capital Rule: Revised Transition of the Current Expected Losses Methodology for Allowances” in response to the disrupted economic activity from the pandemic. The IFR provides financial institutions that adopt CECL during 2020 with the option to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided by the initial two-year delay (“five-year transition”). The Company adopted CECL effective January 1, 2020 and elected to implement the five-year transition. Regulatory capital levels without the capital benefit at March 31, 2023 for both First Commonwealth and First Commonwealth Bank would have continued to be greater than the amounts needed to be considered “well capitalized”, as the transition provided a capital benefit of approximately 9 to 12 basis points.

As of March 31, 2023, 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. 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	$	1,254,691	13.82	%		$	953,010	10.50	%	$	907,629	10.00	%
First Commonwealth Bank	1,198,565		13.23			951,248		10.50		905,951		10.00
Tier I Capital to Risk Weighted Assets
First Commonwealth Financial Corporation	$	1,046,925	11.53	%		$	771,485	8.50	%	$	726,103	8.00	%
First Commonwealth Bank	990,799		10.94			770,058		8.50		724,760		8.00
Tier I Capital to Average Assets
First Commonwealth Financial Corporation	$	1,046,925	10.22	%		$	409,915	4.00	%	$	512,393	5.00	%
First Commonwealth Bank	990,799		9.69			408,975		4.00		511,219		5.00
Common Equity Tier I to Risk Weighted Assets
First Commonwealth Financial Corporation	$	976,925	10.76	%		$	635,340	7.00	%	$	589,959	6.50	%
First Commonwealth Bank	990,799		10.94			634,165		7.00		588,868		6.50

On April 24, 2023, First Commonwealth Financial Corporation declared a quarterly dividend of $0.125 per share payable on May 19, 2023 to shareholders of record as of May 5, 2023. 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 October 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, 2023, 1,392,361 common shares had been repurchased under this program at an average price of $13.92 per share. On April 24, 2023, the Board of Directors authorized a $25 million increase in the share repurchase program.

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 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 Company has elected to apply the practical expedient allowing for a contract modification,

due to reference rate reform, to be accounted for as a continuation of the existing contract and does not require contract

remeasurement at the modification date or reassessment of a previous accounting determination. The amendments in the update

are effective for all entities between March 12, 2020 and December 31, 2024 (In December 2022, FASB released ASU

2022-06, which extended the original sunset date in ASU 2020-04 from December 31, 2022 to December 31, 2024). The

Company has established a cross-functional working group to manage the Company’s transition from LIBOR. Products that

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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. All LIBOR based loans are expected to

be transitioned to a new index by June 30, 2023. The impact of the LIBOR transition is not expected to have a material impact

on the Company's consolidated financial statements.

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PART II – OTHER INFORMATION

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.

Table of Contents

ITEM 1. LEGAL PROCEEDINGS

The information required by this item is set forth in Part I, Item 1, Note 6, "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, 2022, except for the following risk factor.

Risks Related to Recent Events Impacting the Financial Services Industry

Recent events impacting the financial services industry, including the failure of Silicon Valley Bank and Signature Bank, have resulted in decreased confidence in banks among some consumer and commercial depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events occurred during a period of rapidly rising interest rates which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These recent events have, and could continue to have, an adverse impact on the market price and volatility of the Company’s common stock.

These recent events may also result in potentially adverse changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our business. Inability to access short-term funding, loss of client deposits or changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact our overall liquidity or capitalization. We may be impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which can cause substantial and cascading disruption within the financial markets and increased expenses. The cost of resolving the recent bank failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

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

On October 26, 2021, a share repurchase program was authorized for up to $25.0 million in shares of the Company's common stock with a $25 million increase in October of 2022. The following table details the amount of shares repurchased under this program in the first quarter of 2023:


Month Ending:	Total Number of Shares Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs*
January 31, 2023	—	$	—	—	2,099,514
February 28, 2023	—	—		—	1,929,035
March 31, 2023	21,342	13.58		21,342	2,461,312
Total	21,342	$	13.58	21,342

* Remaining number of shares approved under the Plan is based on the market value of the Company's common stock of $14.71 at January 31, 2023, $16.01 at February 28, 2023 and $12.43 at March 31, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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PART II – OTHER INFORMATION

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS

Exhibit
Number

Description

Incorporated by Reference to

10.1

2023 Annual Incentive Plan

Filed herewith

10.2

2023-2025 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

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 10, 2023						/s/ T. Michael Price
						T. Michael Price President and Chief Executive Officer

DATED: May 10, 2023						/s/ James R. Reske
						James R. Reske Executive Vice President, Chief Financial Officer and Treasurer