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 June 30, 2022

Or

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

For the transition period from             to

Commission File Number 001-11138

First Commonwealth Financial Corporation

(Exact name of registrant as specified in its charter)

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

724-349-7220

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

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

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

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

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

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

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

The number of shares outstanding of issuer’s common stock, $1.00 par value, as of August 8, 2022, was 93,378,820.

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)	9
	Notes to the Unaudited Consolidated Financial Statements	10
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	79
ITEM 4.	Controls and Procedures	79
PART II.	Other Information
ITEM 1.	Legal Proceedings	80
ITEM 1A.	Risk Factors	80
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
ITEM 3.	Defaults Upon Senior Securities	80
ITEM 4.	Mine Safety Disclosures	80
ITEM 5.	Other Information	80
ITEM 6.	Exhibits	81
	Signatures	82

Table of Contents

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)

	June 30, 2022		December 31, 2021
	(dollars in thousands, except share data)
Assets
Cash and due from banks	$	120,267	$	84,738
Interest-bearing bank deposits	179,533		310,634
Securities available for sale, at fair value	863,622		1,041,380
Securities held to maturity, at amortized cost (Fair value of $437,880 and $536,651 at June 30, 2022 and December 31, 2021, respectively)	492,229		541,311
Other investments	13,665		12,838
Loans held for sale	12,876		18,583
Loans and leases:
Portfolio loans and leases	7,119,754		6,839,230
Allowance for credit losses	(93,603)		(92,522)
Net loans and leases	7,026,151		6,746,708
Premises and equipment, net	121,872		120,775
Other real estate owned	93		642
Goodwill	303,328		303,328
Amortizing intangibles, net	10,121		11,188
Bank owned life insurance	224,534		224,700
Other assets	158,136		128,268
Total assets	$	9,526,427	$	9,545,093
Liabilities
Deposits (all domestic):
Noninterest-bearing	$	2,726,242	$	2,658,782
Interest-bearing	5,327,303		5,323,716
Total deposits	8,053,545		7,982,498
Short-term borrowings	88,923		138,315
Subordinated debentures	170,856		170,775
Other long-term debt	5,221		5,573
Capital lease obligation	5,675		5,921
Total long-term debt	181,752		182,269
Other liabilities	153,049		132,639
Total liabilities	8,477,269		8,435,721
Shareholders’ Equity
Preferred stock, $1 par value per share, 3,000,000 shares authorized, none issued	—		—
Common stock, $1 par value per share, 200,000,000 shares authorized; 113,914,902 shares issued at June 30, 2022 and December 31, 2021, and 93,705,120 and 94,233,152 shares outstanding at June 30, 2022 and December 31, 2021, respectively	113,915		113,915
Additional paid-in capital	497,431		496,121
Retained earnings	727,573		691,260
Accumulated other comprehensive loss, net	(97,025)		(8,768)
Treasury stock (20,209,782 and 19,681,750 shares at June 30, 2022 and December 31, 2021, respectively)	(192,736)		(183,156)
Total shareholders’ equity	1,049,158		1,109,372
Total liabilities and shareholders’ equity	$	9,526,427	$	9,545,093

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

3

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				For the Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(dollars in thousands, except share data)
Interest Income
Interest and fees on loans and leases	$	69,515	$	65,367	$	133,909	$	133,680
Interest and dividends on investments:
Taxable interest	6,286		6,302		12,764		11,666
Interest exempt from federal income taxes	120		154		246		318
Dividends	149		138		284		281
Interest on bank deposits	658		90		769		167
Total interest income	76,728		72,051		147,972		146,112
Interest Expense
Interest on deposits	797		1,433		1,610		3,485
Interest on short-term borrowings	18		27		39		58
Interest on subordinated debentures	2,143		2,136		4,272		4,264
Interest on other long-term debt	51		194		103		540
Interest on lease obligations	57		62		114		124
Total interest expense	3,066		3,852		6,138		8,471
Net Interest Income	73,662		68,199		141,834		137,641
Provision for credit losses	4,099		5,413		6,063		1,023
Net Interest Income after Provision for Credit Losses	69,563		62,786		135,771		136,618
Noninterest Income
Net securities gains	—		10		2		16
Trust income	2,573		2,706		5,286		5,222
Service charges on deposit accounts	4,886		4,310		9,501		8,357
Insurance and retail brokerage commissions	2,486		1,978		4,758		4,150
Income from bank owned life insurance	1,383		1,509		2,891		3,460
Gain on sale of mortgage loans	1,561		3,084		2,843		8,130
Gain on sale of other loans and assets	1,099		2,111		3,418		3,801
Card-related interchange income	7,137		7,406		13,627		13,833
Derivatives mark to market	42		(277)		389		1,153
Swap fee income	1,154		1,252		1,607		1,398
Other income	2,188		1,997		4,163		3,921
Total noninterest income	24,509		26,086		48,485		53,441
Noninterest Expense
Salaries and employee benefits	30,949		28,347		61,881		57,018
Net occupancy	4,170		3,881		8,957		8,654
Furniture and equipment	3,857		3,866		7,587		7,814
Data processing	3,470		3,192		6,658		6,244
Advertising and promotion	1,434		1,355		2,660		2,679
Pennsylvania shares tax	913		1,258		1,918		2,090
Intangible amortization	862		863		1,724		1,729
Other professional fees and services	1,197		1,091		2,418		1,842
FDIC insurance	702		438		1,400		1,134
Loss on sale or write-down of assets	86		43		161		52
Litigation and operational losses	629		556		1,229		1,035
COVID-19 related	62		232		79		306
Branch consolidation	(202)		(22)		(104)		18
Other operating	7,550		6,442		14,835		12,786
Total noninterest expense	55,679		51,542		111,403		103,401
Income Before Income Taxes	38,393		37,330		72,853		86,658
Income tax provision	7,639		7,711		14,373		17,269
Net Income	$	30,754	$	29,619	$	58,480	$	69,389
Average Shares Outstanding	94,020,240		96,012,828		94,049,308		96,019,808

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

4

Table of Contents

Average Shares Outstanding Assuming Dilution	94,245,770		96,282,425		94,273,808		96,255,475
Per Share Data: Basic Earnings per Share	$	0.33	$	0.31	$	0.62	$	0.72
Diluted Earnings per Share	$	0.33	$	0.31	$	0.62	$	0.72
Cash Dividends Declared per Common Share	$	0.120	$	0.115	$	0.235	$	0.225

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

5

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				For the Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Net Income	$	30,754	$	29,619	$	58,480	$	69,389
Other comprehensive (loss) income, before tax benefit (expense):
Unrealized holding (losses) gains on securities arising during the period	(31,794)		1,707		(89,045)		(14,097)
Less: reclassification adjustment for gains on securities included in net income	—		(10)		(2)		(16)
Unrealized holding (losses) gains on derivatives arising during the period	(4,745)		(537)		(22,671)		1,305
Total other comprehensive (loss) income, before tax benefit (expense)	(36,539)		1,160		(111,718)		(12,808)
Income tax benefit (expense) related to items of other comprehensive (loss) income	7,674		(243)		23,461		2,690
Total other comprehensive (loss) income	(28,865)		917		(88,257)		(10,118)
Comprehensive Income (Loss)	$	1,889	$	30,536	$	(29,777)	$	59,271

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

6

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)

	Common<br>Stock		Additional<br>Paid-in-<br>Capital		Retained<br>Earnings		Accumulated<br>Other<br>Comprehensive<br>Income (Loss),<br>net		Treasury<br>Stock		Total<br>Shareholders’<br>Equity
Balance at December 31, 2021	$	113,915	$	496,121	$	691,260	$	(8,768)	$	(183,156)	$	1,109,372
Net income					58,480						58,480
Other comprehensive loss							(88,257)				(88,257)
Cash dividends declared (0.235 per share)					(22,167)						(22,167)
Treasury stock acquired									(11,145)		(11,145)
Treasury stock reissued			580		—				1,612		2,192
Restricted stock	—		730		—				(47)		683
Balance at June 30, 2022	$	113,915	$	497,431	$	727,573	$	(97,025)	$	(192,736)	$	1,049,158

All values are in US Dollars.

	Common<br>Stock		Additional<br>Paid-in-<br>Capital		Retained<br>Earnings		Accumulated<br>Other<br>Comprehensive<br>Income (Loss),<br>net		Treasury<br>Stock		Total<br>Shareholders’<br>Equity
Balance at December 31, 2020	$	113,915	$	494,683	$	596,614	$	17,233	$	(153,828)	$	1,068,617
Net income					69,389						69,389
Other comprehensive loss							(10,118)				(10,118)
Cash dividends declared (0.225 per share)					(21,641)						(21,641)
Treasury stock acquired									(2,658)		(2,658)
Treasury stock reissued			771		—				1,493		2,264
Restricted stock	—		445		—				121		566
Balance at June 30, 2021	$	113,915	$	495,899	$	644,362	$	7,115	$	(154,872)	$	1,106,419

All values are in US Dollars.

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

7

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)

	Common<br>Stock		Additional<br>Paid-in-<br>Capital		Retained<br>Earnings		Accumulated<br>Other<br>Comprehensive<br>Income (Loss),<br>net		Treasury<br>Stock		Total<br>Shareholders’<br>Equity
Balance at March 31, 2022	$	113,915	$	496,627	$	708,149	$	(68,160)	$	(182,912)	$	1,067,619
Net income					30,754						30,754
Other comprehensive loss							(28,865)				(28,865)
Cash dividends declared (0.120 per share)					(11,330)						(11,330)
Treasury stock acquired									(9,657)		(9,657)
Treasury stock reissued			81		—				164		245
Restricted stock	—		723		—				(331)		392
Balance at June 30, 2022	$	113,915	$	497,431	$	727,573	$	(97,025)	$	(192,736)	$	1,049,158

All values are in US Dollars.

	Common<br>Stock		Additional<br>Paid-in-<br>Capital		Retained<br>Earnings		Accumulated<br>Other<br>Comprehensive<br>Income (Loss),<br>net		Treasury<br>Stock		Total<br>Shareholders’<br>Equity
Balance at March 31, 2021	$	113,915	$	495,720	$	625,806	$	6,198	$	(154,159)	$	1,087,480
Net income					29,619						29,619
Other comprehensive income							917				917
Cash dividends declared (0.115 per share)					(11,063)						(11,063)
Treasury stock acquired									(1,015)		(1,015)
Treasury stock reissued			90		—				133		223
Restricted stock	—		89		—				169		258
Balance at June 30, 2021	$	113,915	$	495,899	$	644,362	$	7,115	$	(154,872)	$	1,106,419

All values are in US Dollars.

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

8

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 Six Months Ended
	June 30,
	2022		2021
Operating Activities	(dollars in thousands)
Net income	$	58,480	$	69,389
Adjustment to reconcile net income to net cash provided by operating activities:
Provision for credit losses	6,063		1,023
Deferred tax expense	1,240		2,863
Depreciation and amortization	5,159		5,931
Net gains on securities and other assets	(6,730)		(13,205)
Net amortization of premiums and discounts on securities	1,131		2,588
Income from increase in cash surrender value of bank owned life insurance	(2,891)		(3,132)
Decrease in interest receivable	747		3,697
Mortgage loans originated for sale	(106,160)		(210,746)
Proceeds from sale of mortgage loans	109,533		231,321
Increase (decrease) in interest payable	119		(357)
Decrease in income taxes payable	(7,587)		(1,870)
Other-net	1,265		(14,178)
Net cash provided by operating activities	60,369		73,324
Investing Activities
Transactions with securities held to maturity:
Proceeds from maturities and redemptions	48,863		59,170
Purchases	(200)		(312,247)
Transactions with securities available for sale:
Proceeds from maturities and redemptions	88,001		285,216
Purchases	—		(560,180)
Purchases of FHLB stock	(1,321)		(2,134)
Proceeds from the redemption of FHLB stock	494		2,834
Proceeds from bank owned life insurance	3,058		3,097
Proceeds from sale of loans	36,159		33,824
Proceeds from sale of other assets	3,168		4,979
Net increase in loans and leases	(315,444)		(17,885)
Purchases of premises and equipment and other assets	(7,360)		(3,909)
Net cash used in investing activities	(144,582)		(507,235)
Financing Activities
Net decrease in other short-term borrowings	(49,392)		(10,001)
Net increase in deposits	71,073		446,426
Repayments of other long-term debt	(352)		(50,339)
Repayments of capital lease obligation	(246)		(230)
Dividends paid	(22,167)		(21,641)
Proceeds from reissuance of treasury stock	245		222
Purchase of treasury stock	(10,520)		(2,654)
Net cash (used in) provided by financing activities	(11,359)		361,783
Net decrease in cash and cash equivalents	(95,572)		(72,128)
Cash and cash equivalents at January 1	395,372		356,581
Cash and cash equivalents at June 30	$	299,800	$	284,453

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

9

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 six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the full year of 2022. These interim financial statements should be read in conjunction with First Commonwealth’s 2021 Annual Report on Form 10-K.

Note 2 Supplemental Comprehensive Income Disclosures

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

	For the Six Months Ended June 30,
	2022						2021
	Pretax Amount		Tax (Expense) Benefit		Net of Tax Amount		Pretax Amount		Tax (Expense) Benefit		Net of Tax Amount
	(dollars in thousands)
Unrealized losses on securities:
Unrealized holding losses on securities arising during the period	$	(89,045)	$	18,700	$	(70,345)	$	(14,097)	$	2,961	$	(11,136)
Reclassification adjustment for gains on securities included in net income	(2)		—		(2)		(16)		3		(13)
Total unrealized losses on securities	(89,047)		18,700		(70,347)		(14,113)		2,964		(11,149)
Unrealized (losses) gains on derivatives:
Unrealized holding (losses) gains on derivatives arising during the period	(22,671)		4,761		(17,910)		1,305		(274)		1,031
Total unrealized (losses) gains on derivatives	(22,671)		4,761		(17,910)		1,305		(274)		1,031
Total other comprehensive loss	$	(111,718)	$	23,461	$	(88,257)	$	(12,808)	$	2,690	$	(10,118)

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 June 30,
	2022						2021
	Pretax Amount		Tax (Expense) Benefit		Net of Tax Amount		Pretax Amount		Tax (Expense) Benefit		Net of Tax Amount
	(dollars in thousands)
Unrealized (losses) gains on securities:
Unrealized holding (losses) gains on securities arising during the period	$	(31,794)	$	6,677	$	(25,117)	$	1,707	$	(358)	$	1,349
Reclassification adjustment for gains on securities included in net income	—		—		—		(10)		2		(8)
Total unrealized (losses) gains on securities	(31,794)		6,677		(25,117)		1,697		(356)		1,341
Unrealized losses on derivatives:
Unrealized holding losses on derivatives arising during the period	(4,745)		997		(3,748)		(537)		113		(424)
Total unrealized losses on derivatives	(4,745)		997		(3,748)		(537)		113		(424)
Total other comprehensive (loss) income	$	(36,539)	$	7,674	$	(28,865)	$	1,160	$	(243)	$	917

The following table details the change in components of OCI for the six months ended June 30:

	2022								2021
	Securities Available for Sale		Post-Retirement Obligation		Derivatives		Accumulated Other Comprehensive Income (Loss)		Securities Available for Sale		Post-Retirement Obligation		Derivatives		Accumulated Other Comprehensive Income (Loss)
	(dollars in thousands)
Balance at December 31	$	(3,317)	$	95	$	(5,546)	$	(8,768)	$	20,310	$	(182)	$	(2,895)	$	17,233
Other comprehensive loss before reclassification adjustment	(70,345)		—		(17,910)		(88,255)		(11,136)		—		1,031		(10,105)
Amounts reclassified from accumulated other comprehensive (loss) income	(2)		—		—		(2)		(13)		—		—		(13)
Net other comprehensive loss during the period	(70,347)		—		(17,910)		(88,257)		(11,149)		—		1,031		(10,118)
Balance at June 30	$	(73,664)	$	95	$	(23,456)	$	(97,025)	$	9,161	$	(182)	$	(1,864)	$	7,115

The following table details the change in components of OCI for the three months ended June 30:

	2022								2021
	Securities Available for Sale		Post-Retirement Obligation		Derivatives		Accumulated Other Comprehensive Income (Loss)		Securities Available for Sale		Post-Retirement Obligation		Derivatives		Accumulated Other Comprehensive Income (Loss)
	(dollars in thousands)
Balance at March 31	$	(48,547)	$	95	$	(19,708)	$	(68,160)	$	7,820	$	(182)	$	(1,440)	$	6,198
Other comprehensive (loss) income before reclassification adjustment	(25,117)		—		(3,748)		(28,865)		1,349		—		(424)		925
Amounts reclassified from accumulated other comprehensive (loss) income	—		—		—		—		(8)		—		—		(8)
Net other comprehensive (loss) income during the period	(25,117)		—		(3,748)		(28,865)		1,341		—		(424)		917
Balance at June 30	$	(73,664)	$	95	$	(23,456)	$	(97,025)	$	9,161	$	(182)	$	(1,864)	$	7,115

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 Supplemental Cash Flow Disclosures

The following table presents information related to cash paid during the period for interest and income taxes, as well as detail on non-cash investing and financing activities for the six months ended June 30:

	2022		2021
	(dollars in thousands)
Cash paid during the period for:
Interest	$	5,946	$	8,800
Income taxes	16,621		16,209
Non-cash investing and financing activities:
Loans transferred to other real estate owned and repossessed assets	1,313		1,649
Loans transferred from held to maturity to held for sale	31,519		30,704
Gross decrease in market value adjustment to securities available for sale	(89,046)		(14,113)
Gross (decrease) increase in market value adjustment to derivatives	(22,671)		1,305
Noncash treasury stock reissuance	1,947		2,042
Unsettled treasury stock repurchases	625		4
Proceeds from death benefit on bank owned life insurance not received	—		(384)

Note 4 Earnings per Share

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Weighted average common shares issued	113,914,902		113,914,902		113,914,902		113,914,902
Average treasury stock shares	(19,666,599)		(17,695,829)		(19,660,488)		(17,707,057)
Average deferred compensation shares	(55,713)		(55,582)		(55,698)		(55,563)
Average unearned nonvested shares	(172,350)		(150,663)		(149,408)		(132,474)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share	94,020,240		96,012,828		94,049,308		96,019,808
Additional common stock equivalents (nonvested stock) used to calculate diluted earnings per share	169,779		213,982		168,749		180,052
Additional common stock equivalents (deferred compensation) used to calculate diluted earnings per share	55,751		55,615		55,751		55,615
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share	94,245,770		96,282,425		94,273,808		96,255,475
Basic Earnings per Share	$	0.33	$	0.31	$	0.62	$	0.72
Diluted Earnings per Share	$	0.33	$	0.31	$	0.62	$	0.72

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 six months ended June 30 because to do so would have been antidilutive.

	2022					2021
		Price Range					Price Range
	Shares	From		To		Shares	From		To
Restricted Stock	117,684	$	13.72	$	16.43	66,092	$	13.72	$	14.58
Restricted Stock Units	64,785	$	16.56	$	21.08	26,343	$	16.41	$	16.41

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 5 Commitments and Contingent Liabilities

Commitments and Letters of Credit

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

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

	June 30, 2022		December 31, 2021
	(dollars in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	2,286,257	$	2,353,991
Financial standby letters of credit	17,444		18,824
Performance standby letters of credit	17,336		10,663
Commercial letters of credit	882		975

The notional amounts outstanding as of June 30, 2022 include amounts issued in 2022 of $7.0 million in performance standby letters of credit and $0.6 million in financial standby letters of credit. There were no commercial letters of credit issued in 2022. A liability of $0.1 million has been recorded as of both June 30, 2022 and December 31, 2021, which represents the estimated fair value of letters of credit issued. The fair value of letters of credit is estimated based on the unrecognized portion of fees received at the time the commitment was issued.

Unused commitments and letters of credit provide exposure to future credit loss in the event of nonperformance by the borrower or guaranteed parties. Management’s evaluation of the credit risk related to these commitments resulted in the recording of a liability of $8.8 million and $6.4 million as of June 30, 2022 and December 31, 2021, respectively. This liability is reflected in "Other liabilities" in the unaudited Consolidated Statements of Financial Condition. The credit risk evaluation incorporates the expected loss percentage calculated for comparable loan categories as part of the allowance for credit losses for loans as well as estimated utilization for each loan category.

Legal Proceedings

First Commonwealth and its subsidiaries are subject in the normal course of business to various pending and threatened legal proceedings in which claims for monetary damages are asserted. As of June 30, 2022, management, after consultation with legal counsel, does not anticipate that the aggregate ultimate liability arising out of litigation pending or threatened against First Commonwealth or its subsidiaries will be material to First Commonwealth’s consolidated financial position. On at least a quarterly basis, First Commonwealth assesses its liabilities and contingencies in connection with such legal proceedings. For those matters where it is probable that First Commonwealth will incur losses and the amounts of the losses can be reasonably estimated, First Commonwealth records an expense and corresponding liability in its consolidated financial statements. To the extent the pending or threatened litigation could result in exposure in excess of that liability, the amount of such excess is not currently estimable. Although not considered probable, the range of reasonably possible losses for such matters in the aggregate, beyond the existing recorded liability (if any), is between $0 and $1 million. Although First Commonwealth does not believe that the outcome of pending litigation will be material to First Commonwealth’s consolidated financial position, it cannot rule out the possibility that such outcomes will be material to the consolidated results of operations and cash flows for a particular reporting period in the future.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6 Investment Securities

Securities Available for Sale

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

	June 30, 2022								December 31, 2021
	Amortized<br>Cost		Gross<br>Unrealized<br>Gains		Gross<br>Unrealized<br>Losses		Estimated<br>Fair Value		Amortized<br>Cost		Gross<br>Unrealized<br>Gains		Gross<br>Unrealized<br>Losses		Estimated<br>Fair Value
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential	$	4,644	$	136	$	(86)	$	4,694	$	5,242	$	420	$	—	$	5,662
Mortgage-Backed Securities – Commercial	342,766		—		(33,896)		308,870		365,024		1,725		(4,459)		362,290
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	566,914		191		(57,575)		509,530		632,687		6,308		(9,021)		629,974
Other Government-Sponsored Enterprises	1,000		—		(81)		919		1,000		—		(19)		981
Obligations of States and Political Subdivisions	9,497		1		(907)		8,591		9,538		89		(103)		9,524
Corporate Securities	32,049		163		(1,194)		31,018		32,088		973		(112)		32,949
Total Securities Available for Sale	$	956,870	$	491	$	(93,739)	$	863,622	$	1,045,579	$	9,515	$	(13,714)	$	1,041,380

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

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

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 June 30, 2022, by contractual maturity, are shown below.

	Amortized<br>Cost		Estimated<br>Fair Value
	(dollars in thousands)
Due within 1 year	$	4,998	$	5,007
Due after 1 but within 5 years	8,879		8,808
Due after 5 but within 10 years	28,669		26,713
Due after 10 years	—		—
	42,546		40,528
Mortgage-Backed Securities (a)	914,324		823,094
Total Debt Securities	$	956,870	$	863,622

(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 $347.4 million and a fair value of $313.6 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $566.9 million and a fair value of $509.5 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 six months ended June 30:

	2022		2021
	(dollars in thousands)
Proceeds from sales	$	—	$	—
Gross gains (losses) realized:
Sales transactions:
Gross gains	$	—	$	—
Gross losses	—		—
	—		—
Maturities
Gross gains	2		16
Gross losses	—		—
	2		16
Net gains	$	2	$	16

Securities available for sale with an estimated fair value of $674.9 million and $759.1 million were pledged as of June 30, 2022 and December 31, 2021, 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:

	June 30, 2022								December 31, 2021
	Amortized<br>Cost		Gross<br>Unrealized<br>Gains		Gross<br>Unrealized<br>Losses		Estimated<br>Fair Value		Amortized<br>Cost		Gross<br>Unrealized<br>Gains		Gross<br>Unrealized<br>Losses		Estimated<br>Fair Value
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential	$	2,147	$	—	$	(136)	$	2,011	$	2,409	$	101	$	—	$	2,510
Mortgage-Backed Securities- Commercial	82,732		—		(10,228)		72,504		91,439		305		(1,939)		89,805
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	350,888		—		(38,361)		312,527		387,848		2,800		(5,758)		384,890
Mortgage-Backed Securities – Commercial	6,056		—		(69)		5,987		7,309		148		—		7,457
Other Government-Sponsored Enterprises	22,061		—		(3,467)		18,594		21,904		—		(625)		21,279
Obligations of States and Political Subdivisions	27,345		4		(2,052)		25,297		29,402		414		(103)		29,713
Debt Securities Issued by Foreign Governments	1,000		—		(40)		960		1,000		—		(3)		997
Total Securities Held to Maturity	$	492,229	$	4	$	(54,353)	$	437,880	$	541,311	$	3,768	$	(8,428)	$	536,651

The amortized cost and estimated fair value of debt securities held to maturity at June 30, 2022, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.

	Amortized<br>Cost		Estimated<br>Fair Value
	(dollars in thousands)
Due within 1 year	$	613	$	614
Due after 1 but within 5 years	6,164		6,092
Due after 5 but within 10 years	43,066		37,702
Due after 10 years	563		443
	50,406		44,851
Mortgage-Backed Securities (a)	441,823		393,029
Total Debt Securities	$	492,229	$	437,880

(b)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 $84.9 million and a fair value of $74.5 million for Obligations of U.S. Government agencies issued by Ginnie Mae and an amortized cost of $356.9 million and a fair value of $318.5 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 $351.0 million and $313.9 million were pledged as of June 30, 2022 and December 31, 2021, respectively, to secure public deposits and for other purposes required or permitted by law.

Other Investments

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

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 June 30, 2022 and December 31, 2021, our FHLB stock totaled $12.5 million and $11.7 million, respectively, and is included in “Other investments” on the unaudited Consolidated Statements of Financial Condition.

FHLB stock is held as a long-term investment and its value is determined based on the ultimate recoverability of the par value. First Commonwealth evaluates impairment quarterly and has concluded that the par value of its investment in FHLB stock will be recovered. Accordingly, no impairment charge was recorded on these securities during the three and six months ended June 30, 2022.

As of both June 30, 2022 and December 31, 2021, "Other investments" also includes $1.2 million in equity securities. These securities do not have a readily determinable fair value and are carried at cost. During the six-months ended June 30, 2022 and 2021, there were no gains or losses recognized through earnings on equity securities. On a quarterly basis, management evaluates equity securities by reviewing the severity and duration of decline in estimated fair value, research reports, analysts’ recommendations, credit rating changes, news stories, annual reports, regulatory filings, impact of interest rate changes and other relevant information.

Impairment of Investment Securities

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

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

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

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

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

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

included in earnings as a component of credit loss expense.

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

The following table presents the gross unrealized losses and estimated fair values at June 30, 2022 for both available for sale and held to maturity securities by investment category and time frame for which securities have been in a continuous unrealized loss position:

	Less Than 12 Months				12 Months or More				Total
	Estimated<br>Fair Value		Gross<br>Unrealized<br>Losses		Estimated<br>Fair Value		Gross<br>Unrealized<br>Losses		Estimated<br>Fair Value		Gross<br>Unrealized<br>Losses
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities – Residential	$	4,269	$	(222)	$	—	$	—	$	4,269	$	(222)
Mortgage-Backed Securities – Commercial	341,750		(37,603)		39,624		(6,521)		381,374		(44,124)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	542,171		(48,546)		273,596		(47,390)		815,767		(95,936)
Mortgage-Backed Securities – Commercial	5,987		(69)		—		—		5,987		(69)
Other Government-Sponsored Enterprises	—		—		19,513		(3,548)		19,513		(3,548)
Obligations of States and Political Subdivisions	24,376		(2,589)		2,535		(370)		26,911		(2,959)
Debt Securities Issued by Foreign Governments	960		(40)		—		—		960		(40)
Corporate Securities	12,902		(1,098)		4,981		(96)		17,883		(1,194)
Total Securities	$	932,415	$	(90,167)	$	340,249	$	(57,925)	$	1,272,664	$	(148,092)

At June 30, 2022, fixed income securities issued by the U.S. Government and U.S. Government-sponsored enterprises comprised 97% of total unrealized losses. All unrealized losses are the result of changes in market interest rates. At June 30, 2022, there are 190 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, 2021 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<br>Fair Value		Gross<br>Unrealized<br>Losses		Estimated<br>Fair Value		Gross<br>Unrealized<br>Losses		Estimated<br>Fair Value		Gross<br>Unrealized<br>Losses
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Commercial	$	320,414	$	(6,398)	$	—	$	—	$	320,414	$	(6,398)
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities – Residential	658,965		(14,779)		—		—		658,965		(14,779)
Other Government-Sponsored Enterprises	22,261		(644)		—		—		22,261		(644)
Obligation of States and Political Subdivisions	11,213		(206)		—		—		11,213		(206)
Debt Securities Issued by Foreign Governments	997		(3)		—		—		997		(3)
Corporate Securities	19,013		(112)		—		—		19,013		(112)
Total Securities	$	1,032,863	$	(22,142)	$	—	$	—	$	1,032,863	$	(22,142)

As of June 30, 2022, our corporate securities had an amortized cost and an estimated fair value of $32.0 million and $31.0 million, respectively. As of December 31, 2021, our corporate securities had an amortized cost and estimated fair value of $32.1 million and $32.9 million, respectively. Corporate securities are comprised of debt issued by large regional banks. There were four corporate securities in an unrealized loss position as of June 30, 2022 and December 31, 2021. When unrealized losses exist, management reviews each of the issuer’s asset quality, earnings trends and capital position to determine whether the unrealized loss position is a result of credit losses. All interest payments on the corporate securities are being made as contractually required.

There was no expected credit related impairment recognized on investment securities during the six months ended June 30, 2022 and 2021.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7 Loans and Leases and Allowance for Credit Losses

Loans and leases are presented in the Consolidated Statements of Financial Condition net of deferred fees and costs, and discounts related to purchased loans. Net deferred fees were $4.8 million and $0.8 million as of June 30, 2022 and December 31, 2021, respectively, and discounts on purchased loans were $5.7 million and $6.0 million June 30, 2022 and December 31, 2021, respectively. The following table provides outstanding balances related to each of our loan types:

	June 30, 2022		December 31, 2021
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,170,583	$	1,173,452
Time and demand	1,031,930		1,159,524
Commercial credit cards	16,329		13,928
Equipment finance	21,062
Time and demand other	101,262
Real estate construction	392,992		494,456
Construction other	292,400
Construction residential	100,592
Residential real estate	2,100,201		1,920,250
Residential first lien	1,459,861		1,299,534
Residential junior lien/home equity	640,340		620,716
Commercial real estate	2,319,094		2,251,097
Multifamily	360,335		385,432
Nonowner occupied	1,510,804		1,465,247
Owner occupied	447,955		400,418
Loans to individuals	1,136,884		999,975
Automobile and recreational vehicles	1,047,104		901,280
Consumer credit cards	8,717		11,151
Consumer other	81,063		87,544
Total loans and leases	$	7,119,754	$	6,839,230

In the table above, Commercial, financial, agricultural and other loans at June 30, 2022 and December 31, 2021 includes $12.9 million and $71.3 million, respectively, in Paycheck Protection Program ("PPP") loans for small businesses who meet the necessary eligibility requirements. PPP loans are 100% guaranteed by the Small Business Administration ("SBA") under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the PPP requirements. Because PPP loans are fully guaranteed by the SBA, there is no allowance for credit losses recognized for these loans. Although the Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program, there could be risks and liability to the Company associated with participation in the program.

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

Commercial, financial, agricultural and other

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

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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

Real estate construction

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

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

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

Residential real estate

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

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

Commercial real estate

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

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

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

Loans to individuals

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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

The allowance for credit losses is calculated by pooling loans of similar credit risk characteristics and applying a discounted cash flow methodology after incorporating probability of default and loss given default estimates. Probability of default represents an estimate of the likelihood of default, and loss given default measures the expected loss upon default. Inputs impacting the expected losses include a forecast of macroeconomic factors, using a weighted forecast from a nationally recognized firm. Our model incorporates a one-year forecast of macroeconomic factors, after which the factors revert back to the historical mean over a one-year period. The most significant macroeconomic factor used in estimating credit losses is the national unemployment rate. The forecasted value for national unemployment at the beginning of the forecast period was 3.58% and during the one-year forecast period it was projected to average 4.28%, with a peak of 4.59%. Current forecast assumptions consider the impact of rising interest rates, global oil prices and supply chain disruption, COVID-19, inflation, Russia's invasion of Ukraine and the potential effects of these on the US economy.

Credit Quality Information

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

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

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

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:

	June 30, 2022
			Non-Pass
	Pass		OAEM		Substandard		Doubtful		Loss		Total Non-Pass		Total
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,130,005	$	25,367	$	15,211	$	—	$	—	$	40,578	$	1,170,583
Time and demand	991,400		25,367		15,163		—		—		40,530		1,031,930
Commercial credit cards	16,329		—		—		—		—		—		16,329
Equipment finance	21,062		—		—		—		—		—		21,062
Time and demand other	101,214		—		48		—		—		48		101,262
Real estate construction	392,992		—		—		—		—		—		392,992
Construction other	292,400		—		—		—		—		—		292,400
Construction residential	100,592		—		—		—		—		—		100,592
Residential real estate	2,093,809		508		5,884		—		—		6,392		2,100,201
Residential first lien	1,456,372		442		3,047		—		—		3,489		1,459,861
Residential junior lien/home equity	637,437		66		2,837		—		—		2,903		640,340
Commercial real estate	2,219,583		71,107		28,404		—		—		99,511		2,319,094
Multifamily	348,699		11,577		59		—		—		11,636		360,335
Nonowner occupied	1,433,203		54,518		23,083		—		—		77,601		1,510,804
Owner occupied	437,681		5,012		5,262		—		—		10,274		447,955
Loans to individuals	1,136,585		—		299		—		—		299		1,136,884
Automobile and recreational vehicles	1,046,879		—		225		—		—		225		1,047,104
Consumer credit cards	8,717		—		—		—		—		—		8,717
Consumer other	80,989		—		74		—		—		74		81,063
Total loans and leases	$	6,972,974	$	96,982	$	49,798	$	—	$	—	$	146,780	$	7,119,754

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	June 30, 2022
	Term Loans												Revolving Loans
	2022		2021		2020		2019		2018		Prior				Total
	(dollars in thousands)
Time and demand	$	93,111	$	178,511	$	82,977	$	115,010	$	70,013	$	65,734	$	426,574		$	1,031,930
Pass	93,111		178,090		73,731		101,373		69,772		57,500		417,823			991,400
OAEM	—		421		9,017		2,381		161		7,136		6,251			25,367
Substandard	—		—		229		11,256		80		1,098		2,500			15,163
Commercial credit cards	—		—		—		—		—		—		16,329			16,329
Pass	—		—		—		—		—		—		16,329			16,329
Equipment finance	21,062		—		—		—		—		—		—			21,062
Pass	21,062		—		—		—		—		—		—			21,062
Time and demand other	2,932		20,270		21,067		5,219		2,938		42,838		5,998			101,262
Pass	2,932		20,270		21,067		5,219		2,938		42,790		5,998			101,214
Substandard	—		—		—		—		—		48		—			48
Construction other	14,769		109,217		83,590		59,661		23,733		1,136		294			292,400
Pass	14,769		109,217		83,590		59,661		23,733		1,136		294			292,400
Substandard	—		—		—		—		—		—		—			—
Construction residential	15,649		82,436		1,763		726		17		—		1			100,592
Pass	15,649		82,436		1,763		726		17		—		1			100,592
OAEM	—		—		—		—		—		—		—			—
Residential first lien	178,864		453,634		352,616		110,550		74,971		286,920		2,306			1,459,861
Pass	178,864		453,623		352,599		110,289		74,395		284,373		2,229			1,456,372
OAEM	—		—		—		—		59		306		77			442
Substandard	—		11		17		261		517		2,241		—			3,047
Residential junior lien/home equity	44,775		53,317		1,755		2,595		2,115		5,294		530,489			640,340
Pass	44,775		53,317		1,755		2,523		2,115		5,151		527,801			637,437
OAEM	—		—		—		—		—		56		10			66
Substandard	—		—		—		72		—		87		2,678			2,837
Multifamily	43,904		89,606		65,100		42,286		20,166		97,915		1,358			360,335
Pass	43,904		89,606		65,100		42,286		20,166		86,279		1,358			348,699
OAEM	—		—		—		—		—		11,577		—			11,577
Substandard	—		—		—		—		—		59		—			59
Nonowner occupied	144,401		176,376		109,101		217,499		178,281		681,188		3,958			1,510,804
Pass	144,401		176,376		109,101		217,499		141,473		641,555		2,798			1,433,203
OAEM	—		—		—		—		28,972		24,544		1,002			54,518
Substandard	—		—		—		—		7,836		15,089		158			23,083
Owner occupied	68,246		86,755		62,207		49,040		28,350		147,811		5,546			447,955
Pass	68,246		86,732		60,441		47,352		27,836		141,640		5,434			437,681
OAEM	—		—		775		836		514		2,854		33			5,012
Substandard	—		23		991		852		—		3,317		79			5,262
Automobile and recreational vehicles	319,430		386,347		206,560		92,660		31,796		10,311		—			1,047,104
Pass	319,430		386,345		206,518		92,572		31,732		10,282		—			1,046,879
Substandard	—		2		42		88		64		29		—			225
Consumer credit cards	—		—		—		—		—		—		8,717			8,717
Pass	—		—		—		—		—		—		8,717			8,717
Consumer other	3,214		19,349		3,342		5,681		3,145		4,894		41,438			81,063
Pass	3,214		19,349		3,342		5,676		3,139		4,889		41,380			80,989
Substandard	—		—		—		5		6		5		58			74
Total	$	950,357	$	1,655,818	$	990,078	$	700,927	$	435,525	$	1,344,041	$	1,043,008		$	7,119,754

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Portfolio Risks

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

Total net charge-offs for the six months ended June 30, 2022 and 2021 were $2.7 million and $7.2 million, respectively.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Age Analysis of Past Due Loans by Segment

The following tables delineate the aging analysis of the recorded investments in past due loans as of June 30, 2022 and December 31, 2021. Also included in these tables are loans that are 90 days or more past due and still accruing because they are well-secured and in the process of collection.

	June 30, 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	$	121	$	34	$	699	$	1,668	$	2,522	$	1,168,061	$	1,170,583
Time and demand	14		30		613		1,668		2,325		1,029,605		1,031,930
Commercial credit cards	107		4		82		—		193		16,136		16,329
Equipment finance	—		—		—		—		—		21,062		21,062
Time and demand other	—		—		4		—		4		101,258		101,262
Real estate construction	—		—		—		—		—		392,992		392,992
Construction other	—		—		—		—		—		292,400		292,400
Construction residential	—		—		—		—		—		100,592		100,592
Residential real estate	2,382		1,217		920		5,369		9,888		2,090,313		2,100,201
Residential first lien	1,503		661		447		2,721		5,332		1,454,529		1,459,861
Residential junior lien/home equity	879		556		473		2,648		4,556		635,784		640,340
Commercial real estate	76		33		1,002		21,952		23,063		2,296,031		2,319,094
Multifamily	76		—		—		—		76		360,259		360,335
Nonowner occupied	—		—		1,002		20,764		21,766		1,489,038		1,510,804
Owner occupied	—		33		—		1,188		1,221		446,734		447,955
Loans to individuals	2,265		527		534		299		3,625		1,133,259		1,136,884
Automobile and recreational vehicles	1,855		326		100		225		2,506		1,044,598		1,047,104
Consumer credit cards	82		65		46		—		193		8,524		8,717
Consumer other	328		136		388		74		926		80,137		81,063
Total loans and leases	$	4,844	$	1,811	$	3,155	$	29,288	$	39,098	$	7,080,656	$	7,119,754

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Nonaccrual Loans

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

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

Nonperforming Loans

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

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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

At June 30, 2022 and December 31, 2021, there were no nonperforming loans held for sale. During the six months ended June 30, 2022 and 2021, 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 June 30, 2022 and December 31, 2021. Also presented are the average recorded investment in nonperforming loans and the related amount of interest recognized while the loan was considered nonperforming. 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.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	June 30, 2022						December 31, 2021
	Recorded<br>investment		Unpaid<br>principal<br>balance		Related<br>allowance		Recorded<br>investment		Unpaid<br>principal<br>balance		Related<br>allowance
	(dollars in thousands)
With no related allowance recorded:
Commercial, financial, agricultural and other	$	3,653	$	10,002			$	3,720	$	10,303
Time and demand	3,653		10,002				3,720		10,303
Equipment finance	—		—
Time and demand other	—		—
Real estate construction	—		—				45		53
Construction other	—		—
Construction residential	—		—
Residential real estate	8,638		10,527				9,365		11,294
Residential first lien	4,859		5,950				5,200		6,337
Residential junior lien/home equity	3,779		4,577				4,165		4,957
Commercial real estate	16,510		16,752				40,591		41,525
Multifamily	—		—				14,677		14,677
Nonowner occupied	14,913		14,939				24,581		25,310
Owner occupied	1,597		1,813				1,333		1,538
Loans to individuals	438		484				446		485
Automobile and recreational vehicles	364		405				388		422
Consumer other	74		79				58		63
Subtotal	29,239		37,765				54,167		63,660
With an allowance recorded:
Commercial, financial, agricultural and other	—		—		$	—	327		349		$	307
Time and demand	—		—		—		327		349		307
Equipment finance	—		—		—
Time and demand other	—		—		—
Real estate construction	—		—		—		—		—		—
Construction other	—		—		—
Construction residential	—		—		—
Residential real estate	—		—		—		—		—		—
Residential first lien	—		—		—		—		—		—
Residential junior lien/home equity	—		—		—		—		—		—
Commercial real estate	6,453		7,263		360		686		711		88
Multifamily	—		—		—		421		446		88
Nonowner occupied	6,453		7,263		360		—		—		—
Owner occupied	—		—		—		265		265		—
Loans to individuals	—		—		—		—		—		—
Automobile and recreational vehicles	—		—		—		—		—		—
Consumer other	—		—		—		—		—		—
Subtotal	6,453		7,263		360		1,013		1,060		395
Total	$	35,692	$	45,028	$	360	$	55,180	$	64,720	$	395

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	For the Six Months Ended June 30,
	2022				2021
	Average<br>recorded<br>investment		Interest<br>income<br>recognized		Average<br>recorded<br>investment		Interest<br>income<br>recognized
	(dollars in thousands)
With no related allowance recorded:
Commercial, financial, agricultural and other	$	3,883	$	50	$	3,966	$	43
Time and demand	3,883		50		3,966		43
Equipment finance	—		—
Time and demand other	—		—
Real estate construction	—		—		54		—
Construction other	—		—
Construction residential	—		—
Residential real estate	8,985		141		10,726		221
Residential first lien	5,080		105		5,822		176
Residential junior lien/home equity	3,905		36		4,904		45
Commercial real estate	16,933		63		15,879		30
Multifamily	344		—		—		—
Nonowner occupied	14,986		52		13,079		10
Owner occupied	1,603		11		2,800		20
Loans to individuals	432		8		477		6
Automobile and recreational vehicles	361		8		426		6
Consumer other	71		—		51		—
Subtotal	30,233		262		31,102		300
With an allowance recorded:
Commercial, financial, agricultural and other	—		—		6,813		36
Time and demand	—		—		6,813		36
Equipment finance	—		—
Time and demand other	—		—
Real estate construction	—		—		—		—
Construction other	—		—
Construction residential	—		—
Residential real estate	—		—		—		—
Residential first lien	—		—		—		—
Residential junior lien/home equity	—		—		—		—
Commercial real estate	7,024		—		14,730		—
Multifamily	—		—		457		—
Nonowner occupied	7,024		—		14,096		—
Owner occupied	—		—		177		—
Loans to individuals	—		—		—		—
Automobile and recreational vehicles	—		—		—		—
Consumer other	—		—		—		—
Subtotal	7,024		—		21,543		36
Total	$	37,257	$	262	$	52,645	$	336

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 June 30,
	2022				2021
	Average<br>recorded<br>investment		Interest<br>income<br>recognized			Average<br>recorded<br>investment		Interest<br>Income<br>Recognized
	(dollars in thousands)
With no related allowance recorded:
Commercial, financial, agricultural and other	$	3,822	$	27		$	5,591	$	31
Time and demand	3,822		27			5,591		31
Equipment finance	—		—
Time and demand other	—		—
Real estate construction	—		—			54		—
Construction other	—		—
Construction residential	—		—
Residential real estate	8,769		57			10,560		159
Residential first lien	4,963		43			5,661		132
Residential junior lien/home equity	3,806		14			4,899		27
Commercial real estate	16,676		49			13,689		7
Multifamily	273		—			—		—
Nonowner occupied	14,796		42			11,227		2
Owner occupied	1,607		7			2,462		5
Loans to individuals	423		5			475		4
Automobile	365		5			415		4
Consumer other	58		—			60		—
Subtotal	29,690		138			30,369		201
With an allowance recorded:
Commercial, financial, agricultural and other	—		—			8,791		19
Time and demand	—		—			8,791		19
Equipment finance	—		—
Time and demand other	—		—
Real estate construction	—		—			—		—
Construction other	—		—
Construction residential	—		—
Residential real estate	—		—			—		—
Residential first lien	—		—			—		—
Residential junior lien/home equity	—		—			—		—
Commercial real estate	6,510		—			14,329		—
Multifamily	—		—			450		—
Nonowner occupied	6,510		—			13,614		—
Owner occupied	—		—			265		—
Loans to individuals	—		—			—		—
Automobile	—		—			—		—
Consumer other	—		—			—		—
Subtotal	6,510		—			23,120		19
Total	$	36,200	$	138		$	53,489	$	220

Unfunded commitments related to nonperforming loans were $0.1 million and $0.2 million at both June 30, 2022 and December 31, 2021. After consideration of the requirements to draw and available collateral related to these commitments, it was determined that no reserve was required at June 30, 2022 and December 31, 2021.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

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

	June 30, 2022		December 31, 2021
	(dollars in thousands)
Troubled debt restructured loans
Accrual status	$	6,404	$	7,120
Nonaccrual status	9,694		13,134
Total	$	16,098	$	20,254
Commitments
Letters of credit	$	60	$	60
Unused lines of credit	20		16
Total	$	80	$	76

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

	For the Six Months Ended June 30, 2022
		Type of Modification
	Number<br>of<br>Contracts	Extend<br>Maturity		Modify<br>Rate		Modify<br>Payments		Total<br>Pre-Modification<br>Outstanding<br>Recorded<br>Investment		Post-<br>Modification<br>Outstanding<br>Recorded<br>Investment		Specific<br>Reserve
	(dollars in thousands)
Residential real estate	2	$	—	$	10	$	59	$	69	$	68	$	—
Residential first lien	2	—		10		59		69		68		—
Total	2	$	—	$	10	$	59	$	69	$	68	$	—
	For the Six Months Ended June 30, 2021
---	---	---	---	---	---	---	---	---	---	---	---	---	---
		Type of Modification
	Number<br>of<br>Contracts	Extend<br>Maturity		Modify<br>Rate		Modify<br>Payments		Total<br>Pre-Modification<br>Outstanding<br>Recorded<br>Investment		Post-<br>Modification<br>Outstanding<br>Recorded<br>Investment		Specific<br>Reserve
	(dollars in thousands)
Commercial, financial, agricultural and other	3	$	6,373	$	—	$	6,596	$	12,969	$	10,167	$	1,091
Time and demand	3	6,373		—		6,596		12,969		10,167		1,091
Residential real estate	7	—		105		186		291		287		—
Residential first lien	6	—		105		172		277		274		—
Residential junior lien/home equity	1	—		—		14		14		13		—
Loans to individuals	4	—		93		—		93		85		—
Automobile and recreational vehicles	4	—		93		—		93		85		—
Total	14	$	6,373	$	198	$	6,782	$	13,353	$	10,539	$	1,091

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The troubled debt restructurings included in the above tables are also included in the nonperforming loan tables provided earlier in this note. Loans defined as modified due to a change in rate may include loans that were modified for a change in rate as well as a re-amortization of the principal and an extension of the maturity. For the six months ended June 30, 2022 and 2021, $10 thousand and $169 thousand, respectively, of total rate modifications represent loans with modifications to the rate as well as payment as a result of re-amortization. For both 2022 and 2021, the changes in loan balances between the pre-modification balance and the post-modification balance are due to customer payments.

For the three months ended June 30, 2022, there were no loans identified as troubled debt restructurings.

The following table provides detail, including specific reserves and reasons for modification, related to loans identified as troubled debt restructurings for the three months ended June 30, 2021.

	For the Three Months Ended June 30, 2021
		Type of Modification
	Number<br>of<br>Contracts	Extend<br>Maturity		Modify<br>Rate		Modify<br>Payments		Total<br>Pre-Modification<br>Outstanding<br>Recorded<br>Investment		Post-<br>Modification<br>Outstanding<br>Recorded<br>Investment		Specific<br>Reserve
	(dollars in thousands)
Commercial, financial, agricultural and other	1	$	—	$	—	$	6,596	$	6,596	$	3,916	$	—
Time and demand	1	—		—		6,596		6,596		3,916		—
Residential real estate	4	—		—		172		172		169		—
Residential first lien	4	—		—		172		172		169		—
Loans to individuals	2	—		29		—		29		29		—
Automobile and recreational vehicles	2	—		29		—		29		29		—
Total	7	$	—	$	29	$	6,768	$	6,797	$	4,114	$	—

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 June 30, 2021, $169 thousand of total rate modifications represent loans with modifications to the rate as well as payment as a result of re-amortization. For three months ended June 30, 2022, there were no similar modifications. For modifications made in 2021, the changes in loan balances between the pre-modification balance and the post-modification balance are due to customer payments.

A troubled debt restructuring is considered to be in default when a restructured loan is 90 days or more past due. The following table provides information related to loans that were restructured within the past twelve months and that were considered to be in default during the six months ended June 30:

	2022			2021
	Number of<br>Contracts	Recorded<br>Investment		Number of<br>Contracts	Recorded<br>Investment
	(dollars in thousands)
Loans to individuals	1	$	16	—	$	—
Automobile and recreational vehicles	1	16		—	—
Total	1	$	16	—	$	—

For the three months ended June 30, 2022 and 2021, there were no loans restructured within the past twelve months that were considered to be in default.

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 Six Months Ended June 30, 2022
	Beginning balance		Charge-offs		Recoveries		Provision (credit)a		Ending balance
	(dollars in thousands)
Commercial, financial, agricultural and other	$	18,093	$	(984)	$	159	$	4,721	$	21,989
Time and demand	15,283		(283)		78		4,843		19,921
Commercial credit cards	247		(77)		26		191		387
Equipment finance	—		—		—		272		272
Time and demand other	2,563		(624)		55		(585)		1,409
Real estate construction	4,220		—		—		1,309		5,529
Construction other	3,278		—		—		322		3,600
Construction residential	942		—		—		987		1,929
Residential real estate	12,625		(144)		60		5,206		17,747
Residential first lien	7,459		(45)		45		4,401		11,860
Residential junior lien/home equity	5,166		(99)		15		805		5,887
Commercial real estate	33,376		(552)		19		(1,456)		31,387
Multifamily	3,561		(411)		—		405		3,555
Nonowner occupied	24,838		(141)		10		(3,754)		20,953
Owner occupied	4,977		—		9		1,893		6,879
Loans to individuals	24,208		(2,049)		829		(6,037)		16,951
Automobile and recreational vehicles	21,392		(977)		543		(6,395)		14,563
Consumer credit cards	496		(233)		38		11		312
Consumer other	2,320		(839)		248		347		2,076
Total loans and leases	$	92,522	$	(3,729)	$	1,067	$	3,743	$	93,603

a) The provision expense(credit) shown here 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 Six Months Ended June 30, 2022
							Loans
	Ending balance		Ending balance: individually evaluated for credit losses		Ending balance: collectively evaluated for credit losses		Ending balance		Ending balance: individually evaluated for credit losses		Ending balance: collectively evaluated for credit losses
	(dollars in thousands)
Commercial, financial, agricultural and other	$	21,989	$	—	$	21,989	$	1,170,583	$	2,582	$	1,168,001
Time and demand	19,921		—		19,921		1,031,930		2,582		1,029,348
Commercial credit cards	387		—		387		16,329		—		16,329
Equipment finance	272		—		272		21,062		—		21,062
Time and demand other	1,409		—		1,409		101,262		—		101,262
Real estate construction	5,529		—		5,529		392,992		—		392,992
Construction other	3,600		—		3,600		292,400		—		292,400
Construction residential	1,929		—		1,929		100,592		—		100,592
Residential real estate	17,747		—		17,747		2,100,201		253		2,099,948
Residential first lien	11,860		—		11,860		1,459,861		—		1,459,861
Residential junior lien/home equity	5,887		—		5,887		640,340		253		640,087
Commercial real estate	31,387		360		31,027		2,319,094		21,960		2,297,134
Multifamily	3,555		—		3,555		360,335		—		360,335
Nonowner occupied	20,953		360		20,593		1,510,804		21,044		1,489,760
Owner occupied	6,879		—		6,879		447,955		916		447,039
Loans to individuals	16,951		—		16,951		1,136,884		—		1,136,884
Automobile and recreational vehicles	14,563		—		14,563		1,047,104		—		1,047,104
Consumer credit cards	312		—		312		8,717		—		8,717
Consumer other	2,076		—		2,076		81,063		—		81,063
Total loans and leases	$	93,603	$	360	$	93,243	$	7,119,754	$	24,795	$	7,094,959

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	For the Six Months Ended June 30, 2021
	Beginning balance		Charge-offs		Recoveries		Provision (credit)a		Ending balance
	(dollars in thousands)
Commercial, financial, agricultural and other	$	17,187	$	(4,456)	$	193	$	8,542	$	21,466
Time and demand	16,838		(4,338)		188		8,410		21,098
Commercial credit cards	349		(118)		5		132		368
Real estate construction	7,966		—		135		(3,816)		4,285
Residential real estate	14,358		(119)		211		(1,517)		12,933
Residential first lien	7,919		(36)		182		(671)		7,394
Residential junior lien/home equity	6,439		(83)		29		(846)		5,539
Commercial real estate	41,953		(1,557)		40		(4,641)		35,795
Multifamily	6,240		(1)		—		(1,860)		4,379
Nonowner occupied	28,414		(1,556)		40		13		26,911
Owner occupied	7,299		—		—		(2,794)		4,505
Loans to individuals	19,845		(2,472)		828		4,358		22,559
Automobile and recreational vehicles	16,133		(1,068)		575		3,658		19,298
Consumer credit cards	635		(247)		42		98		528
Consumer other	3,077		(1,157)		211		602		2,733
Total loans and leases	$	101,309	$	(8,604)	$	1,407	$	2,926	$	97,038

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

	For the Six Months Ended June 30, 2021
							Loans
	Ending balance		Ending balance: individually evaluated for credit losses		Ending balance: collectively evaluated for credit losses		Ending balance		Ending balance: individually evaluated for credit losses		Ending balance: collectively evaluated for credit losses
	(dollars in thousands)
Commercial, financial, agricultural and other	$	21,466	$	2,358	$	19,108	$	1,374,177	$	13,688	$	1,360,489
Time and demand	21,098		2,358		18,740		1,360,065		13,688		1,346,377
Commercial credit cards	368		—		368		14,112		—		14,112
Real estate construction	4,285		—		4,285		414,816		—		414,816
Residential real estate	12,933		—		12,933		1,828,783		541		1,828,242
Residential first lien	7,394		—		7,394		1,218,300		—		1,218,300
Residential junior lien/home equity	5,539		—		5,539		610,483		541		609,942
Commercial real estate	35,795		588		35,207		2,205,758		27,099		2,178,659
Multifamily	4,379		113		4,266		385,905		445		385,460
Nonowner occupied	26,911		475		26,436		1,429,192		24,624		1,404,568
Owner occupied	4,505		—		4,505		390,661		2,030		388,631
Loans to individuals	22,559		—		22,559		917,001		—		917,001
Automobile and recreational vehicles	19,298		—		19,298		829,150		—		829,150
Consumer credit cards	528		—		528		10,834		—		10,834
Consumer other	2,733		—		2,733		77,017		—		77,017
Total loans and leases	$	97,038	$	2,946	$	94,092	$	6,740,535	$	41,328	$	6,699,207

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 June 30, 2022
	Beginning balance			Charge-offs		Recoveries		Provision (credit)a		Ending balance
	(dollars in thousands)
Commercial, financial, agricultural and other	$	20,721		$	(509)	$	79	$	1,698	$	21,989
Time and demand	18,907			(139)		25		1,128		19,921
Commercial credit cards	342			(58)		25		78		387
Equipment finance	31			—		—		241		272
Time and demand other	1,441			(312)		29		251		1,409
Real estate construction	4,930			—		—		599		5,529
Construction other	3,175			—		—		425		3,600
Construction residential	1,755			—		—		174		1,929
Residential real estate	16,728		0	(5)		31		993		17,747
Residential first lien	11,125			(5)		22		718		11,860
Residential junior lien/home equity	5,603			—		9		275		5,887
Commercial real estate	33,704			(552)		5		(1,770)		31,387
Multifamily	3,610			(411)		—		356		3,555
Nonowner occupied	23,267			(141)		5		(2,178)		20,953
Owner occupied	6,827			—		—		52		6,879
Loans to individuals	15,105			(1,040)		463		2,423		16,951
Automobile and recreational vehicles	12,635			(425)		288		2,065		14,563
Consumer credit cards	382			(124)		14		40		312
Consumer other	2,088			(491)		161		318		2,076
Total loans and leases	$	91,188		$	(2,106)	$	578	$	3,943	$	93,603

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

	For the Three Months Ended June 30, 2021
	Beginning balance			Charge-offs		Recoveries		Provision (credit)a		Ending balance
	(dollars in thousands)
Commercial, financial, agricultural and other	$	21,801		$	(3,887)	$	103	$	3,449	$	21,466
Time and demand	21,427			(3,878)		99		3,450		21,098
Commercial credit cards	374			(9)		4		(1)		368
Real estate construction	4,021			—		135		129		4,285
Residential real estate	12,829		—	(14)		174		(56)		12,933
Residential first lien	7,227			(13)		159		21		7,394
Residential junior lien/home equity	5,602			(1)		15		(77)		5,539
Commercial real estate	37,668			(7)		1		(1,867)		35,795
Multifamily	4,251			—		—		128		4,379
Nonowner occupied	27,889			(7)		1		(972)		26,911
Owner occupied	5,528		—	—		—		(1,023)		4,505
Loans to individuals	20,444			(931)		499		2,547		22,559
Automobile and recreational vehicles	16,888			(388)		394		2,404		19,298
Consumer credit cards	689			(79)		25		(107)		528
Consumer other	2,867			(464)		80		250		2,733
Total loans and leases	$	96,763		$	(4,839)	$	912	$	4,202	$	97,038

a) The provision expense(credit) shown here 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)

Note 8 Leases

First Commonwealth has elected to apply certain practical expedients provided under ASU 2016-02 "Leases" (Topic 842) including (i) to not apply the requirements in the new standard to short-term leases (ii) to not reassess the lease classification for any expired or existing lease (iii) to account for lease and non-lease components separately (iv) to not reassess initial direct costs for any existing leases. The impact of this standard primarily relates to operating leases of certain real estate properties, including certain branch and ATM locations and office space. First Commonwealth has no material leasing arrangements for which it is the lessor of property or equipment.

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

							June 30, 2022			December 31, 2021
Balance sheet:
Operating lease asset classified as premises and equipment					$	41,606	$	40,550
Operating lease liability classified as other liabilities					45,978		44,801
	For the Three Months Ended						For the Six Months Ended
	June 30, 2022		June 30, 2021				June 30, 2022			June 30, 2021
Income statement:
Operating lease cost classified as occupancy and equipment expense	$	1,252	$	1,200			$	2,468		$	2,401
Weighted average lease term, in years							14.13			14.69
Weighted average discount rate							3.24		%	3.41		%
Operating cash flows							$	1,183		$	1,193

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 June 30, 2022 were as follows (dollars in thousands):

For the twelve months ended:
June 30, 2023	$	4,987
June 30, 2024	4,856
June 30, 2025	4,771
June 30, 2026	4,342
June 30, 2027	4,051
Thereafter	35,892
Total future minimum lease payments	58,899
Less remaining imputed interest	12,921
Operating lease liability	$	45,978

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9 Income Taxes

In accordance with FASB ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes,” at June 30, 2022 and December 31, 2021, First Commonwealth had no material unrecognized tax benefits or accrued interest and penalties. If applicable, First Commonwealth will record interest and penalties as a component of noninterest expense.

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

Note 10 Fair Values of Assets and Liabilities

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

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

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

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

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

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

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

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

Loans held for sale include residential mortgage loans originated for sale in the secondary mortgage market. The estimated fair value for these loans was determined on the basis of rates obtained in the respective secondary market. Loans held for sale could also include the Small Business Administration guaranteed portion of small business loans. The estimated fair value of

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 thirty years. These yield curves determine the valuations of interest rate swaps. Interest rate derivatives are further described in Note 11, “Derivatives.”

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

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

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

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

•Level 3 – Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer or broker traded transactions. If the inputs used to provide the valuation are unobservable and/or there is very little, if any, market activity for the security or similar securities, the securities would be considered Level 3 securities. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities. The assets included in Level 3 are non-marketable equity investments, certain interest rate derivatives 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. 2011-4, the following table provides information related to quantitative inputs and assumptions used in Level 3 fair value measurements.

	Fair Value (dollars<br>in thousands)			Valuation<br>Technique	Unobservable Inputs	Range /<br>(weighted average)
June 30, 2022
Other Investments	$	1,170		Carrying Value	N/A	N/A
Nonperforming Loans	498		(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	16,613			Par Value	N/A	N/A
December 31, 2021
Other Investments	$	1,170		Carrying Value	N/A	N/A
Nonperforming Loans	598		(a)	Gas Reserve Study	Discount rate	10.00%
					Gas per MMBTU	$2.00 - $2.00 (b)
					Oil per BBL/d	$50.00 - $50.00 (b)
Limited Partnership Investments	14,981			Par Value	N/A	N/A

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

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

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

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

	June 30, 2022
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Obligations of U.S. Government Agencies:
Mortgage-Backed Securities - Residential	$	—	$	4,694	$	—	$	4,694
Mortgage-Backed Securities - Commercial	—		308,870		—		308,870
Obligations of U.S. Government-Sponsored Enterprises:
Mortgage-Backed Securities - Residential	—		509,530		—		509,530
Other Government-Sponsored Enterprises	—		919		—		919
Obligations of States and Political Subdivisions	—		8,591		—		8,591
Corporate Securities	—		31,018		—		31,018
Total Securities Available for Sale	—		863,622		—		863,622
Other Investments	—		12,495		1,170		13,665
Loans Held for Sale	—		12,876		—		12,876
Other Assets(a)	—		25,984		16,613		42,597
Total Assets	$	—	$	914,977	$	17,783	$	932,760
Other Liabilities(a)	$	—	$	55,435	$	—	$	55,435
Total Liabilities	$	—	$	55,435	$	—	$	55,435

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

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

For the six months ended June 30, changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

	2022
	Other Investments		Other<br>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	—		1,783		1,783
Issuances	—		—		—
Sales	—		—		—
Settlements	—		(151)		(151)
Transfers from Level 3	—		—		—
Transfers into Level 3	—		—		—
Balance, end of period	$	1,170	$	16,613	$	17,783

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	2021
	Other Investments		Other<br>Assets		Total
	(dollars in thousands)
Balance, beginning of period	$	1,670	$	6,620	$	8,290
Total gains or losses
Included in earnings	—		—		—
Included in other comprehensive income	—		—		—
Purchases, issuances, sales and settlements
Purchases	—		919		919
Issuances	—		—		—
Sales	—		—		—
Settlements	—		(91)		(91)
Transfers from Level 3	—		—		—
Transfers into Level 3	—		—		—
Balance, end of period	$	1,670	$	7,448	$	9,118

During the six months ended June 30, 2022 and 2021, there were no transfers between fair value Levels 1, 2 or 3. There were no gains or losses included in earnings for the periods presented that are attributable to the change in realized gains (losses) relating to assets held at June 30, 2022 and 2021.

For the three months ended June 30, changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

	2022
	Other Investments		Other<br>Assets		Total
	(dollars in thousands)
Balance, beginning of period	$	1,170	$	15,999	$	17,169
Total gains or losses
Included in earnings	—		—		—
Included in other comprehensive income	—		—		—
Purchases, issuances, sales and settlements
Purchases	—		740		740
Issuances	—		—		—
Sales	—		—		—
Settlements	—		(126)		(126)
Transfers from Level 3	—		—		—
Transfers into Level 3	—		—		—
Balance, end of period	$	1,170	$	16,613	$	17,783

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	2021
	Other Investments		Other<br>Assets		Total
	(dollars in thousands)
Balance, beginning of period	$	1,670	$	7,010	$	8,680
Total gains or losses
Included in earnings	—		—		—
Included in other comprehensive income	—		—		—
Purchases, issuances, sales and settlements
Purchases	—		529		529
Issuances	—		—		—
Sales	—		—		—
Settlements	—		(91)		(91)
Transfers from Level 3	—		—		—
Transfers into Level 3	—		—		—
Balance, end of period	$	1,670	$	7,448	$	9,118

During the three months ended June 30, 2022 and 2021, there were no transfers between fair value Levels 1, 2 or 3. There were no gains or losses included in earnings for the periods presented that are attributable to the change in realized gains (losses) relating to assets held at June 30, 2022 and 2021.

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

	June 30, 2022
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Nonperforming loans	$	—	$	23,938	$	11,394	$	35,332
Other real estate owned	—		122		—		122
Total Assets	$	—	$	24,060	$	11,394	$	35,454
	December 31, 2021
---	---	---	---	---	---	---	---	---
	Level 1		Level 2		Level 3		Total
	(dollars in thousands)
Nonperforming loans	$	—	$	42,538	$	12,247	$	54,785
Other real estate owned	—		729		—		729
Total Assets	$	—	$	43,267	$	12,247	$	55,514

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Nonperforming loans	$	(367)	$	(2,527)	$	(567)	$	(2,314)
Other real estate owned	(13)		—		(13)		—
Total losses	$	(380)	$	(2,527)	$	(580)	$	(2,314)

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 appraisals, equipment valuations, accounts receivable listings and other financial information. A discounted cash flow analysis

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 $0.1 million as of June 30, 2022 and consists of two 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 12, “Goodwill.” There were no other assets or liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2022.

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 June 30, 2022 and December 31, 2021. See Note 5, “Commitments and Contingent Liabilities,” for additional information.

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

Short-term borrowings: The fair values of borrowings from the FHLB were estimated based on the estimated incremental borrowing rate for similar type borrowings. The carrying amounts of other short-term borrowings, such as federal funds purchased and securities sold under agreement to repurchase, were used to approximate fair value due to the short-term nature of the borrowings.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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:

	June 30, 2022
			Fair Value Measurements Using:
	Carrying<br>Amount		Total		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	120,267	$	120,267	$	120,267	$	—	$	—
Interest-bearing deposits	179,533		179,533		179,533		—		—
Securities available for sale	863,622		863,622		—		863,622		—
Securities held to maturity	492,229		437,880		—		437,880		—
Other investments	13,665		13,665		—		12,495		1,170
Loans held for sale	12,876		12,876		—		12,876		—
Loans	7,119,754		7,269,337		—		23,938		7,245,399
Financial liabilities
Deposits	8,053,545		8,044,453		—		8,044,453		—
Short-term borrowings	88,923		80,376		—		80,376		—
Subordinated debt	170,856		163,810		—		—		163,810
Long-term debt	5,221		5,317		—		5,317		—
Capital lease obligation	5,675		5,675		—		5,675		—
	December 31, 2021
---	---	---	---	---	---	---	---	---	---	---
			Fair Value Measurements Using:
	Carrying<br>Amount		Total		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	84,738	$	84,738	$	84,738	$	—	$	—
Interest-bearing deposits	310,634		310,634		310,634		—		—
Securities available for sale	1,041,380		1,041,380		—		1,041,380		—
Securities held to maturity	541,311		536,651		—		536,651		—
Other investments	12,838		12,838		—		11,668		1,170
Loans held for sale	18,583		18,583		—		18,583		—
Loans	6,839,230		7,169,768		—		42,538		7,127,230
Financial liabilities
Deposits	7,982,498		7,980,101		—		7,980,101		—
Short-term borrowings	138,315		136,473		—		136,473		—
Subordinated debt	170,775		175,040		—		—		175,040
Long-term debt	5,573		6,065		—		6,065		—
Capital lease obligation	5,921		5,921		—		5,921		—

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 11 Derivatives

Derivatives Not Designated as Hedging Instruments

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

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

We have 41 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 12 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 June 30, 2022, there was a negative impact of $0.2 million on net interest income and for the six months ended June 30, 2022, there was a positive impact of $0.4 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 June 30, 2022, 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 and six months ended June 30, 2022 was a decrease of $0.3 million and $1.5 million, respectively.

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 June 30, 2022, the underlying funded mortgage loan commitments had a carrying value of $4.7 million and a fair value of $3.9 million, while the underlying unfunded mortgage loan commitments had a notional amount of $35.3 million. At December 31, 2021, the underlying funded mortgage loan commitments had a carrying value of $11.0 million and a fair value of $11.9 million, while the underlying unfunded mortgage loan commitments had a notional amount of $29.7 million. The interest rate lock commitments increased other noninterest income by $0.6 million and decreased other noninterest income by $0.3 million for the three and six months ended June 30, 2022, respectively.

In addition, a small amount of interest income on loans is exposed to changes in foreign exchange rates. Several commercial borrowers have a portion of their operations outside of the United States and borrow funds on a short-term basis to fund those operations. In order to reduce the risk related to the translation of foreign denominated transactions into U.S. dollars, the Company enters into foreign exchange forward contracts. These contracts relate principally to the Euro and the Canadian dollar. The contracts are recorded at fair value with changes in fair value recorded in "Other operating expense" in the unaudited Consolidated Statements of Income. The increase in other noninterest expense for the three and six months ended June 30, 2022 totaled $3 thousand and $2 thousand, respectively.

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

	June 30, 2022		December 31, 2021
	(dollars in thousands)
Derivatives not Designated as Hedging Instruments
Credit value adjustment	$	(6)	$	(395)
Notional amount:
Interest rate derivatives	701,916		708,759
Interest rate caps	15,502		66,007
Interest rate collars	35,354		35,354
Risk participation agreements	270,402		241,111
Sold credit protection on risk participation agreements	(64,644)		(95,618)
Interest rate options	35,346		29,691
Derivatives Designated as Hedging Instruments
Interest rate swaps:
Fair value adjustment	(29,693)		(7,022)
Notional amount	570,000		570,000
Interest rate forwards:
Fair value adjustment	243		(29)
Notional amount	34,000		38,000
Foreign exchange forwards:
Fair value adjustment	5		12
Notional amount	1,389		1,982

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 June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Non-hedging interest rate derivatives
(Decrease) increase in other income	$	(256)	$	(27)	$	(1,104)	$	309
Hedging interest rate derivatives
(Decrease) increase in interest and fees on loans	(68)		305		687		305
Increase in interest from subordinated debentures	94		236		318		462
Hedging interest rate forwards
Increase (decrease) in other income	593		641		(272)		(401)
Hedging foreign exchange forwards
(Decrease) increase in other expense	(3)		3		(2)		5

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

“Other assets” and “Other liabilities.”

Note 12 Goodwill

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

We consider First Commonwealth to be one reporting unit. The carrying amount of goodwill as of both June 30, 2022 and December 31, 2021 was $303.3 million. No impairment charges on goodwill or other intangible assets were incurred in 2022 or 2021.

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

As of June 30, 2022, no indicators of impairment were identified; however, changing economic conditions that may adversely affect our performance, the fair value of our assets and liabilities, or our stock price could result in impairment, which could adversely affect earnings in future periods. Management will continue to monitor events that could impact this conclusion in the future.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13 Subordinated Debentures

Subordinated debentures outstanding are as follows:

			June 30, 2022		December 31, 2021
	Due	Rate	Amount			Amount
			(dollars in thousands)
Owed to:
First Commonwealth Bank	2028	4.875% until June 1, 2023, then 3-Month LIBOR + 1.845%	$	49,453		$	49,407
First Commonwealth Bank	2033	5.50% until June 1, 2028, then 3-Month LIBOR + 2.37%	49,236			49,201
First Commonwealth Capital Trust II	2034	3-Month LIBOR + 2.85%	30,929			30,929
First Commonwealth Capital Trust III	2034	3-Month LIBOR + 2.85%	41,238			41,238
Total			$	170,856		$	170,775

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

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

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

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

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

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

Note 14 Revenue Recognition

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

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 not control the services rendered to the customers, retail brokerage fees are presented net of related costs, including $2.0 million and $1.7 million in commission expense as of June 30, 2022 and 2021, respectively.

ITEM 1. Financial Statements and Supplementary Data

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Card-Related Interchange Income

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

Other Income

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

Gains(losses) on sales of OREO

First Commonwealth records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When First Commonwealth finances the sale of OREO to the buyer, an assessment of whether the buyer is committed to perform their obligations under the contract is completed along with an evaluation of whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer. In determining the gain or loss on the sale, First Commonwealth adjusts the transaction price and 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 June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
	(dollars in thousands)
Noninterest Income
In-scope of Topic 606:
Trust income	$	2,573	$	2,706	$	5,286	$	5,222
Service charges on deposit accounts	4,886		4,310		9,501		8,357
Insurance and retail brokerage commissions	2,486		1,978		4,758		4,150
Card-related interchange income	7,137		7,406		13,627		13,833
Gain on sale of other loans and assets	310		337		353		506
Other income	1,098		1,103		2,073		2,083
Noninterest Income (in-scope of Topic 606)	18,490		17,840		35,598		34,151
Noninterest Income (out-of-scope of Topic 606)	6,019		8,246		12,887		19,290
Total Noninterest Income	$	24,509	$	26,086	$	48,485	$	53,441

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 and six months ended June 30, 2022 and 2021, and should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto included in this Form 10-Q.

Forward-Looking Statements

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

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

•Volatility and disruption in national and international financial markets.

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

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

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

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

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

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

•The soundness of other financial institutions.

•Political instability.

•Impairment of our goodwill or other intangible assets.

•Acts of God or of war or terrorism.

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

•Changes in consumer spending, borrowings and savings habits.

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

•Technological changes.

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

•Acquisitions and integration of acquired businesses.

•Our ability to increase market share and control expenses.

•Our ability to attract and retain qualified employees.

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

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

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

•Changes in our liquidity position.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

•Changes in our organization, compensation and benefit plans.

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

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

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

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

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

Explanation of Use of Non-GAAP Financial Measure

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

We believe the presentation of net interest income on a fully taxable equivalent basis ensures comparability of net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice. Interest income per the unaudited Consolidated Statements of Income is reconciled to net interest income adjusted to a fully taxable equivalent basis on pages 57 and 65 for the six and three months ended June 30, 2022 and 2021.

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 June 30,						For the Six Months Ended June 30,
	2022			2021			2022			2021
	(dollars in thousands, except per share data)
Net Income	$	30,754		$	29,619		$	58,480		$	69,389
Per Share Data:
Basic Earnings per Share	$	0.33		$	0.31		$	0.62		$	0.72
Diluted Earnings per Share	0.33			0.31			0.62			0.72
Cash Dividends Declared per Common Share	0.120			0.115			0.235			0.225
Average Balance:
Total assets	$	9,600,469		$	9,451,683		$	9,562,733		$	9,291,956
Total equity	1,063,850			1,098,094			1,085,512			1,087,384
End of Period Balance:
Net loans and leases (1)							$	7,039,027		$	6,663,027
Total assets							9,526,427			9,402,402
Total deposits							8,053,545			7,885,019
Total equity							1,049,158			1,106,419
Key Ratios:
Return on average assets	1.28		%	1.26		%	1.23		%	1.51		%
Return on average equity	11.60		%	10.82		%	10.86		%	12.87		%
Dividends payout ratio	36.36		%	37.10		%	37.90		%	31.25		%
Average equity to average assets ratio	11.08		%	11.62		%	11.35		%	11.70		%
Net interest margin	3.38		%	3.17		%	3.29		%	3.29		%
Net loans to deposits ratio							87.40		%	84.50		%

(1) Includes loans held for sale.

Results of Operations

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Net Income

For the six months ended June 30, 2022, First Commonwealth had net income of $58.5 million, or $0.62 diluted earnings per share, compared to net income of $69.4 million, or $0.72 diluted earnings per share, in the six months ended June 30, 2021. The decrease in net income was primarily the result of a $6.1 million provision for credit losses recognized during the six months ended June 30, 2022 compared to a provision of $1.0 million recognized in the same period in 2021. Additionally, noninterest income decreased $5.0 million and noninterest expense increased $8.0 million during the six months ended June 30, 2022 compared to the same period in 2021.

For the six months ended June 30, 2022, the Company’s return on average equity was 10.86% and its return on average assets was 1.23%, compared to 12.87% and 1.51%, respectively, for the six months ended June 30, 2021.

Net Interest Income

Net interest income, on a fully taxable equivalent basis, was $142.3 million in the first six months of 2022, compared to $138.2 million for the same period in 2021. The increase in net interest income can be attributed to a 9 basis point decrease in the cost of interest-bearing liabilities and a $251.0 million increase in average interest-earning assets, partially offset by a 6 basis point decrease in the yield on interest-earning assets. Net interest income comprises the majority of our operating revenue (net

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

interest income before provision expense plus noninterest income), at 74.5% and 72.0% for the six months ended June 30, 2022 and 2021, respectively.

The net interest margin on a fully taxable equivalent basis was 3.29% for both the six months ended June 30, 2022 and June 30, 2021. The net interest margin is primarily attributable to the amount and composition of interest-earning assets and interest-bearing liabilities.

The taxable equivalent yield on interest-earning assets was 3.43% for the six months ended June 30, 2022, a decrease of 6 basis points compared to the 3.49% yield for the same period in 2021. Contributing to this decrease is a $423.8 million decline in average PPP loans, which yield higher rates than the remainder of the loan portfolio. As the PPP loans paid off, due to forgiveness by the US Government, the funds were used to fund growth in the loan and investment portfolios. Also impacting the yield on interest-earning assets for the six months ended June 30, 2022 was $1.2 million in interest and loan fees recognized when a nonaccrual loan was paid off during the second quarter. The interest and fees collected on this loan increased the net interest margin for the six months ended June 30, 2022 by 3 basis points.

The loan yield for the six months ended June 30, 2022, decreased 10 basis points compared to the same period in 2021. The decrease was primarily due to a decline in average PPP loans outstanding. These loans, which were originated under the CARES Act, had an average balance of $35.6 million with a stated loan rate of 1% and a yield of 13.38% for the six months ended June 30, 2022. During the six months ended June 30, 2021, PPP loans averaged $459.5 million with a yield of 5.89%. The yield on PPP loans includes the recognition of PPP loan deferred processing fees, net of deferred origination costs, of $2.0 million for the six months ended June 30, 2022. These amounts are recognized in interest income as a yield adjustment over the life of the loan with accelerated recognition when a loan is forgiven or paid off. As of June 30, 2022, we expect to recognize additional PPP-related deferred processing fees, net of origination costs, of approximately $0.4 million as an adjustment to yield over the remaining terms of the loans. The balance of PPP loans outstanding at June 30, 2022 totaled $12.9 million. During the six months ended June 30, 2022, PPP loans generated $2.4 million in income compared to $13.4 million during the same period in 2021. For the six months ended June 30, 2022, PPP loans increased the yield on total loans and the net interest margin by 5 basis points. PPP loans increased the yield on total loans by 14 basis points and the net interest margin by 15 basis points during the six months ended June 30, 2021.

The investment portfolio yield increased 1 basis point in comparison to the prior year as a result of $103.6 million in average growth at a time when new volume rates were higher than the portfolio yield. Growth in the investment portfolio is a result of continued deposit growth as well as a decline in interest-bearing deposits with banks, which decreased from $349.7 million in 2021 to $308.5 million in 2022. The change in the level and rate paid on interest-bearing deposits with banks increased the yield on earning assets by 10 basis points for the six months ended June 30, 2022.

Decreases in the cost of interest-bearing liabilities partially offset the negative impact of lower yields on interest-earning assets. The cost of interest-bearing liabilities decreased to 0.22% for the six months ended June 30, 2022, from 0.31% for the same period in 2021. Lower market interest rates and management's efforts to reduce deposit costs resulted in the cost of interest-bearing deposits decreasing 7 basis points and short-term borrowings decreasing 3 basis points in comparison to the same period last year.

For the six months ended June 30, 2022, changes in rates negatively impacted net interest income by $1.6 million when compared with the same period in 2021. The lower yield on interest-earning assets, which was largely driven by lower income on PPP loans, negatively impacted net interest income by $2.9 million, while the decrease in the cost of interest-bearing liabilities positively impacted net interest income by $1.2 million.

Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $5.7 million for the six months ended June 30, 2022, as compared to the same period in 2021. Higher levels of interest-earning assets resulted in an increase of $4.6 million in interest income, and changes in the volume and mix of interest-bearing liabilities decreased interest expense by $1.1 million, primarily due to decreases in the cost of long-term debt and time deposits. Average earning assets for the six months ended June 30, 2022 increased $251.0 million, or 3.0%, compared to the same period in 2021. Average loans for the comparable period increased $188.7 million, or 2.8%.

Net interest income also benefited from a $136.9 million increase in average net free funds at June 30, 2022 as compared to June 30, 2021. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The largest component of the increase in net free funds was an increase of $168.9 million, or 6.7%, in noninterest-bearing demand deposit average balances. Average time deposits for the six months ended June 30, 2022 decreased by $128.9 million compared to the comparable period in 2021, while the average rate paid on time deposits decreased 35 basis points compared to the same period in 2021.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following table reconciles interest income in the Consolidated Statements of Income to net interest income adjusted to a fully taxable equivalent basis for the six months ended June 30:

	2022		2021
	(dollars in thousands)
Interest income per Consolidated Statements of Income	$	147,972	$	146,112
Adjustment to fully taxable equivalent basis	498		598
Interest income adjusted to fully taxable equivalent basis (non-GAAP)	148,470		146,710
Interest expense	6,138		8,471
Net interest income adjusted to fully taxable equivalent basis (non-GAAP)	$	142,332	$	138,239

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 six months ended June 30:

	2022						2021
	Average<br>Balance		Income /<br>Expense (a)		Yield<br>or<br>Rate		Average<br>Balance		Income /<br>Expense (a)		Yield<br>or<br>Rate
	(dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits with banks	$	308,450	$	769	0.50	%	$	349,747	$	167	0.10	%
Tax-free investment securities	23,771		312		2.65		29,539		402		2.74
Taxable investment securities	1,439,200		13,048		1.83		1,329,843		11,947		1.81
Loans and leases, net of unearned income (b)(c)	6,965,296		134,341		3.89		6,776,560		134,194		3.99
Total interest-earning assets	8,736,717		148,470		3.43		8,485,689		146,710		3.49
Noninterest-earning assets:
Cash	117,350						92,243
Allowance for credit losses	(93,180)						(104,239)
Other assets	801,846						818,263
Total noninterest-earning assets	826,016						806,267
Total Assets	$	9,562,733					$	9,291,956
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (d)	$	1,591,886	$	213	0.03	%	$	1,503,501	$	220	0.03	%
Savings deposits (d)	3,432,397		906		0.05		3,228,379		1,750		0.11
Time deposits	364,388		491		0.27		493,259		1,515		0.62
Short-term borrowings	105,497		39		0.07		117,155		58		0.10
Long-term debt	181,988		4,489		4.97		219,731		4,928		4.52
Total interest-bearing liabilities	5,676,156		6,138		0.22		5,562,025		8,471		0.31
Noninterest-bearing liabilities and shareholders’ equity:
Noninterest-bearing demand deposits (d)	2,678,686						2,509,818
Other liabilities	122,379						132,729
Shareholders’ equity	1,085,512						1,087,384
Total Noninterest-Bearing Funding Sources	3,886,577						3,729,931
Total Liabilities and Shareholders’ Equity	$	9,562,733					$	9,291,956
Net Interest Income and Net Yield on Interest-Earning Assets			$	142,332	3.29	%			$	138,239	3.29	%

(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 six months ended June 30, 2022 and 2021.

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

(c)Loan income includes loan fees earned.

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

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 six months ended June 30, 2022 compared with June 30, 2021:

	Analysis of Year-to-Year Changes in Net Interest Income
	Total<br>Change		Change Due To<br>Volume		Change Due To<br>Rate (a)
	(dollars in thousands)
Interest-earning assets:
Interest-bearing deposits with banks	$	602	$	(20)	$	622
Tax-free investment securities	(90)		(78)		(12)
Taxable investment securities	1,101		982		119
Loans and leases	147		3,734		(3,587)
Total interest income (b)	1,760		4,618		(2,858)
Interest-bearing liabilities:
Interest-bearing demand deposits	(7)		13		(20)
Savings deposits	(844)		111		(955)
Time deposits	(1,024)		(396)		(628)
Short-term borrowings	(19)		(6)		(13)
Long-term debt	(439)		(846)		407
Total interest expense	(2,333)		(1,124)		(1,209)
Net interest income	$	4,093	$	5,742	$	(1,649)

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

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

Provision for Credit Losses

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

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 six months ended June 30:

	2022				2021
	Dollars		Percentage		Dollars		Percentage
	(dollars in thousands)
Commercial, financial, agricultural and other	$	4,721	127	%	$	8,542	292	%
Time and demand	4,843		130		8,410		287
Commercial credit cards	191		6		132		5
Equipment finance	272		7
Time and demand other	(585)		(16)
Real estate construction	1,309		35		(3,816)		(130)
Construction other	322		9
Construction residential	987		26
Residential real estate	5,206		139		(1,517)		(52)
Residential first lien	4,401		118		(671)		(23)
Residential junior lien/home equity	805		21		(846)		(29)
Commercial real estate	(1,456)		(39)		(4,641)		(159)
Multifamily	405		11		(1,860)		(64)
Nonowner occupied	(3,754)		(101)		13		—
Owner occupied	1,893		51		(2,794)		(95)
Loans to individuals	(6,037)		(162)		4,358		149
Automobile and recreational vehicles	(6,395)		(171)		3,658		125
Consumer credit cards	11		—		98		3
Consumer other	347		9		602		21
Provision for credit losses on loans and leases	$	3,743	100	%	$	2,926	100	%
Provision for off-balance sheet credit exposure	2,320				(1,903)
Total provision for credit losses	$	6,063			$	1,023

The provision for credit losses on loans and leases for the six months ended June 30, 2022 increased in comparison to the six months ended June 30, 2021 by $0.8 million.

For the six months ended June 30, 2022, the increase in provision expense for residential first lien as well as the negative provision for automobile and recreational vehicles were primarily the result of an annual review of peer loss history data used in the allowance for credit loss model. Provision expense was also impacted by loan growth in these categories as well as a decrease of $2.6 million in reserves on individually analyzed loans. Because PPP loans are fully guaranteed by the SBA, there is no allowance for credit losses recognized for these loans.

Total provision expense for the six months ended June 30, 2022 is a result of the loan portfolio changes noted above as well as growth in off-balance sheet commitments and the impact on the off balance sheet reserve related to construction commitments because of the annual review of peer loss history data

The provision expense for the six months ended June 30, 2021 was primarily the result of an improved economic forecast which reflected a decline in the projected impact of the COVID-19 pandemic on the economy and expected loan losses.

The allowance for credit losses was $93.6 million, or 1.31%, of total loans outstanding at June 30, 2022, compared to $92.5 million, or 1.35%, at December 31, 2021 and $97.0 million, or 1.44%, at June 30, 2021. Nonperforming loans as a percentage of total loans decreased to 0.50% at June 30, 2022 from 0.81% at December 31, 2021 and 0.78% as of June 30, 2021. The allowance to nonperforming loan ratio was 262.25%, 167.67% and 183.81% as of June 30, 2022, December 31, 2021 and June 30, 2021, respectively.

Management believes that the allowance for credit losses is at a level deemed appropriate to absorb expected losses inherent in the loan portfolio at June 30, 2022.

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 six months ended June 30, 2022 and 2021 and the year-ended December 31, 2021:

	June 30, 2022			June 30, 2021			December 31, 2021
	(dollars in thousands)
Balance, beginning of period	$	92,522		$	101,309		$	101,309
Loans charged off:
Commercial, financial, agricultural and other	984			4,456			7,020
Real estate construction	—			—			9
Residential real estate	144			119			309
Commercial real estate	552			1,557			1,659
Loans to individuals	2,049			2,472			4,061
Total loans charged off	3,729			8,604			13,058
Recoveries of loans previously charged off:
Commercial, financial, agricultural and other	159			193			2,430
Real estate construction	—			135			155
Residential real estate	60			211			468
Commercial real estate	19			40			135
Loans to individuals	829			828			1,460
Total recoveries	1,067			1,407			4,648
Net charge-offs	2,662			7,197			8,410
Provision for credit losses on loans charged to expense	3,743			2,926			(377)
Balance, end of period	$	93,603		$	97,038		$	92,522
Net charge-offs as a percentage of average loans and leases outstanding (annualized)	0.08		%	0.21		%	0.12		%
Allowance for credit losses as a percentage of end-of-period loans outstanding	1.31		%	1.44		%	1.35		%
Allowance for credit losses as a percentage of end-of-period loans outstanding, excluding PPP loans	1.32		%	1.49		%	1.37		%

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 six months ended June 30:

	2022		2021		Change	% Change
	(dollars in thousands)
Noninterest Income:
Trust income	$	5,286	$	5,222		1	%
Service charges on deposit accounts	9,501		8,357		1,144	14
Insurance and retail brokerage commissions	4,758		4,150		608	15
Income from bank owned life insurance	2,891		3,460		(569)	(16)
Card-related interchange income	13,627		13,833		(206)	(1)
Swap fee income	1,607		1,398		209	15
Other income	4,163		3,921		242	6
Subtotal	41,833		40,341		1,492	4
Net securities gains	2		16		(14)	(88)
Gain on sale of mortgage loans	2,843		8,130		(5,287)	(65)
Gain on sale of other loans and assets	3,418		3,801		(383)	(10)
Derivatives mark to market	389		1,153		(764)	(66)
Total noninterest income	$	48,485	$	53,441		(9)	%

All values are in US Dollars.

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 six months ended June 30, 2022 increased $1.5 million, or 4%, compared to the six months ended June 30, 2021. Service charges on deposit accounts increased $1.1 million as customer activity began to return to pre-COVID levels and swap fee income increased $0.2 million due to growth in interest rate swaps entered into for our commercial customers. Insurance and retail brokerage commissions income increased $0.6 million due to growth in annuity sales and trust income increased $0.1 million as a result of growth in assets under management. Income from bank owned life insurance decreased $0.6 million compared to the prior period due to recognition of a benefit during the six months ended June 30, 2021 with no similar benefit during the six months ended June 30, 2022.

Total noninterest income decreased $5.0 million, or 9%, compared to the same period in the prior year. The most significant changes, other than the changes noted above, include a $5.3 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 $0.8 million. This adjustment does not reflect a realized gain on the swaps, but rather relates to changes in fair value due to movements in corporate bond spreads and swap rates. The gain on sale of other loans and assets decreased $0.4 million due to a lower volume of loans, primarily SBA loans, being sold in the first six months of 2022 compared to the same period in 2021.

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 six months ended June 30:

	2022		2021		Change	% Change
	(dollars in thousands)
Noninterest Expense:
Salaries and employee benefits	$	61,881	$	57,018		9	%
Net occupancy	8,957		8,654		303	4
Furniture and equipment	7,587		7,814		(227)	(3)
Data processing	6,658		6,244		414	7
Advertising and promotion	2,660		2,679		(19)	(1)
Pennsylvania shares tax	1,918		2,090		(172)	(8)
Intangible amortization	1,724		1,729		(5)	—
Other professional fees and services	2,418		1,842		576	31
FDIC insurance	1,400		1,134		266	23
Other operating	14,835		12,786		2,049	16
Subtotal	110,038		101,990		8,048	8
Loss on sale or write-down of assets	161		52		109	210
COVID-19 related	79		306		(227)	(74)
Branch consolidation	(104)		18		(122)	(678)
Litigation and operational losses	1,229		1,035		194	19
Total noninterest expense	$	111,403	$	103,401		8	%

All values are in US Dollars.

Noninterest expense increased $8.0 million, or 8%, for the six months ended June 30, 2022 compared to the same period in 2021. Contributing to the increase in expense in 2022 is a $4.9 million increase in salaries and employee benefits primarily due to annual merit increases and an increase in the number of full time equivalent employees from 1,392 at June 30, 2021 to 1,409 at June 30, 2022. Contributing to the increase in other operating expenses were several expense categories, including credit reporting, travel and operational losses, none of which were individually significant.

Income Tax

The provision for income taxes decreased $2.9 million for the six months ended June 30, 2022, compared to the corresponding period in 2021, due to the decrease 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 six months ended June 30, 2022 and 2021.

We generate an annual effective tax rate that is less than the statutory rate of 21% due to benefits resulting from tax-exempt interest, income from bank-owned life insurance and tax benefits associated with low income housing tax credits, all of which are relatively consistent regardless of the level of pretax income. These provided for an annual effective tax rate of 19.7% and 19.9% for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, our deferred tax assets totaled $49.7 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.

Results of Operations

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Net Income

For the three months ended June 30, 2022, First Commonwealth recognized net income of $30.8 million, or $0.33 diluted earnings per share, compared to net income of $29.6 million, or $0.31 diluted earnings per share, in the three months ended

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

June 30, 2021. The increase in net income was primarily the result of a $1.3 million decrease in the provision for credit losses and a $5.5 million increase in net interest income, which was offset by a $4.1 million increase in noninterest expense and a $1.6 million decrease in noninterest income.

For the three months ended June 30, 2022, the Company’s return on average equity was 11.60% and its return on average assets was 1.28%, compared to 10.82% and 1.26%, respectively, for the three months ended June 30, 2021.

Net Interest Income

Net interest income, on a fully taxable equivalent basis, was $73.9 million in the second quarter of 2022, compared to $68.5 million for the same period in 2021. This increase was the result of $112.4 million of growth in average interest-earning assets combined with a $60.9 million decrease in interest-bearing liabilities. The impact of these changes resulted in a 21 basis point increase in the net interest margin. Net interest income comprises the majority of our operating revenue (i.e., net interest income before provision expense plus noninterest income), at 75.0% and 72.3% for the three months ended June 30, 2022 and 2021, respectively.

The net interest margin, on a fully taxable equivalent basis, was 3.38% and 3.17% for the three months ended June 30, 2022 and June 30, 2021, respectively. The increase in the net interest margin is attributable to both 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 3.52% for the three months ended June 30, 2022, an increase of 17 basis points compared to the 3.35% yield for the same period in 2021. This is largely due to an increase in the investment portfolio yield of 14 basis points and an 8 basis point increase in the loan portfolio yield when compared to the three months ended June 30, 2021. Also impacting the yield on loans was PPP loans originated under the CARES Act, which have a stated rate of 1% and a yield of 12.02% during the three months ended June 30, 2022. The yield on PPP loans includes the recognition of PPP loan deferred processing fees, net of deferred origination costs, of $0.5 million. These loans increased the average balance of loans by $20.3 million and generated $0.6 million in income for the second quarter of 2022, causing a 2 basis point increase in the yield on loans and in the net interest margin. During the second quarter of 2021, PPP loans increased the average balance of loans by $429.9 million, resulting in a 9 basis point increase in the yield on loans and a 10 basis point increase in the net interest margin. Also impacting the yield on interest-earning assets for the three months ended June 30, 2022 was $1.2 million in interest and loan fees recognized when a nonaccrual loan was paid off during the second quarter. The interest and fees collected on this loan increased the net interest margin for the three months ended June 30, 2022 by 6 basis points.

The cost of interest-bearing liabilities decreased to 0.22% for the three months ended June 30, 2022, from 0.27% for the same period in 2021, primarily due to a decrease in the cost of savings deposits and time deposits. Lower market interest rates resulted in the cost of savings deposits decreasing 4 basis points and time deposits decreasing 21 basis points in comparison to the same period last year.

For the three months ended June 30, 2022, changes in interest rates positively impacted net interest income by $3.0 million when compared with the same period in 2021. The higher yield on loans contributed to interest-earning assets positively impacting net interest income by $2.6 million, while a decrease in the cost of interest-bearing liabilities positively impacted net interest income by $0.4 million.

Changes in the volume of interest-earning assets and interest-bearing liabilities positively impacted net interest income by $2.4 million during the three months ended June 30, 2022, as compared to the same period in 2021. The mix of interest-earning assets resulted in an increase of $2.0 million in interest income while changes in the volume and mix of interest-bearing liabilities decreased interest expense by $0.4 million. Average interest-earning assets for the three months ended June 30, 2022 increased $112.4 million, or 1.3%, compared to the same period in 2021. Average loans for the comparable period increased $264.5 million, or 3.9%.

Net interest income also benefited from a $51.5 million increase in average net free funds at June 30, 2022 as compared to June 30, 2021. Average net free funds are the excess of noninterest-bearing demand deposits, other noninterest-bearing liabilities and shareholders’ equity over noninterest-earning assets. The largest component of the increase in net free funds was an increase of $106.8 million, or 4.1%, in noninterest-bearing demand deposit average balances. Average time deposits for the three months ended June 30, 2022 decreased by $104.2 million compared to the comparable period in 2021, decreasing interest expense by $0.1 million.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following table reconciles interest income in the Consolidated Statements of Income to net interest income adjusted to a fully taxable equivalent basis for the three months ended June 30:

	2022		2021
	(dollars in thousands)
Interest income per Consolidated Statements of Income	$	76,728	$	72,051
Adjustment to fully taxable equivalent basis	244		290
Interest income adjusted to fully taxable equivalent basis (non-GAAP)	76,972		72,341
Interest expense	3,066		3,852
Net interest income adjusted to fully taxable equivalent basis (non-GAAP)	$	73,906	$	68,489

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 June 30:

	2022						2021
	Average<br>Balance		Income /<br>Expense (a)		Yield<br>or<br>Rate		Average<br>Balance		Income /<br>Expense (a)		Yield<br>or<br>Rate
	(dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits with banks	$	332,269	$	658	0.79	%	$	358,595	$	90	0.10	%
Tax-free investment securities	23,120		152		2.64		29,385		195		2.66
Taxable investment securities	1,378,737		6,435		1.87		1,498,204		6,440		1.72
Loans and leases, net of unearned income (b)(c)	7,036,176		69,727		3.97		6,771,722		65,616		3.89
Total interest-earning assets	8,770,302		76,972		3.52		8,657,906		72,341		3.35
Noninterest-earning assets:
Cash	119,999						93,627
Allowance for credit losses	(92,720)						(102,303)
Other assets	802,888						802,453
Total noninterest-earning assets	830,167						793,777
Total Assets	$	9,600,469					$	9,451,683
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing demand deposits (d)	$	1,631,353	$	113	0.03	%	$	1,560,713	$	112	0.03	%
Savings deposits (d)	3,436,339		457		0.05		3,297,818		779		0.09
Time deposits	354,403		227		0.26		458,638		541		0.47
Short-term borrowings	95,561		18		0.08		114,966		27		0.09
Long-term debt	181,859		2,251		4.96		206,495		2,393		4.65
Total interest-bearing liabilities	5,699,515		3,066		0.22		5,638,630		3,852		0.27
Noninterest-bearing liabilities and shareholders’ equity:
Noninterest-bearing demand deposits (d)	2,711,458						2,604,695
Other liabilities	125,646						110,264
Shareholders’ equity	1,063,850						1,098,094
Total noninterest-bearing funding sources	3,900,954						3,813,053
Total Liabilities and Shareholders’ Equity	$	9,600,469					$	9,451,683
Net Interest Income and Net Yield on Interest-Earning Assets			$	73,906	3.38	%			$	68,489	3.17	%

(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 June 30, 2022 and 2021.

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

(c)Loan income includes loan fees earned.

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

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 June 30, 2022 compared with June 30, 2021:

	Analysis of Year-to-Year Changes in Net Interest Income
	Total<br>Change		Change Due To<br>Volume		Change Due To<br>Rate (a)
	(dollars in thousands)
Interest-earning assets:
Interest-bearing deposits with banks	$	568	$	(7)	$	575
Tax-free investment securities	(43)		(42)		(1)
Taxable investment securities	(5)		(512)		507
Loans and leases	4,111		2,565		1,546
Total interest income (b)	4,631		2,004		2,627
Interest-bearing liabilities:
Interest-bearing demand deposits	1		5		(4)
Savings deposits	(322)		31		(353)
Time deposits	(314)		(122)		(192)
Short-term borrowings	(9)		(4)		(5)
Long-term debt	(142)		(286)		144
Total interest expense	(786)		(376)		(410)
Net interest income	$	5,417	$	2,380	$	3,037

(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 probable losses inherent in the loan portfolio, after giving consideration to charge-offs and recoveries for the period. The provision for credit losses is an amount added to the allowance, against which credit losses are charged.

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 June 30:

	2022				2021
	Dollars		Percentage		Dollars		Percentage
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,698	43	%	$	3,449	82	%
Time and demand	1,128		29		3,450		82
Commercial credit cards	78		2		(1)		—
Equipment finance	241		6
Time and demand other	251		6
Real estate construction	599		15		129		3
Construction other	425		11
Construction residential	174		4
Residential real estate	993		25		(56)		(1)
Residential first lien	718		18		21		1
Residential junior lien/home equity	275		7		(77)		(2)
Commercial real estate	(1,770)		(45)		(1,867)		(45)
Multifamily	356		9		128		3
Nonowner occupied	(2,178)		(55)		(972)		(23)
Owner occupied	52		1		(1,023)		(25)
Loans to individuals	2,423		62		2,547		61
Automobile and recreational vehicles	2,065		53		2,404		57
Consumer credit cards	40		1		(107)		(2)
Consumer other	318		8		250		6
Provision for credit losses on loans and leases	$	3,943	100	%	$	4,202	100	%
Provision for off-balance sheet credit exposure	156				1,211
Total provision for credit losses	$	4,099			$	5,413

The provision for credit losses on loans and leases for the three months ended June 30, 2022 decreased in comparison to the three months ended June 30, 2021 by $0.3 million. The level of provision expense in the second quarter of 2022 is primarily the result of an increase in loan balances. The provision for off-balance sheet credit exposure decreased $1.1 million primarily due to the level of unfunded commitments. Net charge-offs for the three months ended June 30, 2022 were $1.5 million.

The level of provision expense in the second quarter of 2021 was primarily due to a $3.6 million charge-off related to one commercial borrower and $1.2 million related to reserves for off-balance sheet commitments. Net charge-offs for the three months ended June 30, 2021 were $3.9 million.

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 June 30, 2022 and 2021 and the year-ended December 31, 2021:

	June 30, 2022		June 30, 2021		December 31, 2021
	(dollars in thousands)
Balance, beginning of period	$	91,188	$	96,763	$	101,309
Loans charged off:
Commercial, financial, agricultural and other	509		3,887		7,020
Real estate construction	—		—		9
Residential real estate	5		14		309
Commercial real estate	552		7		1,659
Loans to individuals	1,040		931		4,061
Total loans charged off	2,106		4,839		13,058
Recoveries of loans previously charged off:
Commercial, financial, agricultural and other	79		103		2,430
Real estate construction	—		135		155
Residential real estate	31		174		468
Commercial real estate	5		1		135
Loans to individuals	463		499		1,460
Total recoveries	578		912		4,648
Net charge-offs	1,528		3,927		8,410
Provision for credit losses on loans charged to expense	3,943		4,202		(377)
Balance, end of period	$	93,603	$	97,038	$	92,522

Noninterest Income

The following table presents the components of noninterest income for the three months ended June 30:

	2022		2021		Change	% Change
	(dollars in thousands)
Noninterest Income:
Trust income	$	2,573	$	2,706		(5)	%
Service charges on deposit accounts	4,886		4,310		576	13
Insurance and retail brokerage commissions	2,486		1,978		508	26
Income from bank owned life insurance	1,383		1,509		(126)	(8)
Card-related interchange income	7,137		7,406		(269)	(4)
Swap fee income	1,154		1,252		(98)	(8)
Other income	2,188		1,997		191	10
Subtotal	21,807		21,158		649	3
Net securities gains	—		10		(10)	(100)
Gain on sale of mortgage loans	1,561		3,084		(1,523)	(49)
Gain on sale of other loans and assets	1,099		2,111		(1,012)	(48)
Derivatives mark to market	42		(277)		319	(115)
Total noninterest income	$	24,509	$	26,086		(6)	%

All values are in US Dollars.

Total noninterest income for the three months ended June 30, 2022 decreased $1.6 million, or 6%, in comparison to the three months ended June 30, 2021. The most significant changes include a $1.5 million decrease in gain on sale of mortgage loans due to changes in the volume and spreads on mortgage loans sold and a $1.0 million decrease in gain on sale of other loans and assets due to a decrease in the volume of SBA loans sold during the quarter. Additionally, service charges on deposits increased $0.6 million due to growth in customer accounts and transactions.

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 June 30:

	2022		2021		Change	% Change
	(dollars in thousands)
Noninterest Expense:
Salaries and employee benefits	$	30,949	$	28,347		9	%
Net occupancy	4,170		3,881		289	7
Furniture and equipment	3,857		3,866		(9)	—
Data processing	3,470		3,192		278	9
Advertising and promotion	1,434		1,355		79	6
Pennsylvania shares tax	913		1,258		(345)	(27)
Intangible amortization	862		863		(1)	—
Other professional fees and services	1,197		1,091		106	10
FDIC insurance	702		438		264	60
Other operating	7,550		6,442		1,108	17
Subtotal	55,104		50,733		4,371	9
Loss on sale or write-down of assets	86		43		43	100
COVID-19 related	62		232		(170)	(73)
Branch consolidation	(202)		(22)		(180)	818
Litigation and operational losses	629		556		73	13
Total noninterest expense	$	55,679	$	51,542		8	%

All values are in US Dollars.

Noninterest expense increased $4.1 million, or 8%, for the three months ended June 30, 2022 compared to the same period in 2021. The increase is a result of a $2.6 million increase in salary and employee benefit expense, primarily due to annual merit increases, higher incentive expense and number of employees. Also contributing to the increase is a $1.1 million increase in other operating expenses due to several expense categories, including credit reporting, travel and operational losses, none of which were individually significant.

Income Tax

The provision for income taxes decreased $0.1 million for the three months ended June 30, 2022, compared to the corresponding period in 2021.  The effective tax rate decreased 80 basis points from 20.7% for the three months ended June 30, 2021 to 19.9% for the three months ended June 30, 2022.

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 June 30, 2022 and 2021.

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 six months of 2022, the maturity and redemption of investment securities provided $136.9 million in liquidity. These funds contributed to the liquidity used to originate loans and purchase investment securities and fund depositor withdrawals.

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

We participate in the Certificate of Deposit Account Registry Services (“CDARS”) program as part of an Asset/Liability Committee (“ALCO”) strategy to increase and diversify funding sources. As of June 30, 2022, our maximum borrowing capacity under this program was $1.4 billion, and as of that date there was $5.8 million outstanding with an average weighted rate of 0.57% and an average original term of 341 days. These deposits are part of a reciprocal program that allows our depositors to receive expanded FDIC coverage by placing multiple certificates of deposit at other CDARS member banks.

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

An additional source of liquidity is 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. At June 30, 2022, the borrowing capacity under this program totaled $1.1 billion and there was no balance outstanding. As of June 30, 2022, our maximum borrowing capacity at the FHLB of Pittsburgh was $1.9 billion and as of that date amounts used against this capacity included $5.2 million in outstanding borrowings and no outstanding letters of credit.

We also have available unused federal funds lines with four correspondent banks. These lines have an aggregate commitment of $160.0 million with no outstanding balance as of June 30, 2022. In addition, we have available unused repo lines with two correspondent banks. These lines have an aggregate commitment of $400.0 million with no outstanding balance as of June 30, 2022.

First Commonwealth Financial Corporation has an unsecured $20.0 million line of credit with another financial institution. As of June 30, 2022, there are no amounts outstanding on this line.

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

	June 30, 2022		December 31, 2021
	(dollars in thousands)
Noninterest-bearing demand deposits(a)	$	2,726,242	$	2,658,782
Interest-bearing demand deposits(a)	273,360		291,476
Savings deposits(a)	4,708,868		4,647,197
Time deposits	345,075		385,043
Total	$	8,053,545	$	7,982,498

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

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

During the first six months of 2022, total deposits increased $71.0 million. Interest-bearing demand and savings deposits increased $43.6 million, noninterest-bearing demand deposits increased $67.5 million and time deposits decreased $40.0 million.

Market Risk

The following gap analysis compares the difference between the amount of interest-earning assets and interest-bearing liabilities subject to repricing over a period of time. The ratio of rate-sensitive assets to rate-sensitive liabilities repricing within a one-year period was 0.78 and 0.84 at June 30, 2022 and December 31, 2021, respectively. A ratio of less than one indicates a higher level of repricing liabilities over repricing assets over the next twelve months. The level of First Commonwealth's ratio is largely driven by the modeling of interest-bearing non-maturity deposits, which are included in the analysis as repricing within one year.

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

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

The following is the gap analysis as of June 30, 2022 and December 31, 2021:

	June 30, 2022
	0-90 Days			91-180<br>Days			181-365<br>Days			Cumulative<br>0-365 Days			Over 1 Year<br>Through 5<br>Years			Over 5<br>Years
	(dollars in thousands)
Loans and leases	$	2,967,901		$	365,052		$	553,815		$	3,886,768		$	2,276,987		$	884,162
Investments	46,587			39,740			76,585			162,912			493,687			784,626
Other interest-earning assets	179,533			—			—			179,533			—			—
Total interest-sensitive assets (ISA)	3,194,021			404,792			630,400			4,229,213			2,770,674			1,668,788
Certificates of deposit	93,037			64,773			90,963			248,773			95,113			1,179
Other deposits	4,982,228			—			—			4,982,228			—			—
Borrowings	161,292			202			50,403			211,897			3,226			51,188
Total interest-sensitive liabilities (ISL)	5,236,557			64,975			141,366			5,442,898			98,339			52,367
Gap	$	(2,042,536)		$	339,817		$	489,034		$	(1,213,685)		$	2,672,335		$	1,616,421
ISA/ISL	0.61			6.23			4.46			0.78			28.17			31.87
Gap/Total assets	21.44		%	3.57		%	5.13		%	12.74		%	28.05		%	16.97		%
	December 31, 2021
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
	0-90 Days			91-180<br>Days			181-365<br>Days			Cumulative<br>0-365 Days			Over 1 Year<br>Through 5<br>Years			Over 5<br>Years
	(dollars in thousands)
Loans	$	2,910,172		$	394,048		$	606,468		$	3,910,688		$	2,296,873		$	555,022
Investments	98,969			82,267			154,316			335,552			725,576			516,766
Other interest-earning assets	310,629			—			—			310,629			—			—
Total interest-sensitive assets (ISA)	3,319,770			476,315			760,784			4,556,869			3,022,449			1,071,788
Certificates of deposit	97,269			72,453			106,243			275,965			107,795			1,232
Other deposits	4,938,673			—			—			4,938,673			—			—
Borrowings	210,682			200			400			211,282			53,197			51,577
Total interest-sensitive liabilities (ISL)	5,246,624			72,653			106,643			5,425,920			160,992			52,809
Gap	$	(1,926,854)		$	403,662		$	654,141		$	(869,051)		$	2,861,457		$	1,018,979
ISA/ISL	0.63			6.56			7.13			0.84			18.77			20.30
Gap/Total assets	20.19		%	4.23		%	6.85		%	9.10		%	29.98		%	10.68		%

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

	Net interest income change (12 months) for basis point movements of:
	-200			-100			+100			+200
	(dollars in thousands)
June 30, 2022 ($)	$	(13,582)		$	(6,238)		$	5,712		$	11,131
June 30, 2022 (%)	(4.22)		%	(1.94)		%	1.77		%	3.46		%
December 31, 2021 ($)	$	(9,008)		$	(4,976)		$	5,956		$	10,224
December 31, 2021 (%)	(3.25)		%	(1.79)		%	2.15		%	3.69		%

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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

	Net interest income change (12 months) for basis point movements of:
	-200			-100			+100			+200
	(dollars in thousands)
June 30, 2022 ($)	$	(43,506)		$	(22,987)		$	17,599		$	34,084
June 30, 2022 (%)	(13.50)		%	(7.14)		%	5.46		%	10.58		%
December 31, 2021 ($)	$	(26,120)		$	(17,640)		$	13,867		$	29,192
December 31, 2021 (%)	(9.42)		%	(6.36)		%	5.00		%	10.53		%

The analysis and model used to quantify the sensitivity of our net interest income becomes less meaningful in a decreasing 200 basis point scenario given the current interest rate environment. Results of the 100 and 200 basis point interest rate decline scenario are affected by the fact that many of our interest-bearing liabilities are at rates below 1%, with an assumed floor of zero in the model. In the six months ended June 30, 2022 and 2021, the cost of our interest-bearing liabilities averaged 0.22% and 0.31%, respectively, and the yield on our average interest-earning assets, on a fully taxable equivalent basis, averaged 3.43% and 3.49%, respectively.

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

Credit Risk

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

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

First Commonwealth also maintains a reserve for unfunded loan commitments and letters of credit based upon credit risk and probability of funding. The reserve totaled $8.8 million at June 30, 2022 and is classified in "Other liabilities" on the unaudited Consolidated Statements of Financial Condition.

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

The balance of troubled debt restructured loans decreased $4.2 million from December 31, 2021. Changes during the first six months of 2022 can be attributed to the pay off and paydown of troubled debt loans, $2.9 million of which relates to the paydown of one commercial real estate relationship. Please refer to Note 7 “Loans and Allowance for Credit Losses,” for additional information on troubled debt restructurings.

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

Nonperforming loans are closely monitored on an ongoing basis as part of our loan review and work-out process. The probable risk of loss on these loans is evaluated by comparing the loan balance to the fair value of any underlying collateral or the

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

present value of projected future cash flows. Losses or a specifically assigned allowance for loan losses are recognized where appropriate.

Nonperforming loans, including loans held for sale, decreased $19.5 million to $35.7 million at June 30, 2022 compared to $55.2 million at December 31, 2021. During the six months ended June 30, 2022, a $14.5 million commercial real estate loan was removed from nonaccrual status and paid off in full. In addition, the aforementioned paydown on troubled debt restructured loans also decreased the balance of nonaccrual loans by $2.9 million. During the same period $1.6 million of loans were moved to nonaccrual.

The allowance for credit losses as a percentage of nonperforming loans was 262.25% as of June 30, 2022, compared to 167.67% at December 31, 2021, and 183.81% at June 30, 2021. The amount of individually assessed reserves included in the allowance for nonperforming loans was determined by using fair values obtained from current appraisals and updated discounted cash flow analyses. The allowance for credit losses includes specific reserves of $0.4 million and general reserves of $93.2 million as of June 30, 2022. Specific reserves decreased $35 thousand from December 31, 2021, and $2.6 million from June 30, 2021. The decrease from both periods is primarily due to the charge-off and payoffs of relationships with specific reserves assigned. Management believes that the allowance for credit losses is at a level deemed sufficient to absorb losses inherent in the loan portfolio at June 30, 2022.

Criticized loans totaled $146.8 million at June 30, 2022 and represented 2% of the loan portfolio. The level of criticized loans decreased as of June 30, 2022 when compared to December 31, 2021, by $51.3 million, or 26%. Classified loans totaled $49.8 million at June 30, 2022 compared to $77.6 million at December 31, 2021, a decrease of $27.8 million, or 36%. The decrease in criticized loans is the result of the aforementioned changes in nonperforming loans as well as credit upgrades on borrowers, primarily in the hospitality sector.

The allowance for credit losses was $93.6 million at June 30, 2022, or 1.31% of total loans outstanding, compared to 1.35% reported at December 31, 2021, and 1.44% at June 30, 2021. General reserves, or the portion of the allowance related to loans that were not specifically evaluated, as a percentage of performing loans were 1.31% at June 30, 2022 compared to 1.36% at December 31, 2021 and 1.41% at June 30, 2021. The decrease in the percentage of general reserve from December 31, 2021 and June 30, 2021 are reflective of lower unemployment rates utilized to forecast future loan losses at June 30, 2022 and lower qualitative reserves related to industries impacted by COVID-19.

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:

	June 30,								December 31, 2021
	2022				2021
	(dollars in thousands)
Nonperforming Loans:
Loans on nonaccrual basis	$	19,594			$	22,219				$	34,926
Troubled debt restructured loans on nonaccrual basis	9,694				23,981					13,134
Troubled debt restructured loans on accrual basis	6,404				6,593					7,120
Total nonperforming loans	$	35,692			$	52,793				$	55,180
Loans past due 30 to 90 days and still accruing	$	6,655			$	5,895				$	8,911
Loans past due in excess of 90 days and still accruing	$	3,155			$	903				$	1,606
Other real estate owned	$	93			$	394				$	642
Loans held for sale at end of period	$	12,876			$	19,530				$	18,583
Portfolio loans and leases outstanding at end of period	$	7,119,754			$	6,740,535				$	6,839,230
Average loans and leases outstanding	$	6,965,296		(a)	$	6,776,560		(a)		$	6,777,192		(b)
Nonperforming loans as a percentage of total loans and leases	0.50		%		0.78		%			0.81		%
Provision for credit losses on loans and leases	$	3,743		(a)	$	2,926		(a)		$	(377)		(b)
Allowance for credit losses	$	93,603			$	97,038				$	92,522
Net charge-offs	$	2,662		(a)	$	7,197		(a)		$	8,410		(b)
Net charge-offs as a percentage of average loans and leases outstanding (annualized)	0.08		%		0.21		%			0.12		%
Provision for credit losses as a percentage of net charge-offs	140.61		%	(a)	40.66		%	(a)		(4.48)		%	(b)
Allowance for credit losses as a percentage of end-of-period loans and leases outstanding (c)	1.31		%		1.44		%			1.35		%
Allowance for credit losses as a percentage of end-of-period loans and leases outstanding, excluding PPP loans (c)	1.32		%		1.49		%			1.37		%
Allowance for credit losses as a percentage of nonperforming loans (d)	262.25		%		183.81		%			167.67		%

(a)For the six-month period ended.

(b)For the twelve-month period ended.

(c)Does not include loans held for sale.

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

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

	June 30, 2022				December 31, 2021
	Amount		%		Amount		%
	(dollars in thousands)
Commercial, financial, agricultural and other	$	1,170,583	16	%	$	1,173,452	17	%
Real estate construction	392,992		6		494,456		7
Residential real estate	2,100,201		29		1,920,250		28
Commercial real estate	2,319,094		33		2,251,097		33
Loans to individuals	1,136,884		16		999,975		15
Total loans and leases, net of unearned income	$	7,119,754	100	%	$	6,839,230	100	%

During the six months ended June 30, 2022, loans increased $280.5 million, or 4.1%, compared to balances outstanding at December 31, 2021.

Real estate construction loans decreased $101.5 million, or 20.5%, primarily due to the completion of commercial real estate construction projects. Residential real estate grew $180.0 million, or 9.4%, primarily due to originations of closed-end 1-4 family mortgage loans. Commercial real estate loans increased $68.0 million, or 3.0%, primarily due to growth in loans secured

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

by nonresidential property due in part to the completion of several construction projects. Loans to individuals increased $136.9 million, or 13.7%, primarily due to growth in the indirect auto and recreational vehicle portfolio.

As indicated in the table below, commercial real estate, residential real estate and commercial, financial and agricultural and other loans represent a significant portion of the nonperforming loans as of June 30, 2022. See discussions related to the provision for credit losses and loans for more information.

	For the Six Months Ended June 30, 2022						As of June 30, 2022
	Net<br>Charge-<br>offs		% of<br>Total Net<br>Charge-offs		Net Charge-<br>offs as a % of<br>Average<br>Loans (annualized)		Nonperforming<br>Loans		% of Total<br>Nonperforming<br>Loans		Nonperforming<br>Loans as a % of<br>Total Loans
	(dollars in thousands)
Commercial, financial, agricultural and other	$	825	30.99	%	0.02	%	$	3,653	10.23	%	0.05	%
Real estate construction	—		—		—		—		—		—
Residential real estate	84		3.16		—		8,638		24.20		0.12
Commercial real estate	533		20.02		0.02		22,963		64.34		0.32
Loans to individuals	1,220		45.83		0.04		438		1.23		0.01
Total loans and leases, net of unearned income	$	2,662	100.00	%	0.08	%	$	35,692	100.00	%	0.50	%

Net charge-offs for the six months ended June 30, 2022 totaled $2.7 million, compared to $7.2 million for the six months ended June 30, 2021. The most significant charge-offs during the six months ended June 30, 2022 included $1.2 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 June 30, 2022, shareholders’ equity was $1.0 billion, a decrease of $60.2 million from December 31, 2021. The decrease was the result of a $88.3 million decline in the fair value of available for sale investments and interest rate swaps, which are reflected in the Other Comprehensive Income component of capital. Other items impacting capital include increases of $58.5 million in net income, $2.9 million in treasury stock sales, $22.2 million of dividends paid to shareholders and $11.1 million of common stock repurchases. Cash dividends declared per common share were $0.235 for the six months ended June 30, 2022 and $0.225 for the six months ended June 30, 2021.

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

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

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.

As of June 30, 2022, the Company had $12.9 million in PPP loans outstanding under the CARES Act. Because these loans are 100% guaranteed by the SBA, banking regulators confirmed that they have a zero percent risk weight under applicable risk-based capital rules. Additionally, a bank may exclude all PPP loans pledged as collateral to the Federal Reserve's PPP Facility from average total assets when calculating its leverage ratio, while PPP loans that are not pledged as collateral to the PPP Facility will be included. The PPP loans originated by the Company are included in our leverage ratio as of June 30, 2022, as we did not utilize the PPP Facility.

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 June 30, 2022 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 7 to 15 basis points.

As of June 30, 2022, First Commonwealth and First Commonwealth Bank met all capital adequacy requirements to which they are subject and were considered well-capitalized under the regulatory rules. 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<br>Amount		Ratio			Capital<br>Amount		Ratio		Capital<br>Amount		Ratio
	(dollars in thousands)
Total Capital to Risk Weighted Assets
First Commonwealth Financial Corporation	$	1,106,047	14.64	%		$	793,170	10.50	%	$	755,400	10.00	%
First Commonwealth Bank	1,053,724		13.98			791,576		10.50		753,882		10.00
Tier I Capital to Risk Weighted Assets
First Commonwealth Financial Corporation	$	918,321	12.16	%		$	642,090	8.50	%	$	604,320	8.00	%
First Commonwealth Bank	865,998		11.49			640,800		8.50		603,106		8.00
Tier I Capital to Average Assets
First Commonwealth Financial Corporation	$	918,321	9.79	%		$	375,313	4.00	%	$	469,141	5.00	%
First Commonwealth Bank	865,998		9.26			374,218		4.00		467,772		5.00
Common Equity Tier I to Risk Weighted Assets
First Commonwealth Financial Corporation	$	848,321	11.23	%		$	528,780	7.00	%	$	491,010	6.50	%
First Commonwealth Bank	865,998		11.49			527,717		7.00		490,023		6.50

On July 26, 2022, First Commonwealth Financial Corporation declared a quarterly dividend of $0.12 per share payable on August 19, 2022 to shareholders of record as of August 5, 2022. The timing and amount of future dividends are at the discretion of First Commonwealth's Board of Directors based upon, among other factors, capital levels, asset quality, liquidity and current and projected earnings.

In 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 June 30, 2022, 1,652,977 common shares had been repurchased under this program at an average price of $14.57 per share.

New Accounting Pronouncements

In March 2020, FASB released Accounting Standards Update (“ASU”) 2020-04 - Reference Rate Reform (Topic 848), which provides optional guidance to ease the accounting burden in accounting for, or recognizing the effects from, reference rate reform on financial reporting. The new standard is a result of the 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,

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

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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, 2022. The Company has established a cross-functional working group to manage the Company’s transition from LIBOR. Products that utilize LIBOR have been identified and have incorporated enhanced language to accommodate the transition to alternative reference rates and the use of LIBOR has been discontinued as an index for new loans. The Company continues to evaluate the impact of the LIBOR transition and adopting the new standard.

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

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

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

ITEM 4. Controls and Procedures

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

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PART II – OTHER INFORMATION

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 1.     LEGAL PROCEEDINGS

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

ITEM 1A.    RISK FACTORS

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

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

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

Month Ending:	Average Price<br>Paid per Share<br>(or Unit)		Total Number of<br>Shares Purchased<br>as Part of Publicly<br>Announced Plans<br>or Programs	Maximum Number<br>of Shares that<br>May Yet Be<br>Purchased Under<br>the Plans or<br>Programs*
April 30, 2022	$	—	—	1,481,104
May 31, 2022	13.62		145,903	1,283,185
June 30, 2022	13.47		569,404	768,125
Total	$	13.50	715,307
* Remaining number of shares approved under the Plan is based on the market value of the Company's common stock of 13.48 at April 30, 2022, 14.01 at May 31, 2022 and 13.42 at June 30, 2022.

All values are in US Dollars.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable

ITEM 5.    OTHER INFORMATION

None

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PART II – OTHER INFORMATION

FIRST COMMONWEALTH FINANCIAL CORPORATION AND SUBSIDIARIES

ITEM 6.     EXHIBITS

Exhibit<br>Number	Description	Incorporated by Reference to
31.1	Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.2	Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101	The following materials from First Commonwealth Financial Corporation’s Quarterly Report on Form 10-Q, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Consolidated Financial Statements. Note that XBRL tags are embedded within the document.	Filed herewith

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SIGNATURES

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

FIRST COMMONWEALTH FINANCIAL CORPORATION

(Registrant)

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

82

Document

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, T. Michael Price, certify that:

1.I have reviewed this quarterly report on Form 10-Q of First Commonwealth Financial Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATED: August 9, 2022	/s/ T. Michael Price
	T. Michael Price<br><br>President and Chief Executive Officer

Document

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James R. Reske, certify that:

1.I have reviewed this quarterly report on Form 10-Q of First Commonwealth Financial Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATED: August 9, 2022	/s/ James R. Reske
	James R. Reske
	Executive Vice President, Chief Financial Officer and Treasurer

Document

EXHIBIT 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, T. Michael Price, of First Commonwealth Financial Corporation (“First Commonwealth”), certify that the Quarterly Report of First Commonwealth on Form 10-Q for the period ended June 30, 2022, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of First Commonwealth at the end of such period and the results of operations of First Commonwealth for such period.

DATED: August 9, 2022	/s/ T. Michael Price
	T. Michael Price
	President and Chief Executive Officer

Document

EXHIBIT 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, James R. Reske, of First Commonwealth Financial Corporation (“First Commonwealth”), certify that the Quarterly Report of First Commonwealth on Form 10-Q for the period ended June 30, 2022, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of First Commonwealth at the end of such period and the results of operations of First Commonwealth for such period.

DATED: August 9, 2022	/s/ James R. Reske
	James R. Reske
	Executive Vice President, Chief Financial Officer and Treasurer